A contrarian take on the current market structure suggesting that the bitcoin bottom is near and the Federal Reserve will reverse its hawkish course.
Watch This Video On YouTube or Rumble
Listen To The Episode Here:
Apple
Spotify
Google
Libsyn
Overcast
In this episode of the “Fed Watch” podcast, Christian Keroles and I, along with the livestream crew, discuss macro developments relevant to bitcoin. Topics include the recent 50 bps rate hike from the Fed, a consumer price index (CPI) preview — the episode was recorded live on Tuesday, before the CPI data was released — and a discussion on why owners’ equivalent rent is often misunderstood. We wrap up with an epic discussion of the bitcoin price.
This could be a pivotal episode in the history of “Fed Watch,” because I’m on the record saying that bitcoin is “in the neighborhood” of the bottom. This is in stark contrast to the mainstream uber-bearishness in the market right now. In this episode, I rely heavily on charts that didn’t always line up during the video. Those charts are provided below with a basic explanation. You can see the whole slide deck that I used here.
“Fed Watch” is a podcast for people interested in central bank current events and how Bitcoin will integrate or replace aspects of the traditional financial system. To understand how bitcoin will become global money, we must first understand what’s happening now.
Federal Reserve And Economic Numbers For The U.S.
On this first chart, I point to the Fed’s last two rate hikes on the S&P 500 chart. I wrote in a blog post this week, “What I’m trying to show is that the rate hikes themselves are not the Federal Reserve’s primary tool. Talking about hiking rates is the primary tool, along with fostering the belief in the magic of the Fed.” Remove the arrows and try to guess where the announcements were.
Same goes for the next chart: gold.
Lastly, for this section, we looked at the bitcoin chart with quantitative easing (QE) and quantitative tightening (QT) plotted. As you can see, in the era with “No QE,” from 2015 to 2019, bitcoin experienced a 6,000% bull market. This is almost the exact opposite of what one would expect. To summarize this section, Fed policy has little to do with major swings in the market. Swings come from the unknowable complex ebbs and flows of the market. The Federal Reserve only tries to smooth the edges.
CPI Mayhem
It’s hard to write a good summary of this part of the podcast, because we were live one day prior to the data dropping. In the podcast, I cover Eurozone CPI going slightly higher, to 7.5% in April year-over-year (YoY), with a month-over-month rate of change dropping from a staggering 2.5% in March to 0.6% in April. That is the story most people are missing on CPI: month-to-month changes rapidly slowed in April. I also covered CPI forecasts for the U.S. on the podcast, but now, we have hard data for April. U.S. headline CPI dropped from 8.5% in March to 8.3% in April. Month-to-month change fell from 1.2% in March to 0.3% in April. Again, a big decline in the rate of CPI increase. CPI can be very confusing when looking at YoY figures.
It looks like inflation in April was measured at 8.3%, when in fact, it was measured at only 0.3%.
Next topic we cover in the podcast is rent. I very often hear misunderstandings of the CPI measure on shelter and specifically owners’ equivalent rent (OER). For starters, it’s very hard to measure the impact of increases to housing costs on consumers in general. Most people do not move very often. We have 15- or 30-year fixed-rate mortgages that are not affected at all by current home prices. Even rental leases are not renewed every month. Contracts typically last a year, sometimes more. Therefore, if a few people pay higher rents in a certain month, that does not affect the average person’s shelter expenses or the average landlord’s revenue.
Taking current market prices for rentals or homes is a dishonest way to estimate the average cost of housing, yet not doing so is the most often-quoted critique of the CPI. Caveat: I’m not saying CPI measures inflation (money printing); it measures an index of prices to maintain your standard of living. Of course, there are many layers of subjectivity in this statistic. OER more accurately estimates changes in housing costs for the average American, smooths out volatility and separates pure shelter costs from investment value.
Bitcoin Price Analysis
The rest of the episode is talking about the current bitcoin price action. I start my bullish rant by showing the hash rate chart and talking about why it is a lagging and confirming indicator. With the hash rate at all-time highs and consistently increasing, this suggests that bitcoin is fairly valued at its current level.
