Conflict resumption looms over cryptocurrency bounce

Cryptocurrencies edge higher after dire week

Cryptocurrencies should perhaps consider themselves fortunate that abysmal past week of trading has been at least partly drowned out by Friday’s rout in stocks and the resumption of hostilities in the Middle East. The sector suffered its worst weekly bout of selling in years, and while bitcoin itself held the key $60,000 level, others fell below the February lows, sending a worrying signal. The weekend recovery was hardly surprising given low liquidity, but the renewed conflict in the Middle East has hit risk appetite already. Lower highs and lows are now in place across the cryptocurrency space, leaving the bearish outlook firmly in place.

IG clients remain bullish longer-term

The recent weakness has not dented the overall bullish view among IG clients. Sentiment remains at 80% bullish for bitcoin and 84% for ether, with June seeing net buying so far. The broader risk-off environment since Friday has put short-term pressure on cryptocurrencies however, with trading in recent sessions leaning towards selling.

What we’re watching – US inflation, ECB hike

This week’s data is overshadowed by the potential for a full resumption of hostilities in the Middle East, pressuring equity markets and making it substantially harder for bitcoin and other cryptocurrencies to mount a sustained recovery. But with the European Central Bank highly likely to raise rates this week, we can expect the prospect of other central banks following suit to become a pressing issue for markets. Friday was perhaps just the taster.