CRYPTO CAPITULATION – HOW LOW CAN PRICE GO?
Mode. Bitcoin is below 30K for the first time since mid 2021, Ethereum has just fallen below two K, and the terror ecosystem has fully collapsed after the failure of the AFG foundation to bring UST back to its peg., Wednesday saw the US CPI data print for the Month of April, and it confirmed that inflation continues to run hot and even beat the consensus of analysts.. The analyst consensus for the CPI data in April was a headline print of 8.1, but when the data came in, it showed an 8.3 reading that shocked traditional markets and the Nasdaq and SMP 500 moved sharply lower on the day. And given Bitcoin strong correlation with US Equities, it also fell sharply lower.. This is not what the crypto market needed at this point in time or CPI rating.. I myself was hopeful of a rating below consensus to perhaps spark a bit of support in the cryptocurrency market and US Equities, but thats not what we got. Now is not the time to try and make it all back in one trade., But I do think that If you give yourself a long enough horizon that youll have some success into 2023 and 2024 and perhaps even into the back end of 2022, although it may seem like the crypto market, is dead right now and is going to continue to die the abundance of opportunity. Still exists, and I do think that it will be that way into the future.
. The market cycles of flushing out the overleveraged and the bad actors has happened over the last few days and weve seen this in previous cycles. Only for the crypto market to flourish in the longer term., So I think that this time is no different.. However, the macro headwinds are blowing as hard as they ever have since the crypto markets inception in its short history.. This time the macro really does matter because of that institutional adoption in the crypto space., The 2000 and 22021 Bull cycles saw mass institutional adoption of cryptocurrency markets, and these guys, who are providing institutional money to the crypto markets, are going to be paying attention to whats Happening in the macro landscape. And at the moment, with inflation running hot and central banks, tightening their monetary policy, its going to make it very hard for them to justify allocating substantial risk to the cryptocurrency market. In previous cycles. Institutional money was mostly not there, and instead it was retail players participating in these big pump and dumps that werent really too impacted by what was going on with central banks and what was happening in the macro landscape., So taking into account that macro really matters. This time, the global landscape has very much shifted over the last six to twelve months. Commencing in June 2022, the Federal Reserve is going to pull out up to 2.2 million worth of liquidity from the US markets every minute and thats convincing in June, whereas comparing to Back in May 2021, it was a quantitative easing process where the Fed was still providing liquidity to the market.
, But this time around in 2022, theyre actually withdrawing liquidity from the markets., Its a very different environment., Comparing it to 2021.. In times of a dip. The market needs to find liquidity for the next Lake high or even to stabilize., And at the moment that liquidity is being withdrawn from the market and it wont be until we see the inflation data like Wednesdays CPI data start to Plateau consistently that the Fed can Take their foot off of the tightening pedal and start to be more accommodative and provide liquidity to the market. At the moment, theyre going through a process of withdrawing liquidity from the market. Thats, going to make it very hard for equity markets and for crypto markets to Recover in the short term. Harping on about inflation, because that is the key to the Federal Reserves, mandate. Stable prices and obviously, over the last six to twelve months and even a little bit longer than that prices. Havent been so stable. Weve, seen, fuel prices, skyrocket, weve, seen the price of assets increase a substantial amount and the everyday spending by consumers is increasing at a rapid rate. And if the Fed wants to uphold their mandate, which is clearly the idea right now. Theyre going to do everything that they can to make sure that price stability is achieved in the short term and for the longer term. One chart to watch is the US ten year treasury yield and that has an inverse relationship with US Equities.
As the US ten Year, treasury yield moves higher, equities, move lower and vice versa. And, as we know about US Equities, they have a strong positive correlation with Bitcoin and the crypto market.. So what Im looking for is the US ten year yield to start to find a macro top and for equities to find a bottom. Here you can see on the candlestick chart. The US Treasury yield is finding some kind of resistance, while equities and crypto continue to move lower.. The US Nasdaq. The technology index is in the Orange line and Bitcoin is in the pink line, and you can see that those are strongly correlated.. So we can expect to follow this correlation and find a top in US. Yields will correlate with a bottom in Bitcoin and a bottom in US Equities.. I think that is a little while off, yet as inflation continues to run hot and beat the consensus of analysts. Crypto is capitulating, and it often takes weeks and even months for re accumulation to be had., As I mentioned earlier. If you think of what happened post May 2021 in an environment where the federal providing liquidity to the market, it took weeks and months up until July August for the market to see a new Lake higher and this time with liquidity being pulled from the market, it Could probably take even longer, given that theres less liquidity to push the market in a sustained direction? Higher., So that paints a pretty bleak picture for crypto in the short term.
For crypto to see a bottom. I think treasury yields need to see a macro top and fall back from resistance that will lead to a bottom in US equities and as that correlation between US, Equities and crypto, particularly Bitcoin, is so strong. Those two should move together in the case that US Treasury yields find a top and yields will peak when the market is content, that inflation has topped and has plateaued out consistently plateauing inflation data. At that point they can start to be more accommodative in their stance, and the market will front run that as it sees the data coming in month to month, but, like I mentioned it could take up to a quarter or even longer for that data to consistently Show that inflation has peaked and that price stability is coming back into the market, upholding the Feds mandate at the point where we see that inflationary data start to peak and Plateau out. That would be, I think, a good time to start looking for longs on the blue chip. Crypto tokens like Salana, like Bitcoin, like Ethereum, and look forward to the next League higher, but for now personally, Im sitting on my hands and trying to conserve capital as much as I can until that point does come around.. If you like the content, please leave a like on the video subscribe to the channel and leave a comment.