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Market Mayhem and Calling the Bitcoin Price Bottom

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A contrarian take on the current market structure suggesting that the bitcoin bottom is near and the Federal Reserve will reverse its hawkish course.

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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.

(Source)

Same goes for the next chart: gold.

(Source)

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.

(Source)

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%.

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

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. 

Bitcoin hash rate (source)
The history of bitcoin drawdowns (source)

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.

(Source)

In summary, my contrarian (bullish) argument is:

  1. Bitcoin is already at historic lows and could bottom at any moment.
  2. 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.
  3. The Fed will be forced to reverse its narrative in the coming months which could relieve downward pressure on stocks.
  4. 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.

Erratic Bond Yields, Lockdowns, and War — 3 Reasons Why Economic Recovery Won’t Happen Quickly

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The global economy looks bleak as inflation continues to rise, and a wide array of financial investments continue to shudder in value. Since May 2, 2022, the crypto economy has dropped more than 15% from $1.83 trillion to today’s $1.54 trillion. The price of gold has lost 5% in 30 days, and major stock market indexes have seen record lows during the past two weeks. While many people hope the world’s financial markets will see a turnaround, there are three major obstacles impeding the path to recovery.

3 Factors That Will Impede the Global Economy’s Healing Process

While many people are surprised by the economy floundering, a great number of individuals predicted the economic downfall following the stimulus measures leveraged to fight Covid-19. Presently, global markets are looking awful, as equities are falling in value, precious metals have slipped over the last month, and crypto markets have been a bloodbath during the past 30 days as well.

On Monday, May 9, 2022, it was a day many investors won’t forget as the Nasdaq index slid by 4%, gold dropped by 2%, crude oil slipped by 7%, and the crypto economy shed 8% over the last 24 hours. Currently, there are three major reasons why the economy may continue to flounder until things start to change. The reasons include the ongoing war in Europe, the current Covid-19 outbreak in China, and U.S. bond market yields.

The Ukraine-Russia war

The first is simple to understand, war is not good for the economy except for firms like Raytheon, Lockheed, Northrop, and General Dynamics. While a great majority of stocks have plummeted, six-month statistics show the aforementioned company stocks have seen significant gains.

For the rest of the ordinary citizens, war is leading to more inflation. Significant financial sanctions against Russia have made it so many countries will not transact with the country. This has caused the tightest financial sanctions in decades which in turn has caused the price of goods and services and especially petroleum products to skyrocket.

Trends forecaster Gerald Celente recently detailed that as long as the Ukraine-Russia war ensues, the “odds of recession increase.” Many other forecasters and financial analysts believe that as long as the war continues, the “U.S. economy will slow, and Europe risks a recession.”

China’s ‘Zero-Covid-19’ Strategy

Another factor that may impede the global economy’s healing progress is China’s recent Covid-19 lockdown measures. During the past two months, China’s authorities have tested a two-phase lockdown in Shanghai with its strict “zero-Covid-19” strategy. The measures China has been leveraging in recent times have shaken investors, according to various reports.

Five days ago, the New York Times wrote that China’s Covid-19 policies are making it so European investors are wary of investing there. The NYT highlights a survey that says “lockdowns and supply chain issues have soured European businesses in China on the idea of further investment in the country.”

China’s lockdowns and the “zero-Covid-19” strategy have investors shaking in their boots because of what happened in 2020. When China was dealing with Covid-19 in early 2020, many believe the country’s lockdown tactics spread across the world causing a great number of countries to shut down their economies. Investors today are likely frightened that this could happen again and China’s “zero-Covid-19” strategy will spread to other regions worldwide. In turn, an event like this could once again shut down global markets, impede supply chains, and cause economic chaos.

Erratic Bond Markets

The final problem that is hurting financial investors is current bond market yields are wild and erratic these days. On May 10, reports show that the 10-year U.S. Treasury yield slipped by 3% on Tuesday, “as fears of rising inflation and a potential economic slowdown lingered.” In addition to U.S. bond market carnage, bonds in Europe have been extremely volatile as well.

The reason people fear bond market volatility is because bonds are generational investment vehicles with long-term yields that affect fixed-income investors. Bond markets have been tanking for weeks on end and many believe the economy won’t heal unless bond markets stabilize. The broken bond markets are also being blamed on the Ukraine-Russia war but they were showing signs of weakness well before the conflict.

