Morgan Stanley Analysts: Ether’s Underperformance Shows Parallel to 2018 Crypto Downturn

Neuer Krypto-Winter?: Morgan Stanley-Analysten: Underperformance von Ether zeigt Parallele zu Kryptoabschwung von 2018

US Federal Reserve fights high inflation
Decisive turnaround in interest rates weighs on riskier assets such as cryptocurrencies
Morgan Stanley: Ether underperformance mirrors 2018 crypto downturn

the financial markets are currently suffering from inflation concerns and the associated tightening of the monetary policy. The US Federal Reserve has already signaled that, in its attempt to curb inflation, it will accept that economic expansion will slow down. In March of this year, for example, the Fed initiated an interest rate turnaround and increased 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 hike of 0.75 percentage points to a range of 1.5 to 1.75 percent. The resolute turnaround in interest rates is also having a negative impact on risky investments such as cryptocurrencies that do not generate any current income – fixed-income securities are becoming more interesting again for investors.

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Inflation concerns and interest rate hikes are weighing on the crypto market

So it is hardly surprising that the mood on the crypto market has deteriorated over the past 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). That means Bitcoin is down more than 71 percent since its all-time high last fall – while Ether is down around 78 percent. According to CoinMarketCap, the value of all around 19,800 digital currencies is currently around 860 billion US dollars, while around six months ago the market capitalization was still almost three trillion US dollars.

Morgan Stanley Analysts: Ether continues to underperform Bitcoin in 2018

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

Ether, as the largest altcoin, is also currently underperforming Bitcoin again, just like it did during the crypto markets downturn in 2018. “If the ETH/BTC relative cross falls, it is a sign that broader crypto enthusiasm is fading,” as money is being withdrawn from the more volatile alternative coins, according to CoinDesk in the note. Even if the price cycle of ether in US dollars is similar to 2018, the analysts noticed 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 tightening has continued, fueling Bitcoin’s plunge below the key $28,000 technical level. Investors who bought bitcoin over the last year are now at a loss and there are no obvious technical levels to watch until around $19,500, the 2017 high, according to the US bank’s experts.

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

It remains to be seen whether the cryptocurrencies can break out of their downward spiral or whether a new crypto winter is actually imminent.

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