New crypto winter ?: Morgan Stanley analysts: Ether’s underperformance shows in parallel with the 2018 crypto downturn | news

The US Federal Reserve is fighting high inflation
A crucial turnaround in interest rates weighs on more risky assets such as cryptocurrencies
Morgan Stanley: Ether underperformance reflects the 2018 crypto downturn

that financial markets currently suffering from inflation concerns and the associated tightening of monetary policy. The US Federal Reserve has already signaled that in its attempt to curb inflation, it will accept that economic expansion will slow. In March this year, for example, the Fed initiated a restructuring of interest rates and raised its key interest rate by 0.25 percentage points for the first time since the end of 2018 – a step of 0.5 percentage points followed in May, and only a few days ago a large interest rate increase of 0 , 75 percentage points to a range of 1.5 to 1.75 percent. The resolute reversal in interest rates also has a negative impact on risky investments such as cryptocurrencies that do not generate any current income – fixed income securities are again becoming more interesting for investors.

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Inflation concerns and interest rate rises weigh on the crypto market

So it is hardly surprising that the mood in the crypto market has deteriorated in the last few months. While Bitcoin and Ether were able to reach new highs of $ 68,763 and $ 4,865, respectively, in November last year, they are now trading at around $ 19,443 and around $ 1,046, respectively (as of June 19, 2022). This means that Bitcoin has fallen more than 71 percent since its record high last fall – while Ether has fallen about 78 percent. According to CoinMarketCap, the value of all about 19,800 digital currencies is currently about 860 billion US dollars, while the market value about six months ago was still almost three trillion US dollars.

Morgan Stanley analysts: Ether continues to underperform Bitcoin in 2018

Analysts at US bank Morgan Stanley also see rising Fed interest rates as a negative factor in cryptocurrency prices. As CoinDesk reports, Morgan Stanley wrote in a report that US dollar liquidity was drained from the markets and expectations of higher Federal Reserve interest rates hurt crypto prices.

Ether, as the largest altcoin, is also currently underperforming Bitcoin again, as it did during the downturn in the crypto markets in 2018. “If the relative ETH / BTC cross falls, it is a sign that broader crypto enthusiasm is fading,” as money is being deducted from the more volatile alternative coins, according to CoinDesk in the note. Although the price cycle of ether in US dollars is similar to 2018, analysts noted a difference: While the share of retailers was significantly higher in 2018, this time it is mainly institutional investors who are driving sales.

According to Morgan Stanley analysts, the crypto equivalent of quantitative easing has continued, fueling Bitcoin’s dive below the $ 28,000 core technical level. Investors who have bought bitcoin over the past year are now at a loss and there are no obvious technical levels to be seen before around $ 19,500, the highest in 2017, according to US bank experts.

For stablecoins, “issuance is falling rapidly,” according to CoinDesk in Morgan Stanley’s report, and this has helped leverage within the “decentralized cryptoecosystem” to halve since early May, and destabilized crypto-derivative prices have been made because they deviated from their underlying assets .

It is still unknown whether the cryptocurrencies could break out of their downward spiral, or whether a new cryptocurrency winter is actually imminent.

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