Grayscale: There are still risks in the rising crypto market. How to determine the future trend?

Bitcoin, which broke through $50,000, is on the decline again. There is a unified view in the market that "there are still risks in the rise of the crypto market". The price of Bitcoin has indeed not stabilized at $50,000 and is currently below $47,000. Grayscale Investments started with the overall market conditions in the near future, and analyzed the impact of the Federal Reserve, the stock market, the epidemic, and other aspects on the future trend of cryptocurrencies, as well as how the market will develop in the future.

Figure 1: Bitcoin price (USD), Source: Grayscale, Bloomberg

Compared to the low of $29,000 at the end of July, Bitcoin has now risen by about 70%. Although it is still far from its previous high of $64,846, many other crypto assets are also rising sharply, with much more room for growth than Bitcoin. So what is driving the recent upward trend?
In the crypto industry, there are several company announcements that we believe have influenced market movements:
First, on August 19, Coinbase said it had recently obtained approval from the board of directors to purchase more than $500 million in cryptocurrencies on its balance sheet to increase its current holdings. It also plans to invest 10% of its quarterly profits in a diversified portfolio of crypto assets, including Bitcoin, Ethereum, PoS assets, DeFi tokens, and other crypto assets supported by the Coinbase platform. As the crypto economy matures, this percentage is expected to grow over time.
Second, on August 23, MicroStrategy again purchased approximately 3,907 bitcoins, with a total cost of US$177 million, and the average purchase price of each bitcoin was approximately US$45,294.
The above two events are positive events and may have contributed to the growth of market demand.
On the macro front, the market is not calm either, and the recent Fed stance may also have played a major role in the recent crypto price action:

The Federal Reserve’s loose monetary policy has had a significant impact on cryptocurrencies and other risky assets;
Investors have been focusing on when the Fed might “taper,” or reduce the pace of its asset purchases, as inflation rises and labor conditions tighten;
But concerns about the delta variable could lead investors to repricing their expectations for the economy and when the Fed might think it's appropriate to tighten policy.
Let’s look at three notable events from the past few weeks that we believe had a significant impact on market expectations and crypto prices:
August 13: The University of Michigan's August 2021 consumer survey showed that consumer confidence saw the sixth largest drop in its 50-year history as concerns about delta variables intensified, data that the Fed may not ignore.
August 18: The Federal Open Market Committee (FOMC) released the minutes of its July 27-28 meeting, reporting that most participants believed it might be appropriate to begin reducing the pace of asset purchases this year if the economy develops in line with their expectations. The market was hit by the news, causing both the S&P 500 and Bitcoin to fall, but many investors may have overlooked the very negative consumer confidence data on August 13, which was released after the July 27-28 Fed meeting.
August 19: Fed Chairman Powell chose to deliver a virtual speech at Jackson Hole instead of attending in person. Powell seemed to convey a dovish tone to the market that the Fed is taking the economic risks of Delta variables seriously, which may have made most investors bear the risk of a taper announced at Jackson Hole and fueled the risk of a rebound.
The price impact of these events can be seen in both S&P 500 stock market futures and Bitcoin, which continue to track each other to a large extent.

Figure 2: Bitcoin price (USD) vs. E-Mini S&P 500 September futures (ESU1), Source: Grayscale, Bloomberg

The dollar index (DXY) began its slide on Friday and continued into Monday, providing a tailwind for the cryptocurrency, a hedge against inflation, as investors likely expressed expectations for a longer period of easing policy.

Figure 3: Bitcoin price and US dollar index, source: Grayscale, Bloomberg

Additionally, the number of COVID-19 cases in the U.S. appears to be peaking and continues to spread. What does this mean for cryptocurrency prices?
Looking back at the previous COVID-19 surge, new daily cases peaked on January 7, and three months later, Bitcoin reached its all-time high on April 14.

Figure 4: Bitcoin price and U.S. COVID-19 cases, source: Grayscale, Bloomberg, CDC

The Fed will be data dependent, and if cases do peak, they will certainly take that into account, but the typical consumer will not adjust their actions that quickly.
If the economic uncertainty of the Delta variable allows the Fed to gradually stabilize over a longer period of time, and the top of the Bitcoin price has a similar three-month lag with the peak of the new crown case since January this year, then this cryptocurrency rebound may take longer. (Ostrich Blockchain)