Crypto Market Rally Continues as Crude Oil Prices Plunge, but Key Risks Remain

Key Insights

• The crypto market rally continued on Tuesday as investors embraced a risk-on sentiment.
• Crude oil prices continued falling after the US-Iran memorandum of understanding.
• The rising cryptocurrency prices face some major risks.

The crypto market rally continued on Tuesday as Bitcoin climbed to $66,480 and the total cryptocurrency market capitalization rose to $2.28 trillion. Jito (JTO), Stellar (XLM), Aerodrome Finance (AERO), and Injective (INJ) ranked among the strongest performers as traders responded to improving macroeconomic conditions and lower geopolitical risk.

Crypto Market Rally Gains Momentum After US-Iran Agreement

The main reason behind the ongoing crypto rally is the US-Iran memorandum of understanding that the two countries reached during the weekend. This MoU, which has been signed virtually, sets the conditions necessary for Iran to reopen the Strait of Hormuz and the US to end its blockade.

As a result, the main risk facing the market has largely been removed, which explains why crude oil prices are falling. Brent, the global benchmark, dropped to $81, its lowest level since March 3rd. It has now slumped by over 30% from the year-to-date high.

The West Texas Intermediate (WTI) moved below the crucial support of $80, a sign that bears have prevailed. Gold, Bitcoin, and the stock market have all continued to rise this week, with US indices like the Dow Jones Industrial Average and the S&P 500 trading at all-time highs.

The new deal is bullish for Bitcoin and other coins for several reasons. For one, it means that inflation growth in the US and other markets will be limited. Data released recently in key countries showed that consumer inflation has continued rising.

For example, in the United States, the Consumer Price Index (CPI) jumped to 4.2% in May, while the Producer Price Index (PPI) spiked to a multi-year high of 6.5%.

Therefore, there is a likelihood that the Federal Reserve will not be under pressure to hike interest rates this year. Indeed, a Polymarket poll shows that the odds of a Fed hike this year have dropped to 36% from 62% last week.

Cryptocurrency Rally Has Some Key Risks

Still, the ongoing crypto market rally faces some major fundamental and technical risks. First, there is a risk that the ceasefire between the US and Iran will not last the full 60 days. That’s because Israel vehemently opposes it, and its leaders have said that they will continue the attack on Lebanon.

Iran, on the other hand, has said that its deal with the US also includes Lebanon. Just last week, Iran launched missiles against Israel after the country’s military attacked Beirut. As such, there is a risk that Israel will keep attacking, attracting Iran’s response, which will push the US to intervene.

The other risk is that the energy market may take time to stabilize. In a statement today, Mitsui OSK Lines, a top tanker operator, warned that the deal will need to be substantial for the Strait to fully reopen. As a result, these concerns may lead to higher oil prices in the near term.

The crypto market also faces the risk of the soaring US stock market. This surge will likely drive more investors to the equity market, which explains why Bitcoin ETFs shed assets on Monday.

Bitcoin Price Suggests Bears Still in Control

Technicals suggest that bears are still in control of the biggest coin in the industry. For example, the Average Directional Index (ADX) has started to retreat, a sign that the ongoing recovery is losing momentum. It has dropped to 40 from this week’s high of $46.

Despite the rebound, the coin still remains below the 50-day and 100-day Exponential Moving Averages (EMA). That is a sign that bulls have not been strong enough for now. As such, there is a possibility that the rebound will falter, which will push the coin and the broader market lower.

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