December 7, 2022 • 44 mins
It’s time to check in again with our friends at the Federal Reserve, whose every move is being scrutinised by investors everywhere for signs of what might be on their minds. Are they going to keep raising interest rates as aggressively as they have been in previous months? Will they slow the pace, or maybe even ease off the rate rises completely? The decisions made inside Fed HQ have huge ramifications for the US economy and beyond.
We recently got a glimpse inside the Fed’s thinking with the release of the minutes of its latest meeting, which was held just before Jerome and co decided to hike rates by yet another 75 basis points last month. So, have a listen to our analysis of the minutes and what they might mean for the crypto market and beyond. It may have been hard to focus on much besides the FTX disaster in recent weeks, but the rest of the world doesn’t stand still when crypto has one of its periodic meltdowns.
Next up, you’ll hear about some of the catalysts that could yet drive the bear market down to new lows. Many are speculating that we may be at or near the bottom by now and it certainly feels like that sometimes. Problem is, there are still a number of factors that need to be considered and hurdles to be overcome before the path to higher prices is revealed.
From retail investors finally throwing in the towel, to miners giving up the ghost and energy prices going through the roof, there’s still lots to watch out for. With luck, the bottom is already in and 2023 will be a year of growing gains, but then again, luck seems to have been in pretty short supply of late.
We hope you enjoy the show.
Producer for iHeartMedia: Noel Brown
Editor: Semir Mutapcic
Theme music composed by: Noel Brown
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hello everyone, and welcome to the latest episode from the
midweek edition of the Coin bureau podcast. Every week, I
pick out two of my favorite videos from coin bureaus
YouTube channel to present to you in podcast form. The
audio you're about to hear is from those videos I've
chosen this week, and I hope you enjoy listening. You'll
no doubt be pleased to hear that ft X doesn't
(00:20):
feature prominently in either of the sections you'll hear today.
It still hangs like a black cloud over the crypto industry,
but there are other things we need to focus on,
such as what Jerome Powell and his crew at the
Federal Reserve are thinking about the economy and why the
crypto market could still go lower from here. It's been
a few weeks since the folks that the Fed last
(00:42):
hiked interest rates, and many have been speculating or praying
that they may ease off on raising them any further.
As always, investors have been hanging on every scrap of
information to emerge from Fed HQ, and we've got a
whole dollarp of it recently, when the minutes of the
last FED meeting were published a couple of weeks ago,
(01:03):
so In the first part of today's video, you'll hear
our analysis of those minutes and what they could signal
for the US and other economies in the coming months.
There's still lots to be concerned about. Speaking of things
to be concerned about, the crypto bear market we're in
could still get more well bearish before things start to
(01:23):
look up. There are a number of macro and crypto
specific factors that could yet push prices lower, and they're
the topic for the second part of today's episode from
yet more f t X Contagion. I knew we'd touch
on it at some point too. Bitcoin miners struggling to
the stock market and beyond. Crypto has a minefield to
walk through before things can get better, and some of
(01:46):
those minds contain a lot of explosives. Have a listen
and watch your step. Thanks for listening to today's episode,
and there'll be more coming your way soon. And if
you want even more content from coin Bureau, be sure
to subscribe to our YouTube channel and visit us on
social media too. Last week, the Federal Reserve published the Minutes,
(02:27):
that is summary of its most recent meeting. The minutes
revealed that most Fed officials want to slow the pace
of interest rate hikes going forward. The news caused markets
to rally on the possibility that the FED will pivot.
The problem is that slowing the pace of rate hikes
is not the same thing as lowering rates themselves, and
(02:49):
the headlines don't tell the full story. That's why today
I'm going to take a closer look at the Fed's
most recent minutes, summarize what they say in simple terms,
and tell you exactly what it could mean for the
markets in the coming months. Okay, let's start with a
bit of background. As most of you will know, the
Federal Reserve is the central bank of the United States.
(03:12):
What most of you may not know is that the
FED itself consists of twelve regional banks that are scattered
across the United States, each of which has its own president.
As most of you will know, the FED is governed
by seven governors, which include FED Chairman Jerome Powell. What
some of you may not also know is that the
(03:32):
central banks monetary policy is decided by the Federal Open
Markets Committee, or f o m C. The f o
m C consists of the feds seven governors, the president
of the New York Fed, and four of the other
presidents of the fed's other regional banks. The regional FED
presidents who sit on the f o m C change
(03:54):
every year, save of course, for the President of the
New York Fed, who has a permanent seat. In theory,
each member of the f o m C casts a
vote supporting or opposing the committee's decision on whether or
not to raise or lower interest rates, and the final
vote determines the rate hike. In practice, however, the FED
(04:15):
Chairman in this case, Jerome, apparently has the final say.
In addition to Jerome, the f o m C currently
consists of the following personnel. Fed Governor's Lele Brainard, Michael Barr,
Michelle Bowman, Lisa Cook, Philip Jefferson, and Christopher Waller, New
York FED President John Williams, Boston Fed President Susan Collins, St.
(04:39):
Louis Fed President James Bullard, Kansas City President Esther George
and Cleveland FED President Loretta J. Mester. I'll quickly note
that Michael Barr actually wrote the law that created the
position of Vice chair for supervision, which he now holds.
Michael seems to be intent on using the laws he
(04:59):
wrote in the aftermath of two thousand and eight to
crack down on crypto. More about that using the link
in the description. Now, all twelve f O m C
officials were present at the FEDS last meeting. This is
in addition to around fifty other academics and economists who
work for the FED, including members of the fed's other
(05:21):
regional banks. The f O m c's last meeting took
place on the first and second of November. To clarify,
the minutes of these meetings are not released until around
three weeks after the meeting in question takes place. This
is presumably to give the markets guidance about interest rates
between FED meetings, which occur around every six weeks. Obviously,
(05:44):
what investors look for in the FEDS minutes is evidence
of the central bank's plans regarding interest rates. Every single
word is scrutinized to see if the f O m
C is being hawkish i e. Planning on raising interest
rates or dovish i e. Planning on lowering them. As
almost all of you will know, raising interest rates tends
(06:04):
to cause markets to crash, whereas lowering them tends to
cause markets to rally. Because markets are forward looking, assets
tend to react immediately to the FEDS minutes even though
the rate hike or rate cut hasn't actually happened yet.
So with that background under your belt, let's see what
the f o m C had to say. The first
(06:27):
part of the fed's meeting was a quote ethics discussion,
wherein FED Chairman Jerome Powell reminded everyone present to be
on their best behavior. In other words, no sharing of
insider information, no insider trading, and make sure to report
all your investments. Nudge nudge, wink wink. With that bit
of business done, the second part of the meeting was
(06:50):
about rate hikes. F O m C officials discussed how
they're planning to raise interest rates higher than they had
planned in September, something that Jerome had told the public
in the fed's subsequent press conference. We actually summarized Jerome's
press conference too, that will also be in the description now.
One thing that Jerome didn't tell the public during his
(07:11):
press conference was that most f o MC officials see
a fifty basis point hike as being appropriate at the
fed's next meeting. For context, the FED has been aggressively
raising rates at seventy five basis points a pop for
the last few months. This basically confirms what Jerome denied,
which is that the FED is planning on slowing the
(07:32):
pace of rate hikes. As I mentioned in the introduction,
this caused markets to rally across the board, except for
crypto because it was busy getting wrecked by the ft
X Alameda situation. The f o m C also mentioned
the blow up in UK government bonds in September and
cautioned that the early warning signs of a similar event
(07:53):
are starting to emerge in the US, namely low liquidity.
The f o m C also touched on how other
currencies are collapsing against the US dollar, but didn't have
much to say on the matter. What's interesting is that
the f o m C reveals that the Federal Reserve
and other central banks are actively losing money due to
(08:15):
higher interest rates. Fortunately for the central banks, they don't
technically need to be profitable, even though the FED is
technically a private company. The more you know, now. The
third part of the Fed's meeting was about the economy.
The f O m C officials discussed the surprisingly positive
GDP print for Q three in the United States, the
(08:37):
continually tight labor market, and the increase in the Personal
Consumption Expenditures Index or PCE, the feds favorite inflation gauge.
Oddly enough, the FED went on to discuss how labor
market conditions are looking for different minority groups, and seem
to blame most of the economic issues we're facing on
(08:58):
the war in Ukraine, China's zero COVID policy, and tighter
financial conditions as a result of higher interest rates. The
f O m C also touched on the rising inflation
in other countries, caused primarily by disruptions to energy supplies.
