A pivotal month is ahead that we're eager to see unfold, with our collective personal biases skewed towards optimism – like whitewater rafting in the summer.
Challenging? Yes. Nerve terrifying? Yes. Unexpected wow moments? Yes. A story to tell back at camp? Absolutely.
We're all about pulling in data to provide a story about what was, what is, and what is likely to be. The art and science of forecasting crypto cycles.
The bears have been winning in terms of multi-month downtrend since NOV '21.
Bull victories have been short-lived and only benefited fast moving trend traders and their bots.
Fear and Greed is creeping out of its extreme zone of 0-10.
Preliminary data advises us not to start celebrating yet. A few more weeks of extreme fear, 0-10, is likely.
Inspired by a recent Bitcoin Layer article – and since Crypto Twitter is on edge about what the Fed rate will do to the market – let's look at the story of 2 year US Government Bonds and the Fed rate.
Once upon a time, 2015, 2 year bond rates began to move up (chart below). With each move up, the Fed moved up rates. Like a stairway to the moon.
Then one day bond rates topped NOV '18. But wait...
The Fed hiked rates one more time DEC '18. Squeezing a few more basis points out people, why not?!
It wasn't until the end of JULY '19 – 7 months later – that the Fed finally started lowering rates, even though 2-year bonds had been dropping for months.
What looks to unfold, given this historical trend of the Fed rate lagging behind 2-year government bonds -
The Fed will continue to hike rates. Pick a reason why. What matters is being proactive about the impact.
Rates are likely to be in the 2%-2.5% zone before the hikes stop.
Rates are likely to stabilize for a few months before dropping.
In previous years, the 2-year bonds and the Fed rate stayed closely in lock-step (2015-2019). In this cycle, the Fed rate is lagging way behind, which signals future hikes are likely to be more aggressive to catch up.
There's a lot more room for the Fed to go up than down.
But wait...there's more...
We stated in previous posts that historically, the NASDAQ 100 (i.e. traditional tech market) moves up in a rising interest rate environment. A contrarian view, backed by the chart shown below.
With each rate hike, panic selling was temporary, and the multi-year trend continued up. Keep in mind the bigger positive trends are harder to feel, when the short-term is several weeks/months of fearful red candles.
Just in case you didn't know, QT2 - Quantitative Tightening - is starting, again.
Quantitative tightening (QT) is a contractionary monetary policy that is the reverse of QE. The government bonds and other assets that central banks have bought from the market through QE programs are held on their balance sheets, massively increasing their size. QT occurs when central banks start to reduce their balance sheets. The US Federal Reserve is allowing its bond holdings to mature rather than replacing them. This is known as passive tightening. - source
Look back at the chart below and ask yourself – "What did the market do during QT1 (OCT '17- MAR '19) AND rising interest rates?".
What else do you notice about major contractions in the market?
Going back to the last two major contractions DEC '18 and MAR '20...top to bottom, the pull back was between 22%-33%.
Right now, at the beginning of JUNE '22 the traditional tech market has already contracted about 31%.
Extreme opportunities like this take months to years to form.
The 0.50 (white line) to 0.382 (yellow line, additional 8% contraction) looks to be a support area that needs to stabilize as rates are ratcheted up.
Keep in mind, the NOV '07 to MAR '09 Great Recession wiped out the NASDAQ 100 by nearly 57% and took 16 months from top to bottom. Bitcoin launched JAN '09 – right on time.
This post is for paying subscribers only
Sign up now and upgrade your account to read the post and get access to the full library of posts for paying subscribers only.