Moreover, younger generations of bond investors have not felt volatility like this before. The director of global macro at Fidelity Investments, Jurrien Timmer, says the current bond bear market is “historic.” In the same report, JPMorgan Asset Management’s chief investment officer, Steve Lear, said the broken bond market is painful. “It’s been a real and significant and painful move,” Lear said. “For those who haven’t experienced a bond bear market, this is what it feels like.”

These three factors are sores on the global economy and unless they heal, an even deeper recession could be in the cards. Presently, the Ukraine-Russia war continues, China’s lockdown measures are still shaking investors, and bond markets have been erratic for weeks on end and continue to rattle investors to this very day.

What do you think about the three factors that could impede a global economic recovery? Let us know what you think about this subject in the comments section below.

Peter Schiff Warns Economic Downturn in the US ‘Will Be Much Worse Than the Great Recession’

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Peter Schiff Warns Economic Downturn in the US 'Will Be Much Worse Than the Great Recession'

Following the Federal Reserve’s rate hike on Wednesday, economist Peter Schiff has had a lot to say since the U.S. central bank raised the benchmark rate by half a percentage point. Schiff further believes we are in a recession and says “it will be much worse than the Great Recession that followed the 2008 Financial Crisis.”

Peter Schiff Says ‘Fed Cant Win a Fight Against Inflation Without Causing a Recession’


While many analysts were shocked by the U.S. Federal Reserve’s move, since it was the largest rate hike since 2000, a report by schiffgold.com says the increase was hardly “aggressive,” and akin to a “weak swing that looks more like shadow boxing.” Moreover, the report explains Powell’s commentary this week contained some “subtle changes,” which suggest there might be “some economic turbulence on the horizon.”

Peter Schiff doesn’t think the Fed can beat the current inflationary pressure America is dealing with today. “Not only can’t the Fed win a fight against inflation without causing a recession, it can’t do so without causing a far worse financial crisis than the one we had in 2008,” Schiff explained on Thursday. “Worse still, a war against inflation can’t be won if there are any bailouts or stimulus to ease the pain,” the economist added.

Schiff’s comments come the day after the Fed increased the federal funds rate to 3/4 to 1 percent. Following the rate increase, the stock market jumped a great deal, fully recovering from the prior day’s losses. Then on Thursday, equity markets shuddered, and the Dow Jones Industrial Average had its worst day since 2000. All the major stock indexes suffered on Thursday and cryptocurrency markets saw similar declines.

“If you think the stock market is weak now imagine what will happen when investors finally realize what lies ahead,” Schiff tweeted on Thursday afternoon. “There are only two possibilities. The Fed does what it takes to fight inflation, causing a far worse financial crisis than 2008 or the Fed lets inflation run away.” Schiff continued:

The Fed created the 2008 financial crisis by keeping interest rates too low. Then it swept its mess under a rug of inflation. Now that the inflation chickens it released are coming home to roost, it must create an even greater financial crisis to clean up an even bigger mess.

Schiff Criticizes Paul Krugman, Fed Tapering Includes Monthly Caps


Schiff is not the only one that believes inflation can’t be tamed, as many economists and analysts share the same view. The author of the best-selling book Rich Dad Poor Dad, Robert Kiyosaki, recently said hyperinflation and depression are here. The well-known hedge fund manager Michael Burry tweeted in April that the “Fed has no intention of fighting inflation.” While criticizing the U.S. central bank, Schiff also railed against the American economist and public intellectual, Paul Krugman.

“Back in 2009, [Paul Krugman] foolishly claimed that QE wouldn’t create inflation,” Schiff said. “Setting aside that QE is inflation, Krugman prematurely took credit for being right as he didn’t understand the lag between inflation and rising consumer prices. The CPI is about to explode higher.” Moreover, schiffgold.com author Michael Maharrey scoffed at the Fed’s recent tapering announcement as well. Maharrey further detailed how the Fed plans to reduce the Federal Reserve’s securities holdings over time.

