Nothing is immune to record levels of debt and soaring inflation. Even though the metaverse was born with the birth of the PC in the late 1970s, it is still so early in its current form as it takes full advantage of web3 decentralisation. Thus risk-on assets such as the metaverse are highly vulnerable to major market corrections.
When the Fed meets on Wednesday June 15 2022, watch for clues Fed Chair Powell leaves about delaying future rate hikes. That said, I doubt he can go dovish until stock markets start to crash as they did on Dec 24 2018 at which time he held an emergency meeting and reversed his hawkish stance. That was the major low for both stocks and crypto back then.
The same may be true this time as history rhymes. Plummeting major stock market averages and cryptocurrencies may force his hand as early as Wednesday to cry UNCLE. Still, President Biden is on the Fed’s side to fight soaring inflation as the top priority, so it is highly unlikely Powell will turn dovish until we see an S&P 500 down at least 33% to 50% off its peak. This would put the major low somewhere in the range of 3228 to 2409.
This suggests cryptocurrencies can fall much further before they too find major lows. Both stocks and crypto should remain highly correlated to moves the Fed makes in the coming weeks. The Fed became hawkish in both 2014 and 2018. Bitcoin halved in price roughly three times (Off peak: -50% then -75% then -87.5%), falling respectively 87% and 84% from its peak. Alt coins typically lost between 95-99%. Those two years had YouTube and mainstream commentators with their massive followings trying to call the bottom several times, failing each time, losing massive sums for their subscribers.
2022 is no different. I went on record warning of major headwinds in Nov-2021 when Powell removed the word “transitory” on inflation. He then went full hawkish in Dec-2021. I have sent out multiple reports since then suggesting to go to cash or to short. Using no leverage, I am up 82% so far this year just on shorting cryptocurrencies and buying SQQQ using the Market Direction Model. Shorting cryptos is one of the most risk things one can do, thus I advise against it unless you have figured out a method that works with your risk profile and trading personality, thus the Crypto Picks list took profits across most names in January 2022 and was fully in cash by February 2022.
Those who followed our suggestions at www.selfishinvesting.com of moving to cash starting last December 2021 or shorting the market have not been bloodied but instead are in a much psychologically stronger position to take advantage of buying when the time is right. That time will most likely occur when the Fed Chair becomes materially more dovish. CME Fed Futures think he will be forced to remain hawkish for the time being. They don’t believe he will be able to postpone rate hikes or start a new round of quantitative easing as they are now pricing 97% odds for a 75 basis point hike on Wednesday and 79% odds for a second 75 bps rate hike in July at the time of this writing.
Crypto and stock market bottom when?
This begs the question as to when stocks and cryptos will find major lows. A few metrics of note including the on-chain cost basis ratio which compares the short term and long term holder cost basis’. The ratio of the two is the dark blue line. Whenever long-term holders’ cost basis crosses above short-term holders’ as it did at major lows in Jan-2015 and Dec-2018, Bitcoin has reached an area of generational buying opportunity. It did not cross the horizontal green line in Mar-2020 because the Fed stepped in and aggressively started printing money. Until they signal some sort of dovishness, the dark blue line is likely to cross the green line, pulling down the price of Bitcoin further.
Another metric is the MVRV Z-Score which is the market value to realized value ratio. When it crosses below zero as noted by the faint green horizontal zone, sellers are selling at a loss. It is likely Bitcoin will get pulled down to that green zone once again as it did in Jan-2015, Dec-2018, and Mar-2020.
The Bitcoin hash ribbons are also starting to invert as shown by the green line crossing over the blue line. This suggests the hash rate is starting to come offline usually as a result of stress in miner incomes. This happened in late 2018 and mid-2021 before Bitcoin found a major low.
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Dr Chris Kacher, PhD nuclear physics UC Berkeley/record breaking KPMG audited accts in stocks & crypto/bestselling author/top 40 charted musician/blockchain fintech specialist. Co-founder of Virtue of Selfish Investing, TriQuantum Technologies, and Hanse Digital Access. Dr Kacher bought his first Bitcoin at just over $10 in January 2013 and contributed to early Ethereum dev meetings in London hosted by Vitalik Buterin. His metrics have called every major top & bottom in bitcoin since 2011 to within a few weeks. He was up in 2018 vs the avg performing crypto hedge fund (-54%) [PwC] and is up well ahead of bitcoin & alt coins over the cycles as capital is force fed into the top performing alt coins while weaker ones are sold.
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