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BITCOIN PRICE CAPITULATION OR A NEW BULL MARKET? THIS WEEK IS KEY - YouTube
Channel: tedtalksmacro
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On Wednesday.
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This week, the US Federal Reserve are due to
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deliver their monetary policy report for the month of
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May 2022, and that could force a bit of
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a rally in risk markets like crypto like equities
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and force the US dollar off of its ties.
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At the same time, this event also has the
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potential to cause capitulation in risk markets and which
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way the market goes is of course dependent on
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how that event goes on Wednesday.
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For Wednesday's event, there are two
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components to be aware of.
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At 06:00 P.m., there is the official announcement which
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details the decision made by the Federal Reserve for
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this month, and there's also at 06:30 P.m.
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Utc the FOMC press conference where Jerome Powell, the
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head of the US Federal Reserve, will talk about
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policy and future monetary policy in the US.
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So there are two components to be aware of.
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To understand how this event is likely to
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play out based on current data and current
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knowledge, let's look back to the March meeting.
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At this meeting, the US central bank decided to hike rates
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by 25 basis points for the first time since 2018.
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Leading into the March FOMC meeting, the market started
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to price in this 25 basis point hike in
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anticipation of that occurring at the meeting.
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This resulted in lower equities, lower crypto, and
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an overall risk off environment where the US
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dollar saw highs upon highs upon highs.
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Given that the outcome of the March 2022 Federal Reserve
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meeting was priced in ahead of time on the release
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of the news that there was going to be a
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25 basis point hike, the market unwound and saw some
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relief throughout the month of March and into early April.
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The reason I'm touching on the last meeting is because
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we're seeing a very similar dynamic right now pricing in
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the outcome ahead of time, and if the market is
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correct in its pricing, we should see an unwind of
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protective positioning and the market have relief higher.
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Currently, the market is pricing in with a
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99.6% probability that the Federal Reserve deliver a
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50 basis point hike on Wednesday.
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And if that 50 basis point hike is delivered, or
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if anything lower than a 50 basis point hike is
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delivered, for instance, a 25 basis point hike, the market
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should see relief on the 06:00 P.m. Announcement.
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So that covers the 06:00 P.m.
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Announcement where we don't get any
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chatter from the actual FOMC themselves.
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They just release a document detailing what their decision is
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and what their updated views are on the market.
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I believe the market will make its
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real move at the 06:30 P.m. Press conference.
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Drone power will give us further insight into this
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month's decision, as well as provide further guidance on
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what is to come for US monetary policy.
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Power will be also answering questions from financial journalists
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in the US, and that should provide us with
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some further insight into what he is thinking and
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to what the rest of the FOMC members are
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thinking it's often the case that markets rally or
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fall into support or resistance before such a key
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event, and this time is no different.
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You've got the US dollar at ultimate upside around
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105, Bitcoin is trading around 40 kwh at ultimate
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support, and equities are again testing the lows.
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So you can expect Wednesday to be the ultimate
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catalyst to push markets in either direction, whether that
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be risk on where we see Bitcoin and equities
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rally higher or risk off where Bitcoin equities move
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lower and the US dollar continues to move higher
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through 105 and towards 110.
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And I think there's a pretty strong consideration for the
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Federal Reserve to make considering that quarter, 120 22 saw
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a period of negative growth in the US economy.
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Their economy shrunk one 4% in
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the first three months of 2022.
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And now that raises the fear of
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a technical recession, which would be two
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consecutive quarters of negative economic growth.
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So we've just had one negative growth, quarter
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and quarter two could be a second.
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And I think the US Federal Reserve will do
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everything in their power to stop that from happening.
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After all, the Federal Reserve exists to stop
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these exact things from happening, stop financial catastrophes
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and crises from happening in the first place.
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You could say that GDP prints don't really play
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a part in the Fed's thinking at the moment,
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and they're more likely to look at other metrics,
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but I think it's definitely playing on their mind.
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If negative growth is had during quarter two, 2022,
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that will place the US economy in a technical
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recession, and there'll be a bit of a laughingstock
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of the world at that point.
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So the weakness in the quarter one GDP
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rating decreases the probability that the Fed are
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going to be aggressive on Wednesday and talk
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hawkishly or speak about tightening even further.
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And I think that could be bullish for Bitcoin and bullish
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for crypto as a whole, as well as US equities moving
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forward into the coming weeks and to the coming months, as
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the Fed are probably going to want to do everything in
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their power to stop a recession from occurring.
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And that would be to be more lenient and
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more accommodative on their monetary policy stance in the
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event that the Fed do this on Wednesday and
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they're more accommodative, we could see a macro bottom
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in Bitcoin and a macro bottom in altcoins as
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well, which would be pretty damn exciting.
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Now, touching on the other scenario that could
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see capitulation across risk assets and capitulation across
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crypto is that power talks in an aggressive
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tone and commits to further rate hiking and
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an aggressive quantitative tightening and roll off of
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the Federal Reserve's balance sheet.
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And it is on Wednesday that QT,
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or quantitative tightening, is expected to be
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formally announced by the Federal Reserve.
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Quantitative tightening is essentially the
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opposite of quantitative easing.
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Quantitative tightening reduces the liquidity in the
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market reduces cash in the market and
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forces tighter liquidity conditions and makes money
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more expensive and harder to come by.
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Obviously QT would be bearish for Bitcoin, but I
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believe it is the anticipation of such events that
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holds the highest weight and makes the majority of
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the move it's on that sell.
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The rumor by the news type of dynamic that
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we see so often with the majority of macro
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drivers expect any specifics around how QT is going
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to be carried out this time around to be
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the main driver of how Bitcoin and equities move
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on Wednesday, it'll be Jerome Power's messaging around that
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that drive the market in a direction and could
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potentially decide the fate of the market on Wednesday.
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That's how important QT is to this
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overall process of tightening by the federal
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reserve and it's all about managing expectations.
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If the market doesn't get what it expected in terms
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of aggression from the fed, we could see capitulation in
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crypto and that would mean Bitcoin to low 30 days.
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And at the same time, if the market sees that the
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overall view from the federal reserve is more accommodating and more
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calm, we could see a melt up in crypto.
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To give some context, here is what
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happened in 2017 to the Nasdaq index,
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which is highly correlated with Bitcoin.
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As you should know, when the federal reserve announced
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quantitative tightening back then, the market saw a little
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bit of a sell off on the announcement, but
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it was short lived and the market continued on
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its rally in 2017 and in 2018, even though
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quantitative tightening was occurring.
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So it's not the be all and end all and it's
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not doom and gloom, but I think it is definitely a
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good idea to be prepared for all scenarios Because each one
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holds its weight and could very well play out on Wednesday.
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If you like the content then please leave
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a like and subscribe to the channel.
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I'll be doing more of these videos
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and I hope you find them.
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Insightful I'll catch you on the next one.
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