Back in the Bond Market Gutter
After a generous reversion to the mean bounce for the price of Bitcoin, Bitcoin has again sold off proving that the biggest talking point out there for crypto enthusiasts is interest rate.
They are too high for Bitcoin to thrive.
Bitcoin was supposed to be the cure for high inflation, but ironically enough, it has been anything but a cure for high inflation.
As inflation has gone from bad to worse, the incremental investor has decided with their wallet to spend not on the beautiful digital gold, but on food, housing, and electricity.
Stagflation elements translate into the consumer being more practical with their hard-earned money. Retail investors aren’t strolling down the street waving fistfuls of Benjamin’s in the air.
As Bitcoin has proven to be one of the most sensitive asset classes to the short-term movement of U.S. interest rates, analysts have been forced to rejig their models for a lower bitcoin price.
The expectation of higher US interest rates will in effect mean lower Bitcoin prices and the reverse is true if expectations of lower interest rates materialize.
Bitcoin cratered again by 5% to hit $19,000 and other major digital tokens also sold off, with ether falling to $1,400.
US Fed Chairman Jerome Powell delivered a hawkish speech to undercut the nascent bitcoin rally.
It’s still plausible that even if inflation has peaked from the 9.1%, it could stay stubbornly high as many of the Fed estimates for next year show a 6% estimate.
An inflation with a 6 at the beginning is still a painful data point and not ideal for the prospects of crypto.
Crypto is 3-4 times more sensitive compared to vanilla S&P stocks meaning it overshoots to the downside during selloffs and overshoots to the upside during rallies.
The crypto market has been plagued by a number of issues including the collapse of stablecoins, which triggered a chain of events that led to the bankruptcy of lending platform Celsius and hedge fund Three Arrows Capital.
It's important for Bitcoin to hang in there and even though this short-term selling pressure is heating up the temperature in the kitchen for Bitcoin investors, investors must think longer term.
Why?
Because the Fed will pivot, they always do.
When the Fed pivots, regulators will then turn to expected interest rate cuts in 2023, which would give crypto investors a lifeline.
That loosening cycle will most likely boost crypto back past that $45,000 level.
If crypto does rebound in 2023 because of lower rates, then this would give incentives for crypto participants to mend the inferior infrastructure that has been so badly exposed in 2022.
The security, trust, and management of the exchanges and intermediaries' needs vast improvement.
If adults can enter the room and start dotting the I’s and crossing the T’s at the back end, the next bull market in crypto might be a little less scandalous and controversial than the last one.
Either case, don’t quit your day job to day trade crypto because the asset class is still unproven and that means going from hero to zero in 5 seconds.
Better days are ahead for crypto as the clock ticks down to the Fed pivot where dovish policies will supercharge the price of Bitcoin and make up for its recent laggard performance.
