Cryptic ball: crypto is here to stay.
Yesterday's daily close at $57k failed to be as exciting as it could. But today bulls were charging again, bringing bitcoin to $59k and many alts towards new all-time highs (LUNA is up nearly 60% since Friday!). However, things changed this afternoon when the Fed's chair, Jerome Powell, came before the Senate Banking Committee for another hearing on the state of the US economy and to discuss the impact of Omicron, COVID's new variant, on monetary policy.
I've written about Powell and the impact of his statements on 12 of our posts already and the topic never gets old: any time the Fed's chair speaks is a good time to trade. Well, in the prepared statements released yesterday, it was mentioned that the Fed would use its tools to "both support the economy and prevent higher inflation". It seems most traders interpreted that as another sign that the central bank would resume its money printing business, but that wasn't the case.
And today Jerome surprisingly admitted that this inflation is not transitory and will likely only subside in the second half of 2022. To mitigate the pressure of higher prices on the budget's of American families, the Fed will discuss in its December 15th meeting whether or not to taper the asset-purchase program "a few months" sooner than expected, i.e. by March instead of June 2022. Now, you must be wondering what does this means for crypto, fellow readers?
On the one hand, and as also explained over the past months, this bull cycle has been mostly driven by institutional investors and not retail investors - i.e. the individuals who buy cryptoassets through apps like Coinbase and B21. Institutions are more affected by the Fed's policies as they are typically exposed to the wider market, which reacts to expectations around the economy's anticipated performance. On the other hand, traders like to trade potentially volatile news.
Note equities have bounced hard after the COVID slump in March 2020 due to the Fed's commitment to purchase bonds and mortgage-backed securities in its now popular quantitative easing program - which added liquidity to the real economy (and helped increase inflation) and, in turn, boosted stock prices. With its end, the markets are expecting less money trickling down until it eventually reaches people's pockets, and thus a halt in economic growth - meaning stonks can dump.
Both the S&P 500 and the Dow are down 3% to 5% since their all-time highs. But remember the tapering program isn't new and the Fed has been preparing the market for it for many months. As Alex Krüger says in today's Tweet Tip, as long as the global market doesn't crash hard this only means we'll go up in a slower and bumpier manner. That's also aligned with the supercycle hypothesis: i.e. this bull market will continue for longer than expected with some larger pullbacks like those we saw this summer. Now, let's see if December marks the start of one or not. For the moment, we're still stuck in the $52k to $64k range!
Chart art: ranges are here to stay.
Three things: super what?
- CoinShares explains the "Dynamic Supply Cyclicality Thesis"
- Paul Harwood explains "why smart money matters more in crypto".
- Cooopahtroopa explains "how can DAOs successfully scale".