They noted that foreign central banks have raised interest rates
(09:19):
to try and fight this inflation, but have slowed their
rate hikes as they realize there's only so much demand
they can destroy. The fourth part of the fed's meeting
was about financial conditions. There's a lot to cover here,
so i'll just give you the highlights. First, the f
O m C seemingly took issue with the recovery in
(09:39):
the stock market that started in mid October. This would
make sense as it's essentially the markets challenging the Fed. Second,
investors have been selling off foreign assets and deploying that
dry powder into US s sts, mainly US government debt.
This makes sense given that US government debt is provided
(10:00):
increasingly higher interest rates and is also considered to be
the safest asset in the eyes of institutional investors. This
phenomenon of money flowing into the United States is actually
part of the so called dollar milkshake theory proposed by
an increasingly popular macro analyst named Brent Johnson. The t
(10:20):
l d R is that most of the world's money
will flow into the US as foreign countries and currencies collapse.
You'd think that this would be incredibly bullish for the U.
S Dollar and US assets, and it will be for
a while. The thing is that the dollar milkshake theory
ends with the US dollar and US assets collapsing. To
(10:43):
note that this process will take many years and possibly
decades to play out, assuming Brent's theory is true. Now.
The third thing that caught my eye in the f
O m c S Financial overview was the rapidly rising
interest rates on credit card debt in the United States.
This is concerning because credit card debt in the United
(11:04):
States recently hit an all time high of over nine
thirty billion dollars I reckon one trillion is just weeks away.
This relates to the fourth takeaway, and that's that the
housing market continues to slide on the back of rising
interest rates and that banks are becoming less eager to
(11:24):
lend to consumers. This is essentially true of auto loans
and credit card related loans, which is understandable given the
statistics I just mentioned regarding financial stability. Stress tests conducted
in conjunction with the largest US banks suggest that they
would be resilient in the event of a severe economic downturn. However,
(11:47):
the f o m C couldn't say the same for
hedge funds and other entities in the financial sector due
to their high levels of leverage. This ties into the
fifth part of the fed's meeting, which was about its
economic outlook. If I understand correctly, the f o m
C is projecting that output of the U S economy
will be quote below potential until five and that unemployment
(12:12):
will simultaneously stay above four until that time. This might
have something to do with the fact that the f
o m C raised its inflation projections for the coming quarters. Logically,
this means that the FED will have to continue raising
interest rates, or at least keep them higher for longer
to fight this inflation, resulting in the aforementioned economic conditions.
(12:37):
For what it's worth, the f O m C expects
inflation to come back down to two percent as measured
by the core PC in This is expected given that
what the f O m C is effectively forecasting is
a long recession that will last at least two years,
and recessions tend to reduce inflation. As a cherry on top,
(12:59):
the fo MC cautioned that their baseline projections are quote
skewed to the down side. Put simply, they know that
their economic projections are likely to get worse, not better,
as more economic data comes in. This makes sense given
that an energy crisis could happen over the winter. More
about that in the description. Anyways, The sixth part of
(13:21):
the Fed's meeting was again about current economic conditions. The
f O m C again blames Russia's invasion of Ukraine
as being a primary driver of inflation. I'll just remind
you that central banks printed trillions upon trillions of dollars
in response to the pandemic in early Most of the
inflation related to Russia's invasion of Ukraine also has to
(13:45):
do with sanctions that don't seem to be working. But
let's not go there. Funnily enough, the f O m
C says that another decline in real GDP would be
helpful in bringing inflation back down. As a fun fact,
Bank for America seems to have predicted the sudden g
d P spike in Q three this year. The rest
(14:06):
of its projection says that real g d P will
again go negative starting next year. Take note. The f
O m C also discussed the status of household balance sheets.
Believe it or not, but the still record levels of
savings in the U S economy thanks to all the
pandemic stimulus. The catch is that most of these savings
(14:28):
are concentrated with wealthier individuals and institutions. There's a surprise.
On the lower end, individuals and institutions are starting to
report financial stress. I reckon the record levels of credit
card debt say it all. Even so. Jerome mentioned at
the fed's most recent press conference that the higher overall
(14:50):
savings should cushion the U. S economy from a severe recession.
Makes you wonder whether it was all planned. More about
that in the description. Now, after discussing the collective effects
the rising interest rates of central banks are having on
the global economy, the f o m C focused on
the supposedly tight labor market in the United States. I
(15:12):
say supposedly because there's lots of debate about how accurate
the unemployment statistics are. Case and point tech companies have
literally laid off over one hundred thousand people over the
last few months and are planning to lay off hundreds
of thousands more going forward. This might just be a
(15:33):
case of media bias, but it really looks like people
are starting to lose their jobs across the board. This
is implied by the f O m C in the Minutes,
as they note the supply of labor coming in line
with the demand for labor. They also note that most
of the demand for labor is coming from low skilled,
low paying jobs that recently fired six figure salaried software
(15:56):
developers probably won't be doing any time and soon. What
sucks is that the people working these low skilled, low
paying jobs are being squeezed the most by inflation. The
element that's been hitting most people the hardest is the
cost of accommodation i e. Rents. What really sucks is
(16:17):
the f O m C projects rents will be one
of the last inflation dominoes to fall now when it
comes to inflation expectations, the f O m C observed
that long term inflation expectations remain quote well anchored, as
Jerome loves to say. However, they cautioned that if long
term inflation expectations start to rise again, then it could
(16:39):
make their fight against inflation that much fiercer. What's fascinating
is that the f O m C seems to have
gotten into a small argument over how long it takes
for the Fed's rate hikes to affect the economy. The
section of the minutes breaking down this exchange is one
of the lengthiest by far, which is why I suspect
there was a lot of back and forth there. For
(17:01):
those who don't know, Jerome seems to believe that the
FEDS rate hikes have a near immediate impact on the economy.
His reasoning is that the economy has become so financialized
that it doesn't take more than a few months for
the effects of rate hikes to be felt. By contrast,
the academics on the f O m C argue that
(17:21):
it takes much longer for rate hikes to impact the economy.
This is because history suggests that it takes up to
eighteen months for the effects of rate hikes to be felt.
Jerome seems to have pushed back by pointing out that
this historical data is shaky at best. The f O
m C quote generally noted that their economic projections are
(17:43):
uncertain and they believe that inflation is more likely to
increase than decrease in the short to medium term. Some
members once again repeated that this is all Russia and
China's fault. Good thing, Jerome knows what's up. In terms
of U S. Treasuries, the f O m C one
again acknowledged that markets for US government debt are lacking liquidity,
(18:04):
but remain quote orderly. If you're wondering why liquidity is important,
that's because high liquidity means that you can sell a
large amount of an asset without moving its price. Now
I couldn't help but notice that some members of the
f O m C quote noted the risks posed by
non bank financial institutions amid the rapid global tightening of
(18:26):
monetary policy and the potential for hidden leverage in these
institutions to amplify shocks. I see you, Michael Barr. The
f O m C went on to agree on raising
interest rates by another seventy five basis points and patted
themselves on the back for raising rates so aggressively. They
agreed that the labor market is tight, at least on paper,
(18:48):
and that means they can continue raising interest rates while
claiming the economy is fine. After repeating the mantra that
the Fed is committed to bringing inflation back down to
its two pc target, the f O m C reiterated
that they want to slow the pace of rate hikes.
This is because they want to see how much the
already high interest rates will affect the economy and don't
(19:12):
want to risk breaking something. Now. The last part of
the Fed's meeting was about the f O m c
s monetary policy decisions. This part of the minute mostly
repeats everything from the previous sections. I couldn't help but
notice that the wording is almost identical to what Jerome
said during his press conferences. Copy paste is a powerful tool. Indeed,
(19:35):
in all seriousness, the f O m C agreed that
it must make it clear to the public that it
will continue to monitor incoming data when it comes to
future rate hikes. It seems that this is not being
underscored enough because what's currently being priced in by investors
is that the FED will pause and then pivot in
any case, The f O m C also agreed to
(19:58):
continue selling assets the central Bank's balance sheet. If you
watched our video about Jerome Pal's testa means to politicians,
you'll know he tacitly admitted that this balance sheet run
off will eventually lead to higher interest rates. Also something
nobody is noticing. Surprisingly, all members of the f O
(20:19):
m C voted in favor of the seventy five basis
point great hike and the other ongoing actions being taken
by the FED, such as the balance sheet run off.
