Today I would like to talk about the current situation of the crypto market and monetary policy.
(this is not financial advice)
The first thing we should understand is that we`ve never had a situation like this during the existence of bitcoin before.
We had 2 negative quarters and are therefore officially in a recession.
The invention of Bitcoin was a reaction to such a situation in 2008.
The dollar is still strong.
Yesterday (27.10.22) the quarterly figures and expectations of the 3rd quarter of 2022 were announced.
The quarterly figures indicate whether economic growth (GDP) has risen or fallen in %.
Yesterday's data was positive, which is good for the Fed as it gives them the opportunity to raise interest rates further and strengthen the dollar, which is necessary to fight inflation.
For those of you, who don`t understand what that means:
High interest rates make it harder to borrow money. Market credit utilisation and expenditure will be reduced and that makes the dollar stronger.
Unfortunately, a strenghening dollar is bad for crypto, because risk assets (crypto included) correlate negatively with the dollar.
USD becomes stronger = risk assets fall
USD becomes weaker = risk assets rise
So what we wanted to see as investors was a negative quarter. Then the Fed could have cut interest rates again and the current strong dollar would have fallen.
As things stand, the Fed has the opportunity to raise interest rates.
This means that the dollar could become even stronger and we could see a new low in bitcoin.
This in turn would be a great opportunity to buy cheap. Despite the current bad situation, we keep the 20k, which is very positive.
10.11.2022 -> consumer figures and inflation data will be published, which will also have an impact on the market.
Demand has already been destroyed a little bit.
-> prices are going down
Oil prices are currently falling.
That should be the case. Because we want inflation to be defeated. Then the Fed can turn around again and cut interest rates.
This, in turn, leads to a weaker dollar.
And risk assets can rise again.
Inflation has reached a 40-year ATH (all time high) and need to be destroyed, before we see the next Fed Pivot.
02.11.2022 -> US Federal Reserve will make the next key interest rate decision.
The Fed actually has only 3 options:
- 1: They reverse QT (quantitative tightening) and interest rate hikes and risk their greatest fear of being Arthur Burns and not their hero Volker.
Unlikely to happen until growth utterly implodes (market is already pricing in a recession).
- 2: They stop QT and hikes very soon and go to data dependent.
Most likely to happen, because this is the easiest option.
Growth is still imploding as damage has been done.
- 3: They continue with the tightening that will force politicians to stimulate fiscally as unemployment rises or if real wages remain negative.
At the moment we see a very strong capitulation of the bitcoin miners.
Many miners are forced to sell their mining reserve.
This is because of the ever-increasing mining difficulty.
There is a great suspicion of market manipulation here, because you do not know who is driving up the hashrate, which entails the mining difficulty.
-> You can read more about this in my post on Bitcoin mining.
(Link at the end of this article)
In such a market phase and with the high energy prices worldwide, it is hard to imagine that this can be worthwhile.
There is a suspicion that some large institution has an interest in forcing the other miners to surrender.
This could lead to another crash like in 2008, which may also be in their interest.
If we look at the market capitalization of the USDT and USDC stablecoins, we can see that it is slowly decreasing.
This means that capital is moving from the stablecoins into the markets which, in other words, means that people are buying.
One reason why bitcoin has not yet seen large price increases may also be that a lot of capital has flowed into Ethereum due to the trade before the merge.
So to sum it all up:
Nobody really knows what's going to happen next and nobody is 100% sure, what the Fed will do.
A further escalation with a war could also cause another crash.
What we do know is that we are deep under water and the big players are currently accumulating.
What I do now is wait for the data from 02.11.2022 -> "Fed interest rate decision" and for the data from 10.11.2022 -> "consumer figures and inflation".
Meanwhile, I buy regularly (dollar cost average).
Because another crash is not guaranteed.
DON`T BE LIKE GRU
Don't believe everything they tell you on TikTok or Instagram.
These videos are for clickbait only. Don't be fooled.
ALWAYS DYOR (do your own research)
I now post crypto and economy kontent daily.
In addition, I will keep you up to date on news regarding hacks or the acceptance of Bitcoin.
Stay safe and take care!
Feel free to read my other posts:
-> @benjammann
Bitcoin - misthoughts
@benjammann/bitcoin-misthoughts
Bitcoin – is the bear market over?
@benjammann/is-the-bear-market-over