Narrator: support did not hold
Markets continue their recessionary jitters. Bitcoin makes a lower low.
After over a year of choppy price action, characterized by four higher lows and two higher highs, the bitcoin price has finally broken down in sympathy with global risk markets. Generationally high inflation has driven higher rates and recessionary impulses (severe tightening of financial conditions), which have led stocks and strongly correlated bitcoin to shed market cap as if it was going out of style.
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Here is a bitcoin chart as of about 6:00 AM PST. You can see that we lost the uptrend over the weekend and made a lower low this morning.
The breakdown of the Japanese yen is unleashing an unwind of Japan’s US Treasury position (this is only one source of Treasury weakness), leading to spiking rates in Asian trading hours, and higher rates only continue to freak out risk investors around the world. A sense of panic is in the air, as the Fed appears nowhere near close to caving on rate hikes despite a slowing economy and faltering stock markets.
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Bitcoin investors are not immune—years of believing in bitcoin as the non-correlated asset, poised to outperform the dollar over any long enough time horizon, are quickly forgotten when displacements in the market cause investors to act emotionally.
Picking a bottom is somebody else’s job. Mine is to explain larger global macroeconomic trends, one of which is that bitcoin is a world-changing technology that will see adoption reach a billion users over the next several years, and secondly that the business cycle is the main driver of investment returns.
There are an unknown number of forces exerting their influence on markets at all times, and my quest has always been to understand as many of these moving parts as possible, and how they interact. Hopefully, readers of this publication are starting to pick up some of these moving parts and are able to identify that global markets move in a non-linear fashion. I’ll continue to expand on my framework via this publication.
Where has The Bitcoin Layer been right and wrong over the past few months? On the wrong side of things was my prediction that bitcoin’s uptrend would hold. It didn’t. Also on the wrong side was my expectations that 2.75% to 3% would be bought in Treasury land—yields have continued to creep higher and sit today at 3.10%. The jury is still out on the “Treasury bubble bursting” thesis, but by now you know where I stand on that.
On the right side was my expectation that the Fed would hike into equity market weakness and wouldn’t be acknowledging the effect it has on deteriorating liquidity. The Fed has hiked 75 basis points, plans for another 100 by July, and hasn’t expressed even the slightest concern about where Amazon and Netflix are trading. Stocks still have plenty of room to the downside before the Fed flinches. Also on the right side was my prediction that the flattening of the yield curve last year was a leading indicator of economic weakness—global survey data (PMI, ISM) is rolling over, and this should be followed by slowing inflation, growth, and Treasury yields.
If you’re interested in a deeper dive into the recent liquidity concerns, please check out my post from last week:
Lastly, I want to thank all the subscribers for your continued support. I hope you find this publication adds value to your overall global macro and bitcoin learning process, and I want to reaffirm my commitment to being your opinionated and objective narrator on this long journey to bitcoin becoming a world reserve currency—it’s going to take many years. Stay safe out there, trying to time markets is a suicide mission.
Until next time,
This post was sponsored by Voltage, provider of enterprise-grade Bitcoin infrastructure.