This is surprising because it suggests that even the more
dovish members of the f O m C realize that
inflation will stick around for a while. This brings me
(20:39):
to the big question, and that's what all this means
for the markets in the coming months. In short, it
could really go either way. From where I'm standing, the
Fed has made it clear that it will adjust interest
rates in response to inflation and employment statistics. In case
you haven't noticed, things aren't looking too good on the
inflation front. Large amounts of stimulus, supply chain issues caused
(21:03):
by pandemic restrictions and yes, the war in Ukraine and China,
zero COVID policies all look like they're going to keep
inflation high. The most inflationary factor, however, seems to be
the reassuring of supply chains. The disruptions to supply chains
caused by all the above has pushed many countries to
start bringing manufacturing back within their borders, especially the manufacturing
(21:27):
of microchips. If you watched our recent video about Goldman
Saxes analysis of the fed's two percent target, you'll know
it's possible that we will be entering a prolonged period
of higher inflation as a result. This begs the question
of whether the FED would accept a three or four
percent inflation rate, and the answer currently isn't clear. On
(21:50):
the employment side, things are looking kind of sketchy. I am,
by no means an expert in employment statistics, but I've
been hearing in many macro podcasts that these stats are
calculated in questionable ways. The same is true of inflation statistics,
but we all knew that already. This begs the question
of just how much the books can be cooked to
(22:12):
convince the American public that the job market is doing
just fine, or rather how hard. The f o MC
can squint at the numbers until they see what they want.
I reckon it'll be hard to keep up the illusion
when the average person's own lying eyes start to notice
that everyone around them is losing their job. I'm sure
the fact checkers will come in with full force on
(22:33):
that one, But so long as free speech on Twitter exists,
the truth will find its way out. Thanks Ellen. In
some then, it's going to be a very uncertain few
months for both the FED and therefore the markets. Assuming
the FED follows through on slowing the pace of rate
hikes and pausing sometime early next year, we could finally
(22:55):
see some recovery rallies in stocks, cryptocurrencies, and other assets.
That said, I have a bad feeling that we're going
to see a bearish catalyst that takes all assets much
lower than they currently are, a catalyst that will shake
retail investors to the corps and cause institutional investors to
run screaming into the arms of the FED. Let's hope
(23:18):
I'm wrong about that one. Earlier this year, we made
two very important videos about crypto. One was about when
the crypto bear market could end, and the other was
about how low cryptocurrencies could go during the bear market.
(23:39):
Over the last few months, we've been keeping a close
eye on the indicators we identified in those two videos. Now,
the good news is that they seem to be accurate.
The bad news is that the bottom isn't in yet. Today,
I'm going to explain why the crypto bear market will
likely continue, when it's likely to end, and estimate how
(24:01):
low cryptocurrencies could go before it's over. This is a
video you don't want to miss. I want to start
by saying that nobody knows the future, not even me.
Everything in this video is based on the best information
my research team and I could find. Note that this
is information that could change at a moment's notice. It
(24:22):
should also go without saying that nothing in this video
is financial advice. That said, the first reason why the
crypto bear market is likely to continue is because retail
investors haven't capitulated yet. In other words, lots of regular
crypto investors are still holding on to their coins and
tokens despite some massive losses. This is also true for
(24:47):
stocks and other assets with retail exposure. Now, that second
point is significant because the prices of tech stocks and
cryptocurrencies are highly correlated. This correlation has been as apparent
in recent weeks as crypto specific factors such as the
ft X Alameda situation have caused a slight decoupling. I'll
(25:08):
come back to that in a moment now. There was
some retail capitulation in mid October when inflation in the
United States came in hotter than expected. This crash the
stock market and caused a small flash crash in crypto. However,
some sources suggest that most retail investors were still buying
(25:29):
those dips. Not only that, but the stock market has
been rallying since its recent October lows. This seems to
be because the minutes of the Federal Reserves most recent
meetings suggest that the central Bank will start slowing the
pace of rate hikes in mid December. It's also believed
that stocks will see a Santa Claus rally at the
(25:51):
same time. It's possible that the stock market will crash
in December when pension funds are forced to sell assets
and regular people sell assets to finance their holiday shopping.
It's also possible that the Fed will raise rates higher
than investors are currently pricing in. This would also crash
the stock market. Given the brutal macro backdrop of energy shortages, inflation,
(26:17):
rising interest rates, pandemic restrictions, and the war in Ukraine,
the likelihood of a dump seems higher than that of
a pump. The technicals for stock indices like the SMP
also suggests that stocks will soon resume their long term
down trends. Regardless, the stock market will continue it's longer
term down trend at some point. While the reversal could
(26:40):
happen as soon as December, it's possible that it won't
come until early next year when consumers realized they took
on a bit too much debt during the holiday season
and start selling. When the stock market correction inevitably comes,
it will likely take the crypto market lower as well.
The technicals for the now stacks suggest it could fall
(27:02):
by around twenty from its current price in the next correction.
This would bring the NASTAC back down to its pre
pandemic levels, which would make sense. As I mentioned a
few moments ago, the prices of tech stocks and cryptocurrencies
tend to move in parallel. The only difference is that
cryptocurrencies are more volatile. I have a high beta with
(27:25):
the market. In practical terms, a twenty to drop in
the NASTAC would translate to a forty to fift drop
in large cap cryptos, and much more for those with
smaller market caps. The second reason why the crypto bear
market is likely to continue relates to the first, and
that's all the speculation and leverage that we continue to
(27:48):
see in the crypto market. As some of you will know,
an easy way to measure speculation in the crypto market
is to look at bitcoin dominance. For those unfamiliar, bitcoin
dominance is a measure of how much of the total
crypto market cap is just BTC. Because BTC is seen
as the safest cryptocurrency, Bitcoin dominance tends to rise when
(28:11):
the entire crypto market is falling, and bitcoin dominance tends
to fall when the entire crypto market is rising. As
you can see, bitcoin dominance has been stuck at around
for more than a year, and though it did rise
to almost fifty percent in June after terror collapsed, it
has since fallen back down to around What this means
(28:34):
is that money has resumed moving into all coins, and
that means there's still lots of speculation. The caveat is
that it's possible that E has also become a safe
haven in the eyes of crypto holders. This means that
part of Bitcoin's dominance is essentially being shared with ethereum. Unfortunately,
(28:55):
the dominance for both has been on the decline, and
this arguably proves that lots of speculation is indeed present.
If you need more proof, consider that meme coins like
doge coin were pumping as recently as last week. There
have also been a few headlines about small and medium
cable coins that have more than doubled in price over
(29:15):
the course of just a couple of days. That is
pure speculation or price manipulation. Until we stop seeing dog
coin pump by double digits every time Elon Musk teases
Twitter's upcoming features, then it's safe to assume that the
crypto bear market bottom isn't in yet. Now, speculation is
(29:36):
mostly the retail side of the equation. Leverage is where
the institutions come in. Some of you may recall that
there was a record level of eath liquidations at the
end of October when leverage traders got wrecked to the
tune of half a billion dollars over two days. The
collapse of ft X and Alameda also led to around
(29:59):
a billion dollar of liquidations for BTC and E in
the days that followed. Funnily enough, recent research by coin
shares suggests that institutional investors have been shorten the crypto
market at record levels. This logically means that they will
get liquidated at record levels if the crypto market somehow
(30:19):
rallies in December, which is possible given what I mentioned earlier.
It's important to remember that leverage doesn't just mean trading either.
Many institutions in cryptocurrency have given each other massive loans
over the last couple of years. Some of these loans
involved cryptocurrencies which have since fallen significantly. The elephant in
(30:41):
the room in this regard is f t X and
Alameda Research, whose ft T back loans eventually led to
their bankruptcies. If the headlines didn't make it clear enough,
the contagion of leverage between these and other crypto companies continues,
and it looks like Genesis Global will be the next
two collapse. More about that in the description anyways. The
(31:04):
third reason why the cryptobar market is likely to continue
is because Bitcoin's hash rate hasn't crashed yet. For context,
bitcoined hash rate has historically fallen by between forty and
fifty around the time that BTC hit its bottom, and
of course BTC leads the rest of the crypto market.
