The Bitcoin Layer

The Bitcoin Layer

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The Bitcoin Layer
The Bitcoin Layer
On-chain chart pack: the spring is coiling

On-chain chart pack: the spring is coiling

With cooling inflation and the futures and rates markets expecting a Q1 Fed pause, how will bitcoin react moving into this potential risk-on phase?

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Nik Bhatia
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Joe Consorti
Aug 17, 2022
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The Bitcoin Layer
The Bitcoin Layer
On-chain chart pack: the spring is coiling
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Today’s topics:

  • The expected Fed pause means relief for risk assets, including bitcoin

  • Miners have started recovering from a profitability crisis

  • Convicted bitcoin investors have stomached heavy losses and continue to hold

  • Coins flow off exchanges en masse


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Rates before bitcoin, dinner before dessert

Fed Funds Futures are derivative contracts used by major market players to hedge the Federal Funds Rate. This instrument is a cornerstone of our macroeconomic analysis because markets trade behaviorally, and if they’re telling you they expect the Fed to pause, there is likely a good reason for it: price action alone often paints the fullest picture of market expectations. Right now, after the fastest Fed hike cycle since 1994, the markets are putting their money on continued CPI disinflation and a pause in Q1.

Federal Funds Futures [OIS]

The market expects a pause, and the Fed anticipates the same since its two favorite metrics—the 3m10s Treasury spread (about to invert) and 5Y5Y inflation swap (stopped increasing above ~2.5%)—are both indicating that a pause is the next logical move in the next six months.

We know that a pause is somewhere on the horizon. When it eventually does come and the Fed takes its proverbial boot off the neck of growth, bitcoin should respond positively. But what do the internals of the bitcoin market look like, ignoring the macroeconomic conditions that surround it?

A floor is set, and holders remain steadfast

We discussed seller exhaustion a few weeks ago, and bitcoin has picked up steady buying momentum since then, firmly establishing support in the low-$20k area. Bitcoin is in what seems to be the early stages of a trend shift, corroborated by a few bitcoin-native indicators. Realized cap (the market cap of bitcoin measured by every satoshi of bitcoin’s supply is valued at the price when it was last moved) has been establishing a floor at ~$416 billion for several weeks:

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