Friday December 16, 2022 - Issue # 32
Ah, nothing like walking home from the office late on a Thursday evening downtown Toronto as heavy snowflakes that burst like little water balloons hit your face as you balance trying to avoid slipping on the icy sidewalk and dodging splash-waves from cars zooming by. It must be December. I cannot wait to get outta here next week.
I’m not going to lie, it actually made me feel pretty happy when I heard he was arrested. I was a little disappointed that we wouldn’t get to hear him testify in front of Congress this week but it was pretty great nonetheless. Unless there’s some new crazy revelation, I hope not to have to write about him again.
It was a big week as far as economic data points go. I think the CPI print on Tuesday was more important than the FOMC announcement that came Wednesday afternoon for a few reasons. Firstly, CPI data is harder to predict, and the reason why the macro environment is so tough right now is that the Fed’s only tool to combat inflation is to tighten economic conditions (raising rates and reducing balance sheet). Secondly, the Fed doesn’t like to surprise the market and therefore, the consensus was that Powell would hike 50bps, which he did. Thirdly, for the first time in over a year we had the second consecutive month of below 0.3% increase in core CPI, which is great news because we can be more confident that inflation is topping out.
It was a strange feeling smashing the refresh button in both instances waiting to see the numbers — similar to waiting for a score on an exam. Both the stock market and crypto ripped up on the lower-than-expected CPI number on Tuesday, and the good times were rolling with BTC reaching ~$18,300 right before the official FOMC announcement Wednesday at 2pm ET. Then, just like everything else, it fell sharply as soon at the 50bps hike was announced. Powell’s presser following the rate announcement didn’t make anyone feel any better. If you’ve watched Powell speak over the last 6 months or so, this week's rendition was essentially a carbon-copy. It was very hawkish — Powell said, “we’re strongly committed to bringing inflation down to 2%,” he said that they have “more work to do,” “we anticipate continuing quantitative tightening by reducing our balance sheet.” And just in case he wasn’t crystal clear, Powell repeated the above verbatim later in the conference.
I mean, what did we really expect? The market is so wound up waiting for the end of this tightening cycle, and after a better-than-expected CPI print the day before, which induced a sharp move up, Powell had to reign it back in. Some of the sharpest minds in macro believe that this was the last rate hike of the cycle. It appears at the very least, the consensus is that the Fed is at least close to being done. There’s plenty of data that the Fed will use to assess the situation before its next meeting at the start of February, including another CPI print mid-January, which, in all likelihood, will be lower than expected.
We have to remember that just as they thought they could do no harm by revving up the money printers during Covid and piling on trillions of dollars of debt, they got ahead of their skis, went too far too fast, and were wrong. Once we saw the first signs of inflation, they called it “transitory” and were once again wrong. If the Fed is wrong on this occasion by going too far, too fast in the opposite direction, they will have to course correct by loosening up. History doesn’t repeat itself…
So are we near a bottom in Bitcoin?
It is a fool’s errand to pick tops and bottoms, but it is hard to look at BTC under $20k this far into a bear market and not get a little hungry. I’m noticing quite a few similarities to where we are now versus where we were back in 2019 when the folks who said they were going to dollar-cost-average (DCA) during the bear market, never did. For the record, I was one of those people. There’s a pile of money on the sidelines right now waiting to get in at lower prices, but they’ve been waiting for lower prices since BTC $30k. This type of money usually FOMOs in at much higher prices from any semblance of a bottom. I’ve made a promise to myself that I will not be one of these people again. I’ve committed to a Bitcoin purchase every other day which started right after the Fed announcement on Wednesday — my first buy was at $17.8k, this morning’s purchase was just under $17k.
On the desk, we are seeing a lot more sellers at these levels than buyers, and it’s been that way for months. Just recently though, we’ve started to see the more experienced crypto investors start to accumulate. This subset of clients are mostly early adopters who have been around since the early days and have seen many cycles. This is yet another example of the type of activity I noticed near the end of the bear market in 2019. Scared money don’t make money.
So, are we near the bottom? Not sure, but I hope so. What I do know is that Bitcoin doesn’t care about bear markets or bull markets, it will perform as intended through each and only get stronger.
(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)