Bitcoin's hash rate collapsing around btc's bottom makes sense on
(31:28):
both sides of the cause and effect relationship. If BTCS
price falls, then it becomes unprofitable to mine BTC. This
forces the least profitable bitcoin miners to shut up shop,
which causes Bitcoin's hash rate to fall. As some of
you may have heard, lots of bitcoin mining companies are
starting to struggle, particularly the publicly traded ones. To give
(31:51):
two examples, in late September, Compute North filed for bankruptcy,
and in late October Core Scientific warned it was on
the brink of doing the same. This is because the
average cost of mining a BTC is currently around eighteen
k and the BTC price is below that at the
time of shooting. This means that most bitcoin miners are
(32:15):
losing lots of money and have likely been selling lots
of their existing BTC to stay afloat. This is evidenced
by glass nodes Minor net position change indicator, which suggests
bitcoin miners have been aggressively selling BTC since it's price
dropped below twenty k. It's possible that this selling has
(32:35):
suppressed BTCS price, but it's probable that most of this
BTC is being sold over the counter or OTC. If
you watched our video about bitcoin miners selling BTC, you'll
know that the lowest price BTC can go before the
Bitcoin blockchain is at risk is eight k. The thing
is that this was back in August, when Bitcoin's difficulty
(32:58):
was twenty lower, and it therefore required much less energy
to mine one BTC. What this means is that the
lowest price BTC could go before Bitcoin itself is in
trouble is now just under ten k. However, this assumes
that the Bitcoin difficulty will stay the same or increase.
(33:18):
This is unlikely, as Bitcoin's hash rate has finally started
to decline. As miners go bust, difficulty will decline. Accordingly,
this brings me to the other side of the cause
and effect relationship of Bitcoin's hash rate and BTCS price.
As I just explained, a decline in BTCS price can
cause a decline in Bitcoin's hash rate. However, a decline
(33:42):
in Bitcoin's hash rate can also cause a decline in
BTCS price. China's crackdown on crypto mining. Last May is
a great example. Bitcoin's hash rate fell first as miners
were forced offline and BTCS price followed. This is because
the news of a crypto mining ban in China was
very bearish, especially since other countries started raising concerns about
(34:06):
Bitcoin's energy use. You can find out why those concerns
are unfounded using the link in the description. I digress
now believe it or not, but Bitcoin could be about
to see the same cause and effect relationship play out.
That's because winter is coming and countries are trying to
conserve energy. The European Union recently warned that it would
(34:27):
put a pause on crypto mining in the event of
an energy shortage. In Canada, the province of Quebec is
trying to get approval from the federal government to end
its contracts with crypto minors, citing energy use concerns. The
U S state of New York recently passed a two
year crypto mining ban for environmental reasons, and we could
see similar degrees from other states. I suspect that a
(34:51):
crash in BTCS price, combined with crypto mining bands in
certain countries, will be enough to bring bitcoin's hash rate
down by the forty to it has fallen in previous
cryptobear markets. Again, chances are that BTCS price will bottom
around the time this happens, along with other cryptos. The
(35:13):
fourth reason why the cryptobear market is likely to continue
is the upcoming global energy crisis that's already being felt
acutely in many countries. The one that comes to mind
the most for me is Ukraine, with eighty percent of
the country reportedly being without power due to Russian attacks.
Although Ukraine will likely be able to repair most of
(35:34):
its energy infrastructure, it probably won't be enough to prevent
another wave of refugees from fleeing to neighboring European countries.
In case you missed the memo, other European countries aren't
doing so well on the energy side either. As such,
the influx of refugees alone could lead to blackouts in
some countries. This is because many European countries have said
(35:57):
they can avoid blackouts if citizens can't serve enough energy.
Something tells me they didn't factor in the demand coming
from millions of new refugees. European politicians also don't seem
to be factoring in the practical effects their proposed price
cap on natural gas will have. Setting a price cap
means that the demand for gas won't come down to
(36:20):
match supply. This means that gas shortages are almost guaranteed,
and history as shown this to be the case. If
that wasn't bad enough, the United States and its allies
will be imposing a price cap on Russian oil starting
on the fifth of December. Naturally, the U s Department
(36:43):
of the Treasury has threatened to sanction any country that
violates this price cap. Meanwhile, the Russian government recently announced
that it will stop exporting oil to any country that
goes along with the price cap. This means that the
countries that comply with the price cap could soon be
short on oil, and this comes at a time when
OPEC has cut global oil production already on the demand
(37:08):
side of the equation. Meanwhile, we have the United States,
which will soon be looking to refill its Strategic Petroleum Reserve,
which has been emptied by the current administration in a
bid to keep inflation low. Many investors are also expecting
China's economy to open up again sometime early next year.
The recent protest against the CCPs pandemic policies suggest China's
(37:30):
reopening could happen much sooner than initially expected. If it does,
it will create a massive surge in manufacturing related energy demand.
These and other factors will cause energy prices around the
world to skyrocket over the winter. This will do direct
damage to the economy in the form of higher prices,
(37:51):
and it will do indirect damage to the economy in
the form of higher interest rates from central banks trying
to fight inflation. Obviously, it's difficult to see how the
crypto market could go in any other direction, but down
in these kinds of conditions. Never mind the crypto mining bands,
there will be millions of people selling everything they can
(38:12):
to keep the lights on in their homes and businesses.
That includes cryptocurrencies. The fifth reason why the crypto bear
market is likely to continue ties into the fourth, and
that's the uncertainty around how high interest rates will go
and how high they will stay. This ultimately depends on
how high inflation goes and how high it will stay,
(38:35):
something will only know in a few months time. This
is probably why investors currently expect the Fed to stop
raising interest rates sometime early next year. To be clear,
stopping rate hikes isn't the same as bringing interest rates
back down. Rate cuts aren't expected to occur until later
(38:56):
next year at the earliest, and could come as late
as early to four. Then again, rate cuts could come
much sooner if something in the economy starts to break
because of high interest rates. This is basically why there
is a correlation between the FED dropping interest rates and
the bottom of a stock market cycle. Something broke, so
(39:17):
the FED dropped interest rates in response. More often than not,
the thing that would break was the stock market. This
is why investors have become so conditioned to buy the dip.
They expect the FED to step in to save the
stock market every time it crashes to record lows, because
this is what the FED has been doing for years.
(39:40):
This time it's different, however, and I know it's a
cliche to say that, but it really is. Inflation is
the highest it's been in almost half a century. Central
banks must bring this inflation down at all costs, or
else it will do even more damage to the economy
and could even lead to hyper inflation of some fear currencies. However,
(40:02):
this doesn't mean the FED won't blink when something breaks.
It's just that the threshold for what needs to break
is much higher than the stock market dropping by double digits.
As it so happens, some Fed officials are starting to
get concerned that something big will break if they keep
hiking rates. This is why the Federal Open Markets Committee
(40:25):
or f o m C, agreed it would be appropriate
to start slowing the pace of rate hikes. If you
watched our video summarizing the minutes of the feds aforementioned meeting,
you'll know the Central Bank may stop raising rates as
soon as January. Now, this is all well and good,
but I'll reiterate that pausing is not the same as pivoting.
(40:49):
Depending on the inflation situation, we could see lots of
capital flow to traditionally safe haven assets like government bonds
and precious metals. It's possible that cryptocurrencies like BTC will
be a part of this basket, but the fact of
the matter is that investors see bitcoin and other large
(41:09):
cap cryptocurrencies as being akin to tech stocks. These kinds
of assets will continue to struggle in a high interest
rate environment, which again could last until the final reason
why the crypto bear market is likely to continue has
to do with technical analysis. If you're subscribed to my
(41:30):
weekly newsletter, or have been keeping up to date with
our weekly crypto reviews, you'll know that I've been watching
a massive bare flag form on Bitcoin's monthly chart for
months now. This massive bare flag seemed to have finally
broken last month. I had initially expected it to break
back in July, but BTC managed to hold on for
(41:50):
three more months before breaking down. This begs the question
of just how low this bare flag will go, and
the answer really depends on how you measure it. If
you measure from the initial bare flag from three months ago,
then BTC is headed for the ten k range, and
in my opinion, this is the last stop. However, if
(42:12):
you measure from the more recent breakdown, then it's possible
that we've already seen the bear market bottom at around
fifteen K. What's interesting is that we saw the same
double bare flag pattern on btc's monthly chart during the
previous crypto bear market in back then. The second breakdown
initially looked like the bear market bottom, but in the
(42:33):
months that followed, BTC hit the target of the initial
break down to four K. As the saying goes, history
doesn't repeat, but it does rhyme. Considering all the factors
I've mentioned in this video and others. It's quite possible
that we will see something similar happen again. After all,
there's no shortage of bullish crypto catalysts coming in early
(42:56):
to mid twenty three that could cause a recovery. More
about that in the description. Now, before I go, I
want to bring your attention to one last indicator, and
that's the balance of BTC on cryptocurrency exchanges. As you
may have heard, the balance of BTC on exchanges is
the lowest it's been in almost five years. This means
(43:18):
that btc s price is going to be very volatile
in the coming months, and that means that the kind
of technical analysis we just did maybe way off the target.
