Rapture #186: Crypto Breaks Down

Rapture #186: Crypto Breaks Down

Increasingly, the BTC rise to $47,500 is looking like a bear market rally. While I would like to see a drop below $37,500 for further confirmation, the fact that the market has dropped on significant bullish news such as Do Kwon's/Saylor's recent $2 billion in buys and Tesla teaming up with Blockstream to mine BTC is undoubtedly bearish. The $45,000 break is now looking like a deviation in a downward trend rather than an indication of a bull market return. In addition to BTC's drop, many leading altcoins (ex ETH) are nearly back to their YTD lows.

While the Do Kwon purchases of BTC at first caused some bullish price action, it seems that this market wants no heroes to swoop in for the save. I previously outlined that if the market did not continuously move in a bullish direction with such consistent buys, the event would further signify we are in a crypto bear market.

I won't consider my recently consistent bearish calls to be correct unless BTC breaks $35,000 (our previous low in the downward trend from the $69,000 high), but I am gaining confidence in my base case.

From market friend to enemy

The Federal Reserve continues to disseminate hawkish signals, and the recently released FOMC meeting minutes display that the central bank will likely take actions the market previously expect. Specifically, the Federal Reserve is now looking at a target balance sheet reduction of $95 billion ($60 billion in treasuries and $35 billion in MBS). This runoff will not come from sales of assets, but will occur from the Federal Reserve not purchasing these assets after their maturity dates come due.

Yet the Federal Reserve is now also discussing outright sales of a portion of their MBS holdings, which would put far more pressure on the market and is an action that likely was not priced in.  

Furthermore, the Fed described how it was seriously considering a 50 bps rate hike in the March meeting but opted out only because of the Russian war. The fact this stance was disclosed to the public increases the chances the Federal Reserve conducts 50 bps rate hikes in future Federal Reserve meetings.

If you are interested in a thread explaining all of these actions, Adam Cochran summed it up nicely.

Some on Twitter are retorting that this price action is to be expected with the Bitcoin 2022 conference going on (which many believe has historically led to market pullbacks), but I find it hard to believe a single conference can adversely affect a $800+ billion market.

The future

There are a plethora of likely bearish events on the horizon, including the March CPI inflation report that comes out on April 12th, the next FOMC meeting on May 3rd, and Russia/Ukraine peace talks souring over the Bucha massacre.

Regardless, I believe we will have clarity on the crypto market's direction within the coming few weeks.


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