Listen to the episode here:
On this episode of the “Fed Watch” podcast, I discuss macro developments related to Bitcoin with Christian Keroles and the livestream crew. Topics include the Fed’s recent 50bps rate hike, consumer price index (CPI) previews — an event recorded live on Tuesday ahead of the release of the CPI data — and discussions about why landlords’ equivalent rents are often misunderstood. We end with an epic discussion of Bitcoin price.
This could be a pivotal episode in the history of “Fed Watch”, as I’m on the record saying that Bitcoin is “right at the bottom.” This is in stark contrast to the prevailing super-bearishness in the market right now. In this episode, I rely heavily on charts that don’t always line up in the video. These diagrams provide basic explanations below.you can see The entire slideshow I’m using here.
“Fed Watch” is a podcast for people interested in all aspects of central bank current affairs and how Bitcoin will integrate or replace the traditional financial system. To understand how Bitcoin will become a global currency, we must first understand what is happening now.
US Federal Reserve and Economic Data
On the first chart, I pointed to the last two rate hikes by the Fed on the S&P 500 chart.I write in a blog post of the week“What I’m trying to show is that rate hikes in and of themselves are not the Fed’s primary tool. Talking about rate hikes is the primary tool while cultivating belief in the Fed’s magic.” Remove arrows and try to guess where the announcement is.
The same goes for the next chart: gold.
Finally, in this section, we look at Bitcoin charts plotting quantitative easing (QE) and quantitative tightening (QT). It can be seen that in the era of “no quantitative easing”, from 2015 to 2019, Bitcoin experienced a 6000% bull market. This is almost the exact opposite of what one would expect. All in all, Fed policy has little to do with major market volatility. Volatility comes from complex ebbs and flows that are agnostic to the market. The Fed is just trying to smooth the edges.
It’s hard to write a good summary of this part of the podcast because we were alive the day before the data dropped.In the podcast, I introduce Eurozone CPI edged higher, April’s YoY (YoY) fell to 7.5%, and the month-on-month change rate fell from a staggering 2.5% in March to 0.6% in April. That’s the story most people miss on the CPI: The month-to-month change slowed rapidly in April. I also covered US CPI forecasts on the podcast, but now, We have hard data for April. US headline CPI fell to 8.3% in April from 8.5% in March. The month-on-month change slowed to 0.3% in April from 1.2% in March. Once again, the CPI increase fell sharply. CPI can be very confusing when looking at year-over-year data.
It looks like inflation was measured at 8.3% in April, when in fact, it only measured 0.3%.
The next topic we discuss on the podcast is rent. I often hear misunderstandings about CPI measures for housing, especially the owner’s equivalent rent (OER). First, it’s difficult to gauge the impact of rising housing costs on the average consumer. Most people don’t move very often. We have 15 or 30 year fixed rate mortgages that are completely unaffected by current house prices. Even rental leases don’t renew monthly. Contracts usually last one year, sometimes longer. So if several people pay higher rent in a given month, that won’t affect the average person’s housing costs or the average landlord’s income.
Estimating the average cost of housing using rent or the current market price of a home is a dishonest approach, but not doing so is the most frequently cited criticism of the CPI. Warning: I’m not saying CPI measures inflation (printing money); it measures the price index to maintain your standard of living. Of course, this statistic has many layers of subjectivity. OER more accurately estimates changes in housing costs for the average American, removing volatility and separating pure housing costs from investment value.
Bitcoin Price Analysis
The rest of this episode will discuss the current Bitcoin price action. I started 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 an all-time high and increasing, this shows that Bitcoin is quite valuable at current levels.
In recent years, there have been shorter, smaller rallies and shorter, smaller retracements. The chart suggests that a 50% retracement is the new normal, not 85%.
Now, let’s do some technical analysis. I focus on the Relative Strength Index (RSI) because it is very basic and a fundamental component of many other indicators. The monthly RSI is at levels that usually indicate a cycle bottom. Currently, the monthly indicator shows that Bitcoin is oversold above the bottom of the 2020 Corona crash. The weekly RSI is also oversold. It was as low as the bottom of the 2020 corona crash, and before that, the bottom of the 2018 bear market.
Fear and Greed Index is also extremely low. The indicator shows “extreme fear,” typically recorded at relative bottoms and 10, tied for the lowest rating since the 2020 COVID-19 crash.
In conclusion, my contrarian (bullish) thesis is:
- Bitcoin is already at an all-time low and could hit a bottom at any time.
- The global economy is deteriorating and Bitcoin is a solid currency with no counterparty, so it should perform similarly to when QE ended in 2015.
- The Fed will be forced to change its narrative in the coming months, which could ease downward pressure on stocks.
- At this point, Bitcoin is closely tied to the U.S. economy, which will weather the coming recession better than most other places.
That’s what happened this week. Thank you readers and listeners. If you like this content, please subscribe, comment and share!
This is a guest post by Ansel Lindner.Opinions expressed are entirely their own and do not necessarily reflect BTC Inc. or Bitcoin Magazine.