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Market Mayhem and Bitcoin Low Price Call

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In this episode of the “Fed Watch” podcast, Christian Keroles and I, along with the livestream team, discuss macro developments regarding bitcoin. Topics include the Fed’s recent 50 basis point rate hike, a look at the consumer price index (CPI) – the episode was recorded live on Tuesday, ahead of the release of data from the CPI – and a discussion of why equivalent landlord rent is often misunderstood. We end with an epic discussion on the price of bitcoin.

This could be a pivotal episode in the history of “Fed Watch” as I publicly say bitcoin is “in the vicinity” of the bottom. This is in stark contrast to the prevailing uber-bearish trend in the market at the moment. In this episode, I relied heavily on graphics that didn’t always line up during the video. These tables are provided below with a basic explanation. You can see the whole slide deck I used here.

“Fed Watch” is a podcast for people interested in central banking news and how Bitcoin will integrate or replace certain aspects of the traditional financial system. To understand how bitcoin will become global money, we must first understand what is happening now.

Federal Reserve and economic figures for the United States

On this first chart, I’m pointing to the last two Fed 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 Rates themselves are not the Federal Reserve’s primary tool. Talking about rising rates is the main tool, while promoting belief in the magic of the Fed. » Remove the arrows and try to guess where the ads were.

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The same goes for the next chart: gold.

A contrarian view of the current market structure suggesting bitcoin's bottom is near and the Federal Reserve will reverse its hawkish trajectory.

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Finally, for this section, we looked at the bitcoin chart with quantitative easing (QE) and quantitative tightening (QT). As you can see, in the “No QE” era, from 2015 to 2019, bitcoin had 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 large market swings. Oscillations come from the unknowable complex ebbs and flows of the market. The Federal Reserve is only trying to smooth the edges.

A contrarian view of the current market structure suggesting bitcoin's bottom is near and the Federal Reserve will reverse its hawkish trajectory.

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CPI Chaos

It’s hard to write a good summary of this part of the podcast, as we were live a day before the data crash. In the podcast, I cover the slightly higher Eurozone CPI rise of 7.5% in April year-over-year (YoY), with a month-to-month rate of change. another dropping from a staggering 2.5% in March to 0.6% in April. This is the story most people miss about the CPI: month-over-month changes slowed rapidly in April. I also covered the CPI forecast for the US on the podcast, but now we have hard data for April. The headline CPI in the United States rose from 8.5% in March to 8.3% in April. The month-to-month change fell from 1.2% in March to 0.3% in April. Again, a sharp decline in the rate of increase in the CPI. The CPI can be very confusing when looking at annual numbers.

It seems that inflation in April was measured at 8.3%, when in fact it was only measured at 0.3%.

A contrarian view of the current market structure suggesting bitcoin's bottom is near and the Federal Reserve will reverse its hawkish trajectory.

CPI year-over-year, CPI month-over-month (The source)

The next topic we cover in the podcast is rent. I very often hear misunderstandings about the measurement of the CPI on housing and more particularly about the equivalent rent of owners (REL). To begin with, it is very difficult to measure the impact of increases in housing costs on consumers in general. Most people don’t move very often. We have 15 and 30 year fixed rate mortgages that are completely unaffected by current house prices. Even rental leases are not renewed every month. Contracts usually last a year, sometimes longer. Therefore, if a few people pay higher rents in a given month, it does not affect the average person’s housing expenses or the average landlord’s income.

Taking current market prices for rentals or homes is a dishonest way to estimate the average cost of housing, but not doing so is the most often cited criticism of the CPI. Caveat: I’m not saying the CPI measures inflation (money printing); it measures a price index 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 volatility, and separates pure housing costs from investment value.

bitcoin price analysis

The rest of the episode talks about the current bitcoin price action. I begin my bullish rant by showing the hash rate chart and explaining why it is a lag and confirmation indicator. With the hash rate at all-time highs and steadily rising, this suggests bitcoin is fairly valued at its current level.

A contrarian view of the current market structure suggesting bitcoin's bottom is near and the Federal Reserve will reverse its hawkish trajectory.

Bitcoin hash rate (The source)

A contrarian view of the current market structure suggesting bitcoin's bottom is near and the Federal Reserve will reverse its hawkish trajectory.

The history of bitcoin withdrawals (The source)

The past few years have seen shorter, smaller rallies and shorter, smaller declines. This graph suggests that 50% drawdowns are the new norm, instead of 85%.

Now let’s move on to a technical analysis. I focus on the Relative Strength Index (RSI) because it is very basic and is a fundamental part of many other indicators. The monthly RSI sits at levels that typically signal cycle lows. Currently, the monthly metric shows that bitcoin is more oversold than at the low of the corona crash in 2020. The weekly RSI is similarly oversold. It is as low as the corona crash low in 2020, and before that, the bear market low in 2018.

The fear and greed index is also extremely low. This metric shows “extreme fear” that typically registers at relative lows and 10, tied for the lowest rating since the COVID-19 crash in 2020.

A contrarian view of the current market structure suggesting bitcoin's bottom is near and the Federal Reserve will reverse its hawkish trajectory.

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In summary, my contrary (bullish) argument is:

  1. Bitcoin is already at historic lows and could hit bottom at any time.
  2. The global economy is deteriorating and bitcoin is a sound, unrequited currency, so it should behave the same as it did in 2015 when QE ended.
  3. The Fed will be forced to backtrack on its rhetoric in the coming months, which could ease the downward pressure on equities.
  4. Bitcoin is tightly tied to the US economy at this point, and the US will weather the coming recession better than most other countries.

That’s it for this week. Thank you readers and listeners. If you like this content, subscribe, review and share!

This is a guest post by Ansel Lindner. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.