Inflation and Consumer Confidence
(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
Recently released Core CPI numbers held steady compared to last month, signaling a possible slowdown in inflation. All eyes are again glued on the Fed as they plan to start quantitative tightening, causing a tumble in the equity and crypto markets the week before.
Summary
General: We saw the 29,156 BTC outflow from Coinbase. One of the largest that we have seen on the exchange
Technical: BTC consolidated above the $40,000 level, trading in a highly tight ~$2,000 range this week. Right before the time of release, BTC broke support selling off into ~38,500 before being bought up over the $40,000 support, a bullish signal
Recommendation: The market seems to be waiting for a catalyst to decide its direction. We recommend using the Grid Bot to take advantage of the trading range if you are neutral. If you are more bullish, we recommend buying crypto-assets outright if BTC shows strength over $42,000
Important News
- Apr 11: White House releases a new report blaming Russia for “extremely high inflation“
- Apr 12: Consumer Price Index (CPI measures the price of purchase for consumers) increase 8.5% vs. 7.9% previous
- Apr 12: Core CPI 6.5% vs. 6.4% previous (excluding energy and food)
- Apr 13: Producer Price Index (PPI measures the price of goods sold by manufacturers) increased 1.4% vs. 1.1% forecast vs. 0.9% previous
- Apr 14: Bank of Korea Hiked interest rate from 0.25% to 1.5%
- Apr 17: China’s first-quarter GDP rose by 4.8%, topping expectations of a 4.4% increase
After a relatively quiet week, bitcoin suddenly broke under the critical $40,000 support level and fell ~3% in 10 minutes to a low of $38,561, liquidating 30 million in longs. This move looked very bearish for bitcoin as $40,000 was a strong support level, but things got interesting as prices shot back up and reclaimed the level. This move up liquidated ~47 million in shorts, and in total, there was ~90 million in liquidation from this shakeout.
Last Monday, the White House released a report pointing at Russia as the cause of the extreme inflation, preparing the market for a possible high CPI number. This caused the markets to decline rapidly, BTC was down ~6% on that day, and ETH was down ~7.5%. On Tuesday, investors were happy to see that core CPI came out at 6.5%, just a 0.1% increase from the number last month. The core CPI shows that the prices of consumers goods aside from food and energy have held flat. Investors cheered the smaller than expected increase in the core rate. Crypto and stocks rose after the CPI report but ultimately closed lower on the day. The PPI measures the price of goods sold by manufacturers, a leading indicator for CPI, which came out at 1.4% this past Wednesday. This number showed a 0.5% increase from the previous month, signaling that the expectation of inflation stalling might not be the case.
Our views
There are many risks and negative commentary going around due to the Fed and plans of Quantitative easing. The reduced liquidity and higher risk-free rate are causing sell-side pressure on both the equities and crypto markets. However, on-chain metrics such as long-term bitcoin holders keep rising, a sign that there is still a lot of accumulation at the current levels. We are neutral in the short to medium term.
Recommendations
With bitcoin back inside its trading range, we could again see prices trapped. Depending on your market perspective, there are strategies to implement. We recommend using the Grid Bot to capture moves inside the trading range for more neutral users. You can use the upper trading range of $47,000 – $50,000 as the upper limit and the lower support of $30,000 – $35,000 as the lower limit. If bitcoin can hold over $40,000 and break out of the top of this week’s trading range, it will be a bullish sign and could bring in continued buying. So for others with a more bullish perspective buying your favorite crypto assets straight out when bitcoin breaks over $42,000 could be a possible strategy. Be sure to manage your risk. If we fall below $39,000 – $40,000 again, we could see follow-through to the downside.
Bitcoin’s daily volatility in the past 30 days is 2.23% compared to 2.89% last week. Its approximate 30-day average daily range decreased to $1,951 compared to $1,961 last week.
Technical Analysis
Bitcoin traded in a very tight $2,000 range this past week. Excluding Monday’s price action, it had a high of $41,300 and a low of $39,470. At the time of writing, a shakeout happened as prices broke the $40,000 whole number support. We see this as a stop hunt as most short-term traders like to put their stop orders below major support levels. Sometimes, larger traders try to transact large amounts quickly to trigger or ‘hunt’ these stop orders, causing a cascade of forced sales. However, this turned into a bullish signal because we saw buyers step up at the $38,000s and quickly push prices over the $40,000 level. It would be a bearish sign to lose the $39,000 – $40,000 support zone again, signaling more consistent selling pressure.
Fundamental Analysis
We can see clearly from the current price action of BTC that it cannot quickly go down for the time being because liquid inventory is gradually depleting, and the process is still intensifying. If the selling pressure cannot make long-term holders exit their bitcoin holdings, the market will be filled with long-term holders, and no available bitcoin can be bought. This situation has nothing to do with policies but largely depends on the supply-demand relationship.
We also observed there are high continued high amounts of bitcoin exiting exchanges. When large amounts of bitcoins leave exchanges, such as in the current situation, we usually see a corresponding bullish move.
Bretton Woods III-A New De dollarization Era
Wall Street recently panicked because Credit Suisse’s chief strategist Zoltan Pozsar wrote two notes illustrating that the international monetary system will fundamentally change with western sanctions against Russia. He foresees a monetary tipping point, in which a transition will take place from unsecured money to commodity-based money. In this new era, which he describes as Bretton Woods III, tangible assets such as gold and other commodities will play essential roles. He expects the US dollar to weaken while the ruble and the yuan stand out instead.
Bretton Woods System
The monetary system went through two periods after World War II. The original Bretton Woods system came to an end after releasing the link between gold and the dollar in 1971. This was followed by Bretton Woods II, a period of unsecured money accepted by faith in the creditworthiness of the US and Europe. The dollar and euro became the primary global currency.
Source: IMF
In our previous newsletter, The First Crypto War in the World, we expressed our view, stating the Ukraine war could be a crossroads for our monetary system. The creditworthiness of the dollar and the euro is now under discussion due to the blocking of Russia’s foreign exchange reserves. The world sees that holding dollars and euros bears a counterparty risk for the first time. The rest of the world could be reviewing the composition of its foreign exchange reserves based on this new reality. Countries that produce essential commodities can determine which currency they can be traded for, such as other currencies and gold. As a result, the dollar will play a less prominent role in the future.
At the end of his note, Pozsar wrote, “After this war is over, ‘money’ will never be the same again…and Bitcoin (if it still exists then) will probably benefit from all this”. In the future, we might live in a world where people focus more on ‘outside money,’ like gold and other commodities. Or they may turn to Bitcoin or other cryptocurrencies.
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