“As far as the nuts and bolts of balance sheet reduction go,” Maharrey said, “the central bank will allow up to $30 billion in U.S. Treasuries and $17.5 billion in mortgage-backed securities to roll off the balance sheet in June, July, and August. That totals $45 billion per month. In September, the Fed plans to increase the pace to $95 billion per month, with the balance sheet shedding $60 billion in Treasuries and $35 billion in mortgage-backed securities.”

What do you think about the recent commentary from Peter Schiff concerning the Fed fighting inflation and the rate hike? Let us know what you think about this subject in the comments section below.

US Central Bank Raises Rates by Half a Percentage Point, Fed’s Powell Says Similar Hikes Are on the Table

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The U.S. Federal Reserve raised the benchmark interest rate on Wednesday and the increase was the biggest rate hike in two decades. “Inflation is much too high,” the central bank’s chair Jerome Powell said after the Fed raised rates by 0.5%.

FOMC Decides to Hike Rate by 3/4 to 1% — Increase Was the largest Rate Hike in 2 Decades

  • On May 4, 2022, the U.S. central bank raised the benchmark interest rate in order to curb rising inflation. The Federal Open Market Committee (FOMC) explained on Wednesday in a press release that the 12 FOMC members “decided to raise the target range for the federal funds rate to 3/4 to 1 percent.”
  • The Federal Reserve also said the central bank “anticipates that ongoing increases in the target range will be appropriate.” Additionally, the FOMC statement issued at 2:00 p.m. (ET) said that the Ukraine-Russia war and the Covid 19-related lockdowns in China have made “implications for the U.S. economy highly uncertain.”
  • Speaking to reporters after the FOMC decision, Fed chair Jerome Powell said: “Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down.” The central bank’s chief added that there was “a broad sense on the committee that additional 50 basis-point increases should be on the table for the next couple of meetings.”
  • The May 4, 3/4 to 1 percent increase is the second rate hike in 2022 after the Fed raised the benchmark rate on March 16, 2022. At that time, the Fed raised the interest rate from near zero to 0.25% in order to target 0.25% and 0.50%
  • The FOMC statement further added that the United State’s economic activity had “edged down in the first quarter” and stressed that the “[inflation] remains elevated.”

  • In addition to the rate hike, the Fed plans to taper back its Treasury securities and mortgage-backed securities spending.
  • “The committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in conjunction with this statement,” the FOMC statement concluded.
  • Despite the rate increase, crypto markets were positive on Wednesday as the crypto economy rose 5.7% over the last 24 hours. The price of bitcoin (BTC) jumped 5.6% higher and ethereum (ETH) spiked by 6.5% against the U.S. dollar.
  • Furthermore, stocks rallied as well on Wednesday afternoon, as the top U.S. stock indexes (NYSE, Dow Jones, Nasdaq, S&P 500) saw significant gains. For instance, the Dow Jones Industrial Average jumped over 900 points on the bet that the central bank’s move was a correct one.

What do you think about the Federal Reserve raising the benchmark interest rate by 3/4 to 1%? Let us know what you think about this subject in the comments section below.

Gold Miners Outshine Bitcoin Miners To Start 2022. Will It Last?

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With a sleepy start to 2022, bitcoin has been outpaced by the classic commodity — but this could change fast.

Since the advent of Bitcoin, physical gold and digital gold have been presented as foils to investors. But perspectives of each asset’s underlying mining industry are too often lacking from the comparison conversations.

In particular, the past 12 months of market activity have highlighted some important idiosyncrasies and similarities between the yellow metal and its blockchain-based counterpart. While bitcoin mining companies significantly outperformed gold miners several months ago, the market trend has shifted to favor gold. But will this dynamic last?

Overviewing some of the latest market data for bitcoin and gold miners is the goal for this article. Along the way, the data will point to important similarities and differences between the two industries showing that, in some ways and despite relentless banter on Twitter, miners of gold and bitcoin have more in common than is typically assumed.

Mining Data Update

All the charts in this section visualize different data sets for the public bitcoin and gold mining industries. The charts may be unnecessary though, given that die-hard gold advocate Peter Schiff has been awfully vocal about his favorite yellow metal recently.

The normalized year-to-date performance of some top gold companies compared to a few top bitcoin mining companies are almost mirror images of each other. The line chart below shows these two groups – gold and bitcoin companies – and their trends in 2022. Gains for public gold mining companies are in the double-digit percentages while price movements for bitcoin miners are roughly the same but in the opposite direction.