For instance, BTC could temporarily for much lower than ten
k due to a lack of liquidity and liquidations by
any leverage traders who are left. This means that you
(43:39):
need to be extremely careful if you're planning on trading
cryptocurrencies in the coming months. I will be dollar cost
averaging into promising crypto projects, and you can find out
which ones are be accumulating by signing up to my
weekly newsletter. The link for that will be in the description. Anyways,
Thank you so much for watching guys, and I will
(44:00):
see you next time. Thank you so much for listening
to the coin Bureau podcast. If you'd like to learn
more about cryptocurrency, you can visit our YouTube channel at
YouTube dot com forward slash coin Bureau. You can also
go to coin bureau dot com for loads more information
about all things crypto. You can follow me on Twitter
at at coin bureau or one word, and I'm also
(44:22):
active on TikTok and Instagram too,
Hello everyone, and welcome to the latest episode from the
midweek edition of the Coin bureau podcast. Every week, I
pick out two of my favorite videos from coin bureaus
YouTube channel to present to you in podcast form. The
audio you're about to hear is from those videos I've
chosen this week, and I hope you enjoy listening. You'll
no doubt be pleased to hear that ft X doesn't
(00:20):
feature prominently in either of the sections you'll hear today.
It still hangs like a black cloud over the crypto industry,
but there are other things we need to focus on,
such as what Jerome Powell and his crew at the
Federal Reserve are thinking about the economy and why the
crypto market could still go lower from here. It's been
a few weeks since the folks that the Fed last
(00:42):
hiked interest rates, and many have been speculating or praying
that they may ease off on raising them any further.
As always, investors have been hanging on every scrap of
information to emerge from Fed HQ, and we've got a
whole dollarp of it recently, when the minutes of the
last FED meeting were published a couple of weeks ago,
(01:03):
so In the first part of today's video, you'll hear
our analysis of those minutes and what they could signal
for the US and other economies in the coming months.
There's still lots to be concerned about. Speaking of things
to be concerned about, the crypto bear market we're in
could still get more well bearish before things start to
(01:23):
look up. There are a number of macro and crypto
specific factors that could yet push prices lower, and they're
the topic for the second part of today's episode from
yet more f t X Contagion. I knew we'd touch
on it at some point too. Bitcoin miners struggling to
the stock market and beyond. Crypto has a minefield to
walk through before things can get better, and some of
(01:46):
those minds contain a lot of explosives. Have a listen
and watch your step. Thanks for listening to today's episode,
and there'll be more coming your way soon. And if
you want even more content from coin Bureau, be sure
to subscribe to our YouTube channel and visit us on
social media too. Last week, the Federal Reserve published the Minutes,
(02:27):
that is summary of its most recent meeting. The minutes
revealed that most Fed officials want to slow the pace
of interest rate hikes going forward. The news caused markets
to rally on the possibility that the FED will pivot.
The problem is that slowing the pace of rate hikes
is not the same thing as lowering rates themselves, and
(02:49):
the headlines don't tell the full story. That's why today
I'm going to take a closer look at the Fed's
most recent minutes, summarize what they say in simple terms,
and tell you exactly what it could mean for the
markets in the coming months. Okay, let's start with a
bit of background. As most of you will know, the
Federal Reserve is the central bank of the United States.
(03:12):
What most of you may not know is that the
FED itself consists of twelve regional banks that are scattered
across the United States, each of which has its own president.
As most of you will know, the FED is governed
by seven governors, which include FED Chairman Jerome Powell. What
some of you may not also know is that the
(03:32):
central banks monetary policy is decided by the Federal Open
Markets Committee, or f o m C. The f o
m C consists of the feds seven governors, the president
of the New York Fed, and four of the other
presidents of the fed's other regional banks. The regional FED
presidents who sit on the f o m C change
(03:54):
every year, save of course, for the President of the
New York Fed, who has a permanent seat. In theory,
each member of the f o m C casts a
vote supporting or opposing the committee's decision on whether or
not to raise or lower interest rates, and the final
vote determines the rate hike. In practice, however, the FED
(04:15):
Chairman in this case, Jerome, apparently has the final say.
In addition to Jerome, the f o m C currently
consists of the following personnel. Fed Governor's Lele Brainard, Michael Barr,
Michelle Bowman, Lisa Cook, Philip Jefferson, and Christopher Waller, New
York FED President John Williams, Boston Fed President Susan Collins, St.
(04:39):
Louis Fed President James Bullard, Kansas City President Esther George
and Cleveland FED President Loretta J. Mester. I'll quickly note
that Michael Barr actually wrote the law that created the
position of Vice chair for supervision, which he now holds.
Michael seems to be intent on using the laws he
(04:59):
wrote in the aftermath of two thousand and eight to
crack down on crypto. More about that using the link
in the description. Now, all twelve f O m C
officials were present at the FEDS last meeting. This is
in addition to around fifty other academics and economists who
work for the FED, including members of the fed's other
(05:21):
regional banks. The f O m c's last meeting took
place on the first and second of November. To clarify,
the minutes of these meetings are not released until around
three weeks after the meeting in question takes place. This
is presumably to give the markets guidance about interest rates
between FED meetings, which occur around every six weeks. Obviously,
(05:44):
what investors look for in the FEDS minutes is evidence
of the central bank's plans regarding interest rates. Every single
word is scrutinized to see if the f O m
C is being hawkish i e. Planning on raising interest
rates or dovish i e. Planning on lowering them. As
almost all of you will know, raising interest rates tends
(06:04):
to cause markets to crash, whereas lowering them tends to
cause markets to rally. Because markets are forward looking, assets
tend to react immediately to the FEDS minutes even though
the rate hike or rate cut hasn't actually happened yet.
So with that background under your belt, let's see what
the f o m C had to say. The first
(06:27):
part of the fed's meeting was a quote ethics discussion,
wherein FED Chairman Jerome Powell reminded everyone present to be
on their best behavior. In other words, no sharing of
insider information, no insider trading, and make sure to report
all your investments. Nudge nudge, wink wink. With that bit
of business done, the second part of the meeting was
(06:50):
about rate hikes. F O m C officials discussed how
they're planning to raise interest rates higher than they had
planned in September, something that Jerome had told the public
in the fed's subsequent press conference. We actually summarized Jerome's
press conference too, that will also be in the description now.
One thing that Jerome didn't tell the public during his
(07:11):
press conference was that most f o MC officials see
a fifty basis point hike as being appropriate at the
fed's next meeting. For context, the FED has been aggressively
raising rates at seventy five basis points a pop for
the last few months. This basically confirms what Jerome denied,
which is that the FED is planning on slowing the
(07:32):
pace of rate hikes. As I mentioned in the introduction,
this caused markets to rally across the board, except for
crypto because it was busy getting wrecked by the ft
X Alameda situation. The f o m C also mentioned
the blow up in UK government bonds in September and
cautioned that the early warning signs of a similar event
(07:53):
are starting to emerge in the US, namely low liquidity.
The f o m C also touched on how other
currencies are collapsing against the US dollar, but didn't have
much to say on the matter. What's interesting is that
the f o m C reveals that the Federal Reserve
and other central banks are actively losing money due to
(08:15):
higher interest rates. Fortunately for the central banks, they don't
technically need to be profitable, even though the FED is
technically a private company. The more you know, now. The
third part of the Fed's meeting was about the economy.
The f O m C officials discussed the surprisingly positive
GDP print for Q three in the United States, the
(08:37):
continually tight labor market, and the increase in the Personal
Consumption Expenditures Index or PCE, the feds favorite inflation gauge.
Oddly enough, the FED went on to discuss how labor
market conditions are looking for different minority groups, and seem
to blame most of the economic issues we're facing on
(08:58):
the war in Ukraine, China's zero COVID policy, and tighter
financial conditions as a result of higher interest rates. The
f O m C also touched on the rising inflation
in other countries, caused primarily by disruptions to energy supplies.
They noted that foreign central banks have raised interest rates
(09:19):
to try and fight this inflation, but have slowed their
rate hikes as they realize there's only so much demand
they can destroy. The fourth part of the fed's meeting
was about financial conditions. There's a lot to cover here,
so i'll just give you the highlights. First, the f
O m C seemingly took issue with the recovery in
(09:39):
the stock market that started in mid October. This would
make sense as it's essentially the markets challenging the Fed. Second,
investors have been selling off foreign assets and deploying that
dry powder into US s sts, mainly US government debt.
This makes sense given that US government debt is provided
(10:00):
increasingly higher interest rates and is also considered to be
the safest asset in the eyes of institutional investors. This
phenomenon of money flowing into the United States is actually
part of the so called dollar milkshake theory proposed by
an increasingly popular macro analyst named Brent Johnson. The t
(10:20):
l d R is that most of the world's money
will flow into the US as foreign countries and currencies collapse.