Recent years have seen shorter, smaller rallies and shorter, smaller drawdowns. This chart suggests that 50% drawdowns are the new normal, instead of 85%.
Now, we get into some technical analysis. I concentrate on the Relative Strength Index (RSI) because it is very basic and a fundamental building block of many other indicators. Monthly RSI is at levels that typically signal cycle bottoms. Currently, the monthly metric shows that bitcoin is more oversold than at the bottom of the corona crash in 2020. Weekly RSI is equally as oversold. It is as low as the bottom of the corona crash in 2020, and before that, the bottom of the bear market in 2018.
The Fear and Greed index is also extremely low. This measure is showing “Extreme Fear” that typically registers at relative bottoms and at 10, ties for the lowest rating since the COVID-19 crash in 2020.
In summary, my contrarian (bullish) argument is:
Bitcoin is already at historic lows and could bottom at any moment.
The global economy is getting worse and bitcoin is counterparty-free, sound money, so it should behave similarly to 2015 at the end of QE.
The Fed will be forced to reverse its narrative in the coming months which could relieve downward pressure on stocks.
Bitcoin is closely tied to the U.S. economy at this point, and the U.S. will weather the coming recession better than most other places.
That does it for this week. Thanks to the readers and listeners. If you enjoy this content please subscribe, review and share!
This is a guest post by Ansel Lindner. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
Skateboarding legend Tony Hawk took the stage at Bitcoin 2021 to discuss the parallels between the growth of Bitcoin and skating culture.During the Bitcoin 2021 conference in Miami today, professional skateboarding icon Tony Hawk took the stage to discuss the parallels between Bitcoin and skateboarding as countercultural movements."If you're doing something you truly love, you're…
Sure, bitcoin is a store of value and a hedge against global debt and inflation. But what is it actually like for a merchant to transact with it day to day — to pay taxes, to cover exchange rates and properly manage multiple wallets? Today’s guest is Denet Lewis, owner of Beans N Barbells, who…
Recently, Wasabi Wallet users have reported multiple instances in which antivirus programs identify both Wasabi and the newly integrated Bitcoin Core as “system infections.” More specifically, the computer security algorithms for Avira, Bitdefender, Kaspersky and F-Secure (and many other antivirus softwares) confuse full Bitcoin nodes with unwanted cryptocurrency mining programs that run in computer backgrounds…
Bitcoin mining-focused media company HASHR8 has launched the first report in its “Bitcoin Mining Index,” a planned series on the world’s prominent mining regions that offers detail on how the practice is taking shape and where opportunity lies around the globe.“Bitcoin mining is truly a global game,” a representative of HASHR8 told Bitcoin Magazine. “Each…
The below is an excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin Magazine's premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now. New regulations from the British Financial Conduct Authority (FCA) have taken effect over UK businesses that
The program, aimed at college students, seeks to provide industry exposure and networking opportunities with Bitcoin-focused companies.Bitcoin Talent Co. and Summer of Bitcoin have announced their partnership to launch the Summer 2023 Bitcoin Industry Apprenticeship (BIA) Program for undergraduate and graduate students from universities in North America and Europe.The program is expected to provide students…
Bitcoin is often subject to misinformation and misrepresentation which in turn creates misconceptions and biases against bitcoin.“Real knowledge is to know the extent of one’s ignorance.” - ConfuciusPrevious articles talked about Bitcoin and the cognitive biases that lead to misconceptions about Bitcoin.Backing up a bit, we can look at the knowledge, or ignorance that contributes…
Source This week, CNBC published a headline that recently-appointed U.S. Secretary of the Treasury Janet “Yellen sounds warning about extremely inefficient bitcoin.” Ironically, two days later CNBC published another article because the Federal Reserve’s systems are down.The article amplified her criticism of bitcoin’s value and energy consumption. The kicker is that it does so without…
Discussing the responsibility that Bitcoiners have to help their loved ones solve their personal financial problems.Listen To This Episode:SpotifyGoogleLibsynOvercastPersonal finance is one of the biggest struggles for the average person today. But many Bitcoiners claim that Bitcoin has been a pivotal part of their own personal finance journey, offering an avenue for so many people…