Looking For A Savior
Bitcoin prices were volatile Thursday after a terrible CPI number.
The result means that a .75% rise in interest rates is 100% priced into the markets.
There was some fleeting hope that the US Central Bank wouldn’t have to raise it a full .75%, but those ideas were dashed as inflation has gone from terrible to abysmal in the United States.
Let me remind readers that the US Central Bank employs over 10,000 Ivy League-trained economists earning well over $150,000, yet they are following up a full-blown policy error with more questionable decisions.
The longer the Fed allows hyperinflation to gut the health of the US economy, it could be argued that we might be living in an America with only rich and poor people in the future.
How does this affect cryptocurrency?
In one word – devastating.
Crytpo is reliant on low rates to fuel overperformance.
High liquidity is necessary too.
However, we are diverging from those two pillars at an accelerating rate causing Bitcoin prices to falter.
Crypto like physical gold needs rates to be low to represent an attractive investment because of its speculative nature.
Even more pulsating, there is now the slight chance of a full 1% rise in the Fed Funds rates at the November 2nd meeting.
So what did the price of Bitcoin upon hearing this news?
Naturally, Bitcoin slid much lower by 4% initially to around $18,000 but rebounded later in the middle to a small loss as traders sniffed out that the .75% rate rise has been priced into the market.
Cryptocurrencies had been trading mostly sideways since the end of August, with bitcoin hovering within $19,000.
That’s been a key level and a clear move lower could lead to new lows below those hit in June when bitcoin fell below $17,800 and ether fell under $900.
Clearly, there is a lot to worry about for readers who are heavy crypto traders.
The accelerating nature of sustained high inflation means that the US economy is highly susceptible to additional higher inflation that could smack us in winter.
My guess is that the upcoming high inflation data will show up in the form of elevated utility bills, particularly in natural gas.
The sabotage of pipelines and cutting off Ukrainian energy through strategic demolition of infrastructure means that US natural gas might be allocated to the Ukraine market instead of Europe.
Removing energy from the global market just means higher energy prices for the rest of us. OPEC reducing oil supply was also another negative event for Bitcoin.
The negative events are just piling on top of each other at this point.
I just don’t see how Bitcoin sustains itself above $20,000 per coin in the short-term.
If it does surpass $20,000 per coin because of a bear market rally, traders will take profits yet again, rinse and repeat.
Although equity markets are rallying through the day, this was yet another reminder of the strategic failure of this alternative asset that offered so much hope.
Crypto has turned into nothing more than an ultra-speculative asset that when in a time of tight liquidity goes on life support.
It is indeed a poor store of value and it has failed almost every acid test badly.
Sell any rally over $20,000 because it won’t last there long.