You'd think that this would be incredibly bullish for the U.
S Dollar and US assets, and it will be for
a while. The thing is that the dollar milkshake theory
ends with the US dollar and US assets collapsing. To
(10:43):
note that this process will take many years and possibly
decades to play out, assuming Brent's theory is true. Now.
The third thing that caught my eye in the f
O m c S Financial overview was the rapidly rising
interest rates on credit card debt in the United States.
This is concerning because credit card debt in the United
(11:04):
States recently hit an all time high of over nine
thirty billion dollars I reckon one trillion is just weeks away.
This relates to the fourth takeaway, and that's that the
housing market continues to slide on the back of rising
interest rates and that banks are becoming less eager to
(11:24):
lend to consumers. This is essentially true of auto loans
and credit card related loans, which is understandable given the
statistics I just mentioned regarding financial stability. Stress tests conducted
in conjunction with the largest US banks suggest that they
would be resilient in the event of a severe economic downturn. However,
(11:47):
the f o m C couldn't say the same for
hedge funds and other entities in the financial sector due
to their high levels of leverage. This ties into the
fifth part of the fed's meeting, which was about its
economic outlook. If I understand correctly, the f o m
C is projecting that output of the U S economy
will be quote below potential until five and that unemployment
(12:12):
will simultaneously stay above four until that time. This might
have something to do with the fact that the f
o m C raised its inflation projections for the coming quarters. Logically,
this means that the FED will have to continue raising
interest rates, or at least keep them higher for longer
to fight this inflation, resulting in the aforementioned economic conditions.
(12:37):
For what it's worth, the f O m C expects
inflation to come back down to two percent as measured
by the core PC in This is expected given that
what the f O m C is effectively forecasting is
a long recession that will last at least two years,
and recessions tend to reduce inflation. As a cherry on top,
(12:59):
the fo MC cautioned that their baseline projections are quote
skewed to the down side. Put simply, they know that
their economic projections are likely to get worse, not better,
as more economic data comes in. This makes sense given
that an energy crisis could happen over the winter. More
about that in the description. Anyways, The sixth part of
(13:21):
the Fed's meeting was again about current economic conditions. The
f O m C again blames Russia's invasion of Ukraine
as being a primary driver of inflation. I'll just remind
you that central banks printed trillions upon trillions of dollars
in response to the pandemic in early Most of the
inflation related to Russia's invasion of Ukraine also has to
(13:45):
do with sanctions that don't seem to be working. But
let's not go there. Funnily enough, the f O m
C says that another decline in real GDP would be
helpful in bringing inflation back down. As a fun fact,
Bank for America seems to have predicted the sudden g
d P spike in Q three this year. The rest
(14:06):
of its projection says that real g d P will
again go negative starting next year. Take note. The f
O m C also discussed the status of household balance sheets.
Believe it or not, but the still record levels of
savings in the U S economy thanks to all the
pandemic stimulus. The catch is that most of these savings
(14:28):
are concentrated with wealthier individuals and institutions. There's a surprise.
On the lower end, individuals and institutions are starting to
report financial stress. I reckon the record levels of credit
card debt say it all. Even so. Jerome mentioned at
the fed's most recent press conference that the higher overall
(14:50):
savings should cushion the U. S economy from a severe recession.
Makes you wonder whether it was all planned. More about
that in the description. Now, after discussing the collective effects
the rising interest rates of central banks are having on
the global economy, the f o m C focused on
the supposedly tight labor market in the United States. I
(15:12):
say supposedly because there's lots of debate about how accurate
the unemployment statistics are. Case and point tech companies have
literally laid off over one hundred thousand people over the
last few months and are planning to lay off hundreds
of thousands more going forward. This might just be a
(15:33):
case of media bias, but it really looks like people
are starting to lose their jobs across the board. This
is implied by the f O m C in the Minutes,
as they note the supply of labor coming in line
with the demand for labor. They also note that most
of the demand for labor is coming from low skilled,
low paying jobs that recently fired six figure salaried software
(15:56):
developers probably won't be doing any time and soon. What
sucks is that the people working these low skilled, low
paying jobs are being squeezed the most by inflation. The
element that's been hitting most people the hardest is the
cost of accommodation i e. Rents. What really sucks is
(16:17):
the f O m C projects rents will be one
of the last inflation dominoes to fall now when it
comes to inflation expectations, the f O m C observed
that long term inflation expectations remain quote well anchored, as
Jerome loves to say. However, they cautioned that if long
term inflation expectations start to rise again, then it could
(16:39):
make their fight against inflation that much fiercer. What's fascinating
is that the f O m C seems to have
gotten into a small argument over how long it takes
for the Fed's rate hikes to affect the economy. The
section of the minutes breaking down this exchange is one
of the lengthiest by far, which is why I suspect
there was a lot of back and forth there. For
(17:01):
those who don't know, Jerome seems to believe that the
FEDS rate hikes have a near immediate impact on the economy.
His reasoning is that the economy has become so financialized
that it doesn't take more than a few months for
the effects of rate hikes to be felt. By contrast,
the academics on the f O m C argue that
(17:21):
it takes much longer for rate hikes to impact the economy.
This is because history suggests that it takes up to
eighteen months for the effects of rate hikes to be felt.
Jerome seems to have pushed back by pointing out that
this historical data is shaky at best. The f O
m C quote generally noted that their economic projections are
(17:43):
uncertain and they believe that inflation is more likely to
increase than decrease in the short to medium term. Some
members once again repeated that this is all Russia and
China's fault. Good thing, Jerome knows what's up. In terms
of U S. Treasuries, the f O m C one
again acknowledged that markets for US government debt are lacking liquidity,
(18:04):
but remain quote orderly. If you're wondering why liquidity is important,
that's because high liquidity means that you can sell a
large amount of an asset without moving its price. Now
I couldn't help but notice that some members of the
f O m C quote noted the risks posed by
non bank financial institutions amid the rapid global tightening of
(18:26):
monetary policy and the potential for hidden leverage in these
institutions to amplify shocks. I see you, Michael Barr. The
f O m C went on to agree on raising
interest rates by another seventy five basis points and patted
themselves on the back for raising rates so aggressively. They
agreed that the labor market is tight, at least on paper,
(18:48):
and that means they can continue raising interest rates while
claiming the economy is fine. After repeating the mantra that
the Fed is committed to bringing inflation back down to
its two pc target, the f O m C reiterated
that they want to slow the pace of rate hikes.
This is because they want to see how much the
already high interest rates will affect the economy and don't
(19:12):
want to risk breaking something. Now. The last part of
the Fed's meeting was about the f O m c
s monetary policy decisions. This part of the minute mostly
repeats everything from the previous sections. I couldn't help but
notice that the wording is almost identical to what Jerome
said during his press conferences. Copy paste is a powerful tool. Indeed,
(19:35):
in all seriousness, the f O m C agreed that
it must make it clear to the public that it
will continue to monitor incoming data when it comes to
future rate hikes. It seems that this is not being
underscored enough because what's currently being priced in by investors
is that the FED will pause and then pivot in
any case, The f O m C also agreed to
(19:58):
continue selling assets the central Bank's balance sheet. If you
watched our video about Jerome Pal's testa means to politicians,
you'll know he tacitly admitted that this balance sheet run
off will eventually lead to higher interest rates. Also something
nobody is noticing. Surprisingly, all members of the f O
(20:19):
m C voted in favor of the seventy five basis
point great hike and the other ongoing actions being taken
by the FED, such as the balance sheet run off.
This is surprising because it suggests that even the more
dovish members of the f O m C realize that
inflation will stick around for a while. This brings me
(20:39):
to the big question, and that's what all this means
for the markets in the coming months. In short, it
could really go either way. From where I'm standing, the
Fed has made it clear that it will adjust interest
rates in response to inflation and employment statistics. In case
you haven't noticed, things aren't looking too good on the
inflation front. Large amounts of stimulus, supply chain issues caused
(21:03):
by pandemic restrictions and yes, the war in Ukraine and China,
zero COVID policies all look like they're going to keep
inflation high. The most inflationary factor, however, seems to be
the reassuring of supply chains. The disruptions to supply chains
caused by all the above has pushed many countries to
start bringing manufacturing back within their borders, especially the manufacturing
(21:27):
of microchips. If you watched our recent video about Goldman
Saxes analysis of the fed's two percent target, you'll know
it's possible that we will be entering a prolonged period
of higher inflation as a result. This begs the question
of whether the FED would accept a three or four
percent inflation rate, and the answer currently isn't clear. On
(21:50):
the employment side, things are looking kind of sketchy. I am,
by no means an expert in employment statistics, but I've
been hearing in many macro podcasts that these stats are
calculated in questionable ways. The same is true of inflation statistics,
but we all knew that already. This begs the question
of just how much the books can be cooked to
(22:12):
convince the American public that the job market is doing
just fine, or rather how hard. The f o MC
can squint at the numbers until they see what they want.
