A hawkish Fed make investors something something.
Friday November 4, 2022 - Issue # 29
GM! A quick one from me today as I’m a bit under the weather. It’s been a juicy week kicked off with Halloween and filled with economic data, Twitter drama, political gaffes, and another jumbo rate hike out of the US and all the ups and downs to follow. Let’s tackle the FOMC meeting first — I really liked our Director of Trading, Dan Wright’s note that he drew up post-statement so I’ll regurgitate it here while I finish off this glorious cup of Neocitran.
The FOMC concluded its two day meeting on Wednesday with another 0.75% rate hike. Markets were bullish going into the statement expecting that we are nearing the end of a jumbo rate hike cycle by the Fed and even jumped on the news. “I am always weary of equity market speculation — I try and stick to fundamentals. Higher US interest rates equal a stronger US Dollar…bottom line.” Dan says. The currency markets were also bullish on the USD ahead of the rate statement. One of those markets had to be wrong. "Powell continues to look at the strong US labour market as his bellwether of how far and how fast he can raise interest rates. Truthfully, the Fed wants to see job losses to curb demand and bring down inflation. This morning (Wednesday morning), the ADP private payroll numbers came out stronger than expected and leads us to believe we will see another strong Non-farm payrolls report out on Friday of this week.”
Immediately after the rate announcement, we saw a sharp drop in $USD strength along with a spike in equity markets. As Powell continued to comment on his policies in the press conference following the announcement equity markets sold off and $USD gained to new highs on the day. Comments like “we’ll stay the course until the job is done” and “it is very premature to be thinking about pausing” dampened investors dreams of a dovish Fed.
I was watching the BTC/USD chart while Powell was speaking and it was very interesting to see the price hang on every word out of his mouth.
If you weren’t a student of the markets while it was “up only” and are just starting to try and understand why you’re not as rich as you were about 10 months ago you’ve probably noticed by now that many asset classes are directly linked to interest rates. However, there are some assets which overtime, have no direct connection to rates, such as gold and other commodities.
I think the big question that we need to ask ourselves is, can Bitcoin and the broader crypto/blockchain/web3 pull away from its correlation to normal asset classes — which are really connected to interest rates — like bonds, stocks, and real estate?
I think the answer is probably, yes, eventually.
In fact, we might be starting to see it already as displayed in the chart below from Pantera:
Bitcoin and then the broader crypto market has rallied massively since inception because it’s a new, innovative technology that has the potential to change the world. Just as we saw with web 2.0 technology coming out of the dot-com bubble in the 90s (where the market got ahead of itself because its imagination outstripped its actual capabilities) — you can’t hold down a massive, secular trend for too long. There should be only short-term correlations to cyclical changes in interest-rate-sensitive asset classes like the ones I mentioned earlier. I can’t help but feel like we’re on the precipice of a decoupling where we will see Bitcoin and possibly some of the broader crypto market trade independently for long time to come. Timing, uncertain.
In the spirit of Halloween and to celebrate the 14th anniversary of the Bitcoin whitepaper:
Have a nice weekend!