The intersection of politics and the economy can often cause ripples across different industries. Cryptocurrency, due to its unique, decentralized nature, is not immune to these external influences. This article aims to untangle the series of events that led to a sudden rise and fall in the cryptocurrency market in the past week, exploring the connection to Turkey’s political landscape, the US debt ceiling deal, and macroeconomic factors such as inflation and interest rates.
The cryptocurrency market began last week with a rallying start, only to stumble and fall flat soon after. The reason for this sudden upsurge has been widely attributed to the preliminary debt ceiling deal struck by US politicians over the weekend. However, upon closer inspection, it’s apparent that the rally had a more direct correlation with the outcome of Turkey’s elections.
To provide context, cryptocurrency enjoys a strong foothold in Turkey. The root cause of this popularity is the rampant inflation the country has experienced over the last few years. This inflation stems from President Erdogan’s push on the central bank to lower interest rates in a bid to combat inflation – a move that goes against the economic norm of raising rates under inflationary pressure.
Interestingly, a noticeable surge in cryptocurrency prices occurred right after Erdogan secured victory in the runoff elections last Sunday. This trend was previously predicted by macro analyst Weston Nakamura, who discovered that the crypto bull run in 2020 was triggered by capital flight from the weakening Turkish lira into Bitcoin (BTC). However, this time, the capital flight was not substantial enough to ignite another bull market.
Just a few days post the elections, crypto prices plunged back to their pre-election levels. This market correction is thought to be influenced by concerns over the potential failure of the provisional debt ceiling deal in the US. Despite this setback, the cryptocurrency market seemed to regain some ground after US politicians in both the House and Senate passed the debt ceiling deal. However, this recovery did not spur another rally.
The absence of a subsequent rally can be attributed to the hawkish rhetoric emanating from the Federal Reserve, raising investor expectations of another interest rate hike this month. Curiously, a sudden sell-off in Ethereum (ETH) relative to BTC was observed after President Biden formally enacted the debt ceiling bill on Saturday. This sell-off, lasting about eight hours, appears to have signaled a short-term high in the ETH/BTC pair, hinting at further potential downside.
It is noteworthy that the last instance of a raised debt ceiling was in December 2021. In the subsequent six months, the US treasury replenished its bank account by draining liquidity out of the markets. Ethereum seemed to bear the brunt of this move, bottoming out only once the treasury finished its operation. While this was not the sole factor impacting Ethereum’s price during that period, it could indicate similar price pressures in the coming months.
Lastly, Bitcoin also seems to be at a critical juncture in its price action. Its price recently marked another head and shoulders, and the Bollinger Band indicator is constricting on the daily chart. This suggests that Bitcoin’s price could experience significant volatility in the upcoming week, most likely on the downside.
In conclusion, the intricate dance of politics and economic decisions can exert a profound influence on the world of cryptocurrency. The recent rollercoaster ride of crypto prices, driven by political developments in Turkey and the US, is a testament to this influence. However, with potential pressure on prices looming ahead, it’s crucial for crypto investors to stay informed and navigate these complex dynamics wisely.