I reckon it'll be hard to keep up the illusion
when the average person's own lying eyes start to notice
that everyone around them is losing their job. I'm sure
the fact checkers will come in with full force on
(22:33):
that one, But so long as free speech on Twitter exists,
the truth will find its way out. Thanks Ellen. In
some then, it's going to be a very uncertain few
months for both the FED and therefore the markets. Assuming
the FED follows through on slowing the pace of rate
hikes and pausing sometime early next year, we could finally
(22:55):
see some recovery rallies in stocks, cryptocurrencies, and other assets.
That said, I have a bad feeling that we're going
to see a bearish catalyst that takes all assets much
lower than they currently are, a catalyst that will shake
retail investors to the corps and cause institutional investors to
run screaming into the arms of the FED. Let's hope
(23:18):
I'm wrong about that one. Earlier this year, we made
two very important videos about crypto. One was about when
the crypto bear market could end, and the other was
about how low cryptocurrencies could go during the bear market.
(23:39):
Over the last few months, we've been keeping a close
eye on the indicators we identified in those two videos. Now,
the good news is that they seem to be accurate.
The bad news is that the bottom isn't in yet. Today,
I'm going to explain why the crypto bear market will
likely continue, when it's likely to end, and estimate how
(24:01):
low cryptocurrencies could go before it's over. This is a
video you don't want to miss. I want to start
by saying that nobody knows the future, not even me.
Everything in this video is based on the best information
my research team and I could find. Note that this
is information that could change at a moment's notice. It
(24:22):
should also go without saying that nothing in this video
is financial advice. That said, the first reason why the
crypto bear market is likely to continue is because retail
investors haven't capitulated yet. In other words, lots of regular
crypto investors are still holding on to their coins and
tokens despite some massive losses. This is also true for
(24:47):
stocks and other assets with retail exposure. Now, that second
point is significant because the prices of tech stocks and
cryptocurrencies are highly correlated. This correlation has been as apparent
in recent weeks as crypto specific factors such as the
ft X Alameda situation have caused a slight decoupling. I'll
(25:08):
come back to that in a moment now. There was
some retail capitulation in mid October when inflation in the
United States came in hotter than expected. This crash the
stock market and caused a small flash crash in crypto. However,
some sources suggest that most retail investors were still buying
(25:29):
those dips. Not only that, but the stock market has
been rallying since its recent October lows. This seems to
be because the minutes of the Federal Reserves most recent
meetings suggest that the central Bank will start slowing the
pace of rate hikes in mid December. It's also believed
that stocks will see a Santa Claus rally at the
(25:51):
same time. It's possible that the stock market will crash
in December when pension funds are forced to sell assets
and regular people sell assets to finance their holiday shopping.
It's also possible that the Fed will raise rates higher
than investors are currently pricing in. This would also crash
the stock market. Given the brutal macro backdrop of energy shortages, inflation,
(26:17):
rising interest rates, pandemic restrictions, and the war in Ukraine,
the likelihood of a dump seems higher than that of
a pump. The technicals for stock indices like the SMP
also suggests that stocks will soon resume their long term
down trends. Regardless, the stock market will continue it's longer
term down trend at some point. While the reversal could
(26:40):
happen as soon as December, it's possible that it won't
come until early next year when consumers realized they took
on a bit too much debt during the holiday season
and start selling. When the stock market correction inevitably comes,
it will likely take the crypto market lower as well.
The technicals for the now stacks suggest it could fall
(27:02):
by around twenty from its current price in the next correction.
This would bring the NASTAC back down to its pre
pandemic levels, which would make sense. As I mentioned a
few moments ago, the prices of tech stocks and cryptocurrencies
tend to move in parallel. The only difference is that
cryptocurrencies are more volatile. I have a high beta with
(27:25):
the market. In practical terms, a twenty to drop in
the NASTAC would translate to a forty to fift drop
in large cap cryptos, and much more for those with
smaller market caps. The second reason why the crypto bear
market is likely to continue relates to the first, and
that's all the speculation and leverage that we continue to
(27:48):
see in the crypto market. As some of you will know,
an easy way to measure speculation in the crypto market
is to look at bitcoin dominance. For those unfamiliar, bitcoin
dominance is a measure of how much of the total
crypto market cap is just BTC. Because BTC is seen
as the safest cryptocurrency, Bitcoin dominance tends to rise when
(28:11):
the entire crypto market is falling, and bitcoin dominance tends
to fall when the entire crypto market is rising. As
you can see, bitcoin dominance has been stuck at around
for more than a year, and though it did rise
to almost fifty percent in June after terror collapsed, it
has since fallen back down to around What this means
(28:34):
is that money has resumed moving into all coins, and
that means there's still lots of speculation. The caveat is
that it's possible that E has also become a safe
haven in the eyes of crypto holders. This means that
part of Bitcoin's dominance is essentially being shared with ethereum. Unfortunately,
(28:55):
the dominance for both has been on the decline, and
this arguably proves that lots of speculation is indeed present.
If you need more proof, consider that meme coins like
doge coin were pumping as recently as last week. There
have also been a few headlines about small and medium
cable coins that have more than doubled in price over
(29:15):
the course of just a couple of days. That is
pure speculation or price manipulation. Until we stop seeing dog
coin pump by double digits every time Elon Musk teases
Twitter's upcoming features, then it's safe to assume that the
crypto bear market bottom isn't in yet. Now, speculation is
(29:36):
mostly the retail side of the equation. Leverage is where
the institutions come in. Some of you may recall that
there was a record level of eath liquidations at the
end of October when leverage traders got wrecked to the
tune of half a billion dollars over two days. The
collapse of ft X and Alameda also led to around
(29:59):
a billion dollar of liquidations for BTC and E in
the days that followed. Funnily enough, recent research by coin
shares suggests that institutional investors have been shorten the crypto
market at record levels. This logically means that they will
get liquidated at record levels if the crypto market somehow
(30:19):
rallies in December, which is possible given what I mentioned earlier.
It's important to remember that leverage doesn't just mean trading either.
Many institutions in cryptocurrency have given each other massive loans
over the last couple of years. Some of these loans
involved cryptocurrencies which have since fallen significantly. The elephant in
(30:41):
the room in this regard is f t X and
Alameda Research, whose ft T back loans eventually led to
their bankruptcies. If the headlines didn't make it clear enough,
the contagion of leverage between these and other crypto companies continues,
and it looks like Genesis Global will be the next
two collapse. More about that in the description anyways. The
(31:04):
third reason why the cryptobar market is likely to continue
is because Bitcoin's hash rate hasn't crashed yet. For context,
bitcoined hash rate has historically fallen by between forty and
fifty around the time that BTC hit its bottom, and
of course BTC leads the rest of the crypto market.
Bitcoin's hash rate collapsing around btc's bottom makes sense on
(31:28):
both sides of the cause and effect relationship. If BTCS
price falls, then it becomes unprofitable to mine BTC. This
forces the least profitable bitcoin miners to shut up shop,
which causes Bitcoin's hash rate to fall. As some of
you may have heard, lots of bitcoin mining companies are
starting to struggle, particularly the publicly traded ones. To give
(31:51):
two examples, in late September, Compute North filed for bankruptcy,
and in late October Core Scientific warned it was on
the brink of doing the same. This is because the
average cost of mining a BTC is currently around eighteen
k and the BTC price is below that at the
time of shooting. This means that most bitcoin miners are
(32:15):
losing lots of money and have likely been selling lots
of their existing BTC to stay afloat. This is evidenced
by glass nodes Minor net position change indicator, which suggests
bitcoin miners have been aggressively selling BTC since it's price
dropped below twenty k. It's possible that this selling has
(32:35):
suppressed BTCS price, but it's probable that most of this
BTC is being sold over the counter or OTC. If
you watched our video about bitcoin miners selling BTC, you'll
know that the lowest price BTC can go before the
Bitcoin blockchain is at risk is eight k. The thing
is that this was back in August, when Bitcoin's difficulty
(32:58):
was twenty lower, and it therefore required much less energy
to mine one BTC. What this means is that the
lowest price BTC could go before Bitcoin itself is in
trouble is now just under ten k. However, this assumes
that the Bitcoin difficulty will stay the same or increase.
