Why Ethereum, Bitcoin, and Cardano Are Soaring Higher Today

What happened

Today’s moves in the stock and cryptocurrency markets are providing a nice bout of bullish sentiment for investors who have been down for most of 2022. As of 3pm ET Tuesday, Ethereum (ETH 9.16%), Bitcoin (BTC 3.82%)and Cardano (ADA 13.38%) had risen by 11.7%, 4.9% and 13.3% respectively during the last 24 hours. The moves come amid expectations that the Federal Reserve may tone down the pace of rate hikes faster than expected, as well as some stronger-than-expected earnings reports from major companies this week.

One of the main drivers of expectations that the Fed could slow rate hikes came out of new data released today with updated August numbers in the S&P CoreLogic Case-Shiller Home Price Index. While house prices accelerated 13% in August year over year, this increase was considerably down from 15.6% in July. Consequently, this was the steepest deceleration we have seen in the Case-Shiller index since its inception.

And data from the Case-Shiller 20-City index provided an even clearer picture of where prices are headed in major metropolitan areas. This calculation showed a 1.6% decline in the 20 largest US markets on a month-over-month basis.

Other positive earnings data from global companies such as Coca Cola and GM this week raised hopes that the economy could achieve a potential soft landing, opening the way for lower interest rates in the medium term.

So what

Today’s incredible moves higher in major cryptocurrencies signal the kind of high-correlation, higher-beta moves the crypto sector has made this year. In general, most of the same macro factors that are driving stocks mostly lower this year have had a similar outsized effect on digital assets. Consequently, as a higher risk proxy for stocks, digital currencies often see larger gains during up days in the stock market.

Should interest rates begin to decline later this year, some analysts believe we could see an accelerated rally into 2023. That said, it remains unclear whether the CPI and PPI will confirm with the lagging data we’re seeing out of the housing market.

What now

Long-term investors looking to call a bottom have been unsuccessful in doing so so far this year. Most of the returns have been met with lower lows, suggesting that true capitulation in high-risk assets has not been seen today. In some respects, today’s surge in major cryptos may be a signal that speculative capital has not completely washed out yet. Thus, perhaps today’s rally is a bearish short-term signal for the market.

But it is quite possible that the market is right in its assessment that interest rates cannot rise much further. The economy has undoubtedly slowed in some core areas, such as housing. And given the backlog of data that has been problematic for the Fed to be slow to respond to the first uptick in inflation, it’s possible that prices have fallen more than the data suggests.

My view is that it is probably too early to say that the selling pressure is over for crypto in general. However, these three high-quality tokens could be among the best when the market turns bullish again. Therefore, now may be an interesting time to consider easing into positions when the market is searching for a bottom.