Doc's Daily Commentary
Mind Of Mav
What Today’s Interest Rate News Means For Crypto
This is what we call baking in the bad news.
Crypto markets jumped modestly after the U.S. Federal Reserve raised its benchmark interest rate on Wednesday by 0.25%, a hike that was widely expected by investors and was factored into token prices leading up to the decision.
Prior to the decision, futures markets indicated a 98.3% probability of such a hike.
Investors have been nervously watching the Fed as consumer prices surged 7% in 2021 to a 39-year high. The central bank signalled it would hike interest rates to rein in inflation, a move equity investors tend to dislike because it makes bonds more attractive. Crypto has been closely correlated with stocks for the last few months. Commodity prices are also skyrocketing, especially as Russia’s war on Ukraine shakes up the oil and natural gas markets as well as the production of metals and staples such as wheat.
Now investors are bound to watch the Fed closely to see if it will take a more hawkish stance and increase rates even more. Such a move would likely be a bearish signal for asset prices including crypto, which is why we saw a global selloff in January after mere hints that loose monetary policy was drawing to an end.
Some are already bracing for more rates with gallows humor:
The Fed has a long history of hiking interest rates too much and too fast causing a future recession. They have done this repeatedly in the past and will do it again. The reason this is so easy to do is because a change in interest rates today does not show up in the economy until about 18 months later. There is a lag effect and that is what temps the Fed to raise too much, too fast, every single time.
The US Dollar has dropped down and is ready to spike up, suggesting stocks will be dropping again by Monday 21 March latest.
The VIX, Fear Indicator, dropped very low today and will rebound within a few days making stocks drop — once again, by Monday 21 March latest.
The US Yield Curve is moving into an INVERTED YIELD CURVE in about 2 to 3 months, by around June 2022. When the Yield Curve inverts the stock market crashes, there will be a big market crash within 3 months of today based on how long it will take the yield curve to invert. We have a couple months of up, up and away left.
Here’s how that translates to market conditions over the next year:
A study by Deutsche Bank indicates that a Recession normally follows the first interest rate rise within 1 to 3 years. Today was the first interest rate rise in 3 years so expect 2023 to be a recessionary year. Right after the US midterm elections in November 2022, expect to see the USA and world slide into global recession within Q1 of 2023. By then the impact of the Fed raising interest rates too many times and too aggressively will take its toll and a depressing recession will result for the entire world.
Inflation will peak and start coming down much sooner than anyone currently thinks. The Fed will NOT raise interest rates 7 times this year and will in fact end up PRINTING MORE MONEY in 2023 after the Big Market Crash to revive a crashing global economy that needs life support. 2023 will be the year when a new global financial system is put in place and CBDC (Central Bank Digital Currencies) become common. The Chinese e-Yuan is already live and was used extensively during the recent Winter Olympics.
We are in a Bearish down-trend as all the money printing from the pandemic now unwinds. The markets are headed down, down, down so be very careful. Those who simply hold cash may end up beating 90% of investors! Bear markets don’t drop in a straight line. They drop, go up a bit and drop some more, then go up a bit and drop some more. If you know what you are doing you can swing trade this choppy drop but most won’t be able to manage the timing properly, so be very careful. The good ole days of the pandemic where everything just kept going up and up are gone. The market is at least 170% overvalued so you should expect a further ~70% drop coming over the next year.
Mr Powell and The Fed will aggressively raise interest rates until they crash the stock markets — and I am talking an eye watering freefall drop way, way down. They will unwind like this due to the extreme leverage that exists in margined positioned — currently at an all time historical high (i.e. borrowed money used for trading).
Supply chains will remain congested and severe global food shortages will start to appear soon.
As always, Bitcoin will likely react negatively to any short term extreme move in the macro markets, but any BTC below $20,000 is a buy to me.
Good luck ahead.
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