Top 3 risks that may derail the crypto market rally

A crypto market rally is happening this week as investors have embraced a risk-on sentiment following the US-Iran memorandum of understanding (MoU) to end the war. 

Bitcoin surged to $66,000, while major altcoins, including Uniswap, Worldcoin, Aerodrome Finance, Celestia, and Jito, rallied by double digits. Despite the strong momentum, three potential risks could threaten the crypto market's advance in the coming months.

Crypto market rally at risk if US-Iran deal falters

A key risk facing the crypto rally is that the MoU between the US and Iran may falter either before or after the official signing ceremony on Friday. This is a possible scenario as the leaked details of the deal have received a bad reception from his Republican allies. 

According to Bloomberg, the proposed deal would end the conflict, reopen the Strait of Hormuz, ease restrictions on Iranian oil exports, and grant Iran access to frozen assets. 

It would begin with an initial $12 billion payment, while additional funds would be released in stages as negotiations advance. The agreement also calls for the establishment of a $300 billion reconstruction fund for Iran, contingent on Tehran meeting the conditions of a final accord. 

READ MORE: What’s next for Bitcoin as US and Iran are set to sign peace deal?

There is also a possibility that Israel will work to push the US back to war by escalating its attacks against Lebanon. Iran has warned that it will strike back at Israel if it hits Beirut. If this happens, Israel may escalate against Iran, drawing the US back to fighting.

Such a move will likely lead to higher oil prices and volatility in the market, disrupting the ongoing recovery.

Hawkish Federal Reserve

The other potential risk that may derail the crypto rally is a hawkish Federal Reserve. Indeed, a poll released on Tuesday showed that many economists expect the Fed to hike interest rates later this year to contain the elevated inflation.

The most recent numbers revealed that the headline consumer and producer inflation jumped to 4.2% and 6.5%, in May this year. It has remained above the 2% target for five years now. At the same time, the labor market is doing well, with the economy adding over 172k jobs during the month. 

A hawkish Federal Reserve would likely drive investors away from risky assets like Bitcoin and other cryptocurrencies. A good example of this is the crypto crash that happened in 2022 when the bank hiked rates to combat inflation.

Technicals suggest that Bitcoin is not out of the woods yet

BTC price chart | Source: TradingView

The other major risk that could hurt the crypto market rally is Bitcoin’s technicals. As the chart above shows, the coin’s recovery has stalled at $66,000. It also remains below all moving averages, a sign that bulls have not prevailed yet.

Also, it has formed an inverted cup-and-handle pattern, a common bearish continuation sign. The recent rebound was part of the handle. Therefore, there is a risk that Bitcoin will retreat and move to the key support of $60,000. Such a move will affect other cryptocurrencies.

Additionally, fundamentals are a bit shaky, with Bitcoin ETFs shedding over $2.4 billion in assets this month. This is happening as investors rotate from the less-sexy Bitcoin to the booming stock market, where companies like Sandisk, Western Digital, Micron, and SpaceX are thriving.