Comparing these companies based on how far below their all-time price highs also demonstrates the recent relative strength of physical gold compared to digital gold. The bar chart below shows this data. Readers will notice Barrick Gold is still well below its high set several years ago despite the recent overall strength of the gold market. Bitcoin mining companies, by comparison, are sitting between 60-80% lower than their highs.

All this data tracks closely with the returns for gold and bitcoin themselves, as one would expect.

For Bitcoin, the start to 2022 has not been particularly lively. The leading cryptocurrency has mostly traded in a range between $36,000 and $46,000, occasionally deviating from this area for brief periods. Not surprisingly, this price action has caused bitcoin’s market volatility to steadily decline.

Meanwhile, gold has enjoyed a relatively strong start to the year, steadily trading higher since January. The chart below shows year-to-date returns for bitcoin and the yellow metal.

Measured in percentage drops from all-time highs, gold wins again. (Go ahead and laugh, Schiff.) At the time of writing, gold is roughly 6% off its record high while digital gold is trading over 40% lower than its high point, reached in late 2021.

Honey Badger Habits

Bitcoin being outperformed by a yellow metal isn’t the norm for the relationship between these two markets, however. Throughout 2021, for example, bitcoin and its mining companies enjoyed a strong and prolonged uptrend in price while gold and gold miners lagged significantly. Some charts shown later in this article demonstrate this period.

But for now, as bitcoin sits in a relatively small price range and volatility drops, gold is taking center stage. So, will it last?

Of course, this is an open question for which predictive answers are hard to give. Compared to gold mining companies, bitcoin miners are a far newer and less established or efficient industry, which can have strong effects on their price performance. With time, it’s reasonable to expect these nascent characteristics to be outgrown. Also, hedge funds that are active in the gold market are reportedly increasing their bearish bets on the metal, which could signal gold’s near-term future.

Miners Can Be Friends

Putting aside the market data and price comparisons for now, these two mining industries have more in common than is usually acknowledged. Mention gold and bitcoin together in the same tweet, and a sort of innovation-versus-antiquity animosity is almost instinctively applied as an undertone to whatever is written. But both assets represent asset classes beloved by different schools of political libertarians and economic freethinkers, even if generational divides often overshadow the two investor groups.

Gold and bitcoin miners both continue experiencing the full weight of environmental ire from non-profit organizations, journalists, and politicians whose platforms and personal brands require lambasting purportedly heinous crimes against the climate. Even though some bitcoin investors (including this author) like to occasionally poke fun at pictures of gold mining sites compared to bitcoin mining farms on social media, reality is that both types of miners are and likely always will be heavily disfavored by environmental groups.

One other noteworthy similarity is how both of these groups of companies trade compared to their underlying asset. Gold and bitcoin mining companies trade in public markets as effectively leveraged bets on whatever commodity the company mines. When either bitcoin or gold moves in a direction, publicly-traded mining companies for either asset follow suit but with more exaggerated moves up and down.

The chart below visualizes 12 months of normalized price action for bitcoin and a few mining companies included in charts shown earlier in this article. It’s easy to notice when bitcoin moves up or down how mining stock prices follow with larger percentage moves.

This relationship is even more pronounced in the same chart constructure for gold and gold miners. Over the same period (past 12 months), periods where gold traded lower were followed by even larger downward moves by gold companies. The opposite is true for gold’s latest few months of bullish price action.

Conclusion

Bitcoin and bitcoin mining companies underperforming gold as they have to start 2022 is anomalous but not unexplainable. Gold bugs can have their laughs for now, but the honey badger is only sleeping. And even though social media banter typically pits these two assets and their investors against each other, gold and bitcoin miners have more in common than is typically recognized. Both types of miners are, in some ways, more so brothers-in-arms than enemy combatants. Especially on environmental issues, even if digital gold replaces a significant portion of the yellow metal’s market, both forms of mining share a common bond in being brutalized by woke environmentalists. In any case, for now gold can enjoy its moment to outshine bitcoin because eventually digital gold will be back in the driver’s seat.

This is a guest post by Zack Voell. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.