Just a few confusing news stories were enough to remind the markets how easily the current positive outlook could fall apart. On Wednesday, Iran’s state TV said that the U.S. and Iran had put together an early, unofficial plan for an agreement. But just hours later, the U.S. completely denied the report, calling the supposed temporary deal a complete fabrication. The Dollar, which had been losing value earlier in the European session, immediately reversed direction.
For the second straight day, the British Pound is moving lower against the U.S. Dollar, currently sitting at around 1.3429. The U.S. Dollar Index, that works as to measure how the Dollar is trading against other major currencies, jumped back to just under 99.20 after momentarily crossing below 99.00 on the day. On the crypto front, the overall picture is quite simple: if people flock to the Dollar as a safe haven in the face of growing global insecurity, riskier investments suffer and cryptocurrencies are no different.
What’s going on with Iran and how it affects oil prices and inflation
The ongoing talks between the U.S. and Iran are important for more than just the daily news headlines. As long as the Strait of Hormuz is a sticking point in these discussions, oil prices are expected to be high. High oil prices then directly push up inflation, which is already a big worry for the Federal Reserve.
Since the dispute in the Middle East got worse, U.S. inflation has moved even further from the Fed’s goal of 2 percent. Now, according to the trusted source called CME FedWatch, market participants are likely expecting the possibility of an interest rate hike by the end of year, which would have sound to be crazy just a few months ago. President Trump has a cabinet meeting on Wednesday to talk about the Iran negotiations, so we could see more news that shakes things up before the week is over.
For the largest cryptocurrency, Bitcoin and the whole crypto market, this situation is a big deal in the long run. The idea that interest rates would be cut, which helped crypto bounce back in the start of the three months of this year and rise from its April lows, is now being changed very quickly. If the Fed raises rates, or even just hints that it can’t cut them, it takes away one of the main big-picture reasons that crypto had been doing well.
The British Pound is getting hit from two directions
The Pound isn’t just weak because of the Dollar. If we consider the data from the start of this month, it shows lower inflation and a softer job market in the UK that made the people expect fewer interest rate hikes from the Bank of England. Before, markets thought there would be two or three rate increases by the end of the year and the expectations for the same have now dropped lower. With the Bank of England sounding less aggressive about raising rates and the Fed appearing more so, the major thing to note is how the Pound and Dollar are moving has a real reason behind it instead of what the market participants think about it.
When interest rates differ like this between currencies, it usually makes money flow towards investments tied to the Dollar. In the crypto world, this has historically meant that Bitcoin keeps its strong position, while smaller altcoins, which have less money flowing through them, see more money leave. Looking at the current state, Bitcoin makes up 60.33 percent of the total crypto market, Ethereum is at 9.89 percent, and all the other altcoins together are holding the market cap metric for $1.02 trillion.
Crypto market: elevated volume, falling cap
If we take a look at the crypto market, it points out toward different sceanrio. The total value of all crypto is $2.52 trillion, which is down 1.23 percent in the last 24 hours. But, the amount of trading done in that same 24 hours is has seen a rise nearing about 44 percent, to $92.02 billion. When prices fall but trading volume goes way up, it usually means people are actively selling off their holdings, not buying more.
The low Ethereum gas fees (0.30-0.38 gwei) is interesting and it is that this jump in trading volume isn’t coming from a lot of activity on the blockchain itself. This higher trading is almost certainly carried out on big CEXs.
Bitcoin still makes up with 60.33 percent of the market, even as the total market value drops. This suggests that altcoins are falling faster than Bitcoin. In situations where the market participants are now going aggressive and trying to avoid risk and the Dollar is strong, it’s pretty typical for money to flow into Bitcoin because it’s seen as the safest option within the crypto world.