(33:18):
This is unlikely, as Bitcoin's hash rate has finally started
to decline. As miners go bust, difficulty will decline. Accordingly,
this brings me to the other side of the cause
and effect relationship of Bitcoin's hash rate and BTCS price.
As I just explained, a decline in BTCS price can
cause a decline in Bitcoin's hash rate. However, a decline
(33:42):
in Bitcoin's hash rate can also cause a decline in
BTCS price. China's crackdown on crypto mining. Last May is
a great example. Bitcoin's hash rate fell first as miners
were forced offline and BTCS price followed. This is because
the news of a crypto mining ban in China was
very bearish, especially since other countries started raising concerns about
(34:06):
Bitcoin's energy use. You can find out why those concerns
are unfounded using the link in the description. I digress
now believe it or not, but Bitcoin could be about
to see the same cause and effect relationship play out.
That's because winter is coming and countries are trying to
conserve energy. The European Union recently warned that it would
(34:27):
put a pause on crypto mining in the event of
an energy shortage. In Canada, the province of Quebec is
trying to get approval from the federal government to end
its contracts with crypto minors, citing energy use concerns. The
U S state of New York recently passed a two
year crypto mining ban for environmental reasons, and we could
see similar degrees from other states. I suspect that a
(34:51):
crash in BTCS price, combined with crypto mining bands in
certain countries, will be enough to bring bitcoin's hash rate
down by the forty to it has fallen in previous
cryptobear markets. Again, chances are that BTCS price will bottom
around the time this happens, along with other cryptos. The
(35:13):
fourth reason why the cryptobear market is likely to continue
is the upcoming global energy crisis that's already being felt
acutely in many countries. The one that comes to mind
the most for me is Ukraine, with eighty percent of
the country reportedly being without power due to Russian attacks.
Although Ukraine will likely be able to repair most of
(35:34):
its energy infrastructure, it probably won't be enough to prevent
another wave of refugees from fleeing to neighboring European countries.
In case you missed the memo, other European countries aren't
doing so well on the energy side either. As such,
the influx of refugees alone could lead to blackouts in
some countries. This is because many European countries have said
(35:57):
they can avoid blackouts if citizens can't serve enough energy.
Something tells me they didn't factor in the demand coming
from millions of new refugees. European politicians also don't seem
to be factoring in the practical effects their proposed price
cap on natural gas will have. Setting a price cap
means that the demand for gas won't come down to
(36:20):
match supply. This means that gas shortages are almost guaranteed,
and history as shown this to be the case. If
that wasn't bad enough, the United States and its allies
will be imposing a price cap on Russian oil starting
on the fifth of December. Naturally, the U s Department
(36:43):
of the Treasury has threatened to sanction any country that
violates this price cap. Meanwhile, the Russian government recently announced
that it will stop exporting oil to any country that
goes along with the price cap. This means that the
countries that comply with the price cap could soon be
short on oil, and this comes at a time when
OPEC has cut global oil production already on the demand
(37:08):
side of the equation. Meanwhile, we have the United States,
which will soon be looking to refill its Strategic Petroleum Reserve,
which has been emptied by the current administration in a
bid to keep inflation low. Many investors are also expecting
China's economy to open up again sometime early next year.
The recent protest against the CCPs pandemic policies suggest China's
(37:30):
reopening could happen much sooner than initially expected. If it does,
it will create a massive surge in manufacturing related energy demand.
These and other factors will cause energy prices around the
world to skyrocket over the winter. This will do direct
damage to the economy in the form of higher prices,
(37:51):
and it will do indirect damage to the economy in
the form of higher interest rates from central banks trying
to fight inflation. Obviously, it's difficult to see how the
crypto market could go in any other direction, but down
in these kinds of conditions. Never mind the crypto mining bands,
there will be millions of people selling everything they can
(38:12):
to keep the lights on in their homes and businesses.
That includes cryptocurrencies. The fifth reason why the crypto bear
market is likely to continue ties into the fourth, and
that's the uncertainty around how high interest rates will go
and how high they will stay. This ultimately depends on
how high inflation goes and how high it will stay,
(38:35):
something will only know in a few months time. This
is probably why investors currently expect the Fed to stop
raising interest rates sometime early next year. To be clear,
stopping rate hikes isn't the same as bringing interest rates
back down. Rate cuts aren't expected to occur until later
(38:56):
next year at the earliest, and could come as late
as early to four. Then again, rate cuts could come
much sooner if something in the economy starts to break
because of high interest rates. This is basically why there
is a correlation between the FED dropping interest rates and
the bottom of a stock market cycle. Something broke, so
(39:17):
the FED dropped interest rates in response. More often than not,
the thing that would break was the stock market. This
is why investors have become so conditioned to buy the dip.
They expect the FED to step in to save the
stock market every time it crashes to record lows, because
this is what the FED has been doing for years.
(39:40):
This time it's different, however, and I know it's a
cliche to say that, but it really is. Inflation is
the highest it's been in almost half a century. Central
banks must bring this inflation down at all costs, or
else it will do even more damage to the economy
and could even lead to hyper inflation of some fear currencies. However,
(40:02):
this doesn't mean the FED won't blink when something breaks.
It's just that the threshold for what needs to break
is much higher than the stock market dropping by double digits.
As it so happens, some Fed officials are starting to
get concerned that something big will break if they keep
hiking rates. This is why the Federal Open Markets Committee
(40:25):
or f o m C, agreed it would be appropriate
to start slowing the pace of rate hikes. If you
watched our video summarizing the minutes of the feds aforementioned meeting,
you'll know the Central Bank may stop raising rates as
soon as January. Now, this is all well and good,
but I'll reiterate that pausing is not the same as pivoting.
(40:49):
Depending on the inflation situation, we could see lots of
capital flow to traditionally safe haven assets like government bonds
and precious metals. It's possible that cryptocurrencies like BTC will
be a part of this basket, but the fact of
the matter is that investors see bitcoin and other large
(41:09):
cap cryptocurrencies as being akin to tech stocks. These kinds
of assets will continue to struggle in a high interest
rate environment, which again could last until the final reason
why the crypto bear market is likely to continue has
to do with technical analysis. If you're subscribed to my
(41:30):
weekly newsletter, or have been keeping up to date with
our weekly crypto reviews, you'll know that I've been watching
a massive bare flag form on Bitcoin's monthly chart for
months now. This massive bare flag seemed to have finally
broken last month. I had initially expected it to break
back in July, but BTC managed to hold on for
(41:50):
three more months before breaking down. This begs the question
of just how low this bare flag will go, and
the answer really depends on how you measure it. If
you measure from the initial bare flag from three months ago,
then BTC is headed for the ten k range, and
in my opinion, this is the last stop. However, if
(42:12):
you measure from the more recent breakdown, then it's possible
that we've already seen the bear market bottom at around
fifteen K. What's interesting is that we saw the same
double bare flag pattern on btc's monthly chart during the
previous crypto bear market in back then. The second breakdown
initially looked like the bear market bottom, but in the
(42:33):
months that followed, BTC hit the target of the initial
break down to four K. As the saying goes, history
doesn't repeat, but it does rhyme. Considering all the factors
I've mentioned in this video and others. It's quite possible
that we will see something similar happen again. After all,
there's no shortage of bullish crypto catalysts coming in early
(42:56):
to mid twenty three that could cause a recovery. More
about that in the description. Now, before I go, I
want to bring your attention to one last indicator, and
that's the balance of BTC on cryptocurrency exchanges. As you
may have heard, the balance of BTC on exchanges is
the lowest it's been in almost five years. This means
(43:18):
that btc s price is going to be very volatile
in the coming months, and that means that the kind
of technical analysis we just did maybe way off the target.
For instance, BTC could temporarily for much lower than ten
k due to a lack of liquidity and liquidations by
any leverage traders who are left. This means that you
(43:39):
need to be extremely careful if you're planning on trading
cryptocurrencies in the coming months. I will be dollar cost
averaging into promising crypto projects, and you can find out
which ones are be accumulating by signing up to my
weekly newsletter. The link for that will be in the description. Anyways,
Thank you so much for watching guys, and I will
(44:00):
see you next time. Thank you so much for listening
to the coin Bureau podcast. If you'd like to learn
more about cryptocurrency, you can visit our YouTube channel at
YouTube dot com forward slash coin Bureau. You can also
go to coin bureau dot com for loads more information
about all things crypto. You can follow me on Twitter
at at coin bureau or one word, and I'm also
(44:22):
active on TikTok and Instagram too,
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