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In this episode of the “Fed Watch” podcast, Christian Keroulis and I, along with the live broadcast crew, discuss macro-developments related to bitcoin. Topics include the Federal Reserve’s recent 50 basis point interest rate hike, a Consumer Price Index (CPI) preview — the episode was taped live on Tuesday, before CPI data was released — and a discussion about why landlords’ equivalent rent is often misunderstood. We conclude with an epic discussion about the price of Bitcoin.
This could be a pivotal episode in the history of the Fed Watch, because I would say in the records that Bitcoin is “nearby” from the bottom. This is in stark contrast to the bearish trend prevailing in the market at the moment. In this episode, I rely heavily on the graphs that didn’t always line up during the video. These diagrams are provided below with a basic explanation. You can see the entire set of chipsets I used here.
“Fed Watch” is a podcast for people interested in the current events of the central bank and how Bitcoin will integrate or replace aspects of the traditional financial system. To understand how Bitcoin will become global money, we must first understand what is happening now.
The Federal Reserve and US Economic Figures
In this first chart, I’m referring to the last two hikes the Fed made on the S&P 500 chart. I wrote in this week’s blog, “What I’m trying to show is that rate hikes per se aren’t the Fed’s primary tool. Talking about raising interest rates is The essential tool, along with strengthening faith in the magic of the Fed.” Remove the arrows and try to guess where the ads are.
The same goes for the following chart: gold.
Finally, in this section, we looked at a Bitcoin chart with a quantitative easing (QE) and quantitative tightening (QT) chart. As you can see, in the era of “quantitative no easing” from 2015 to 2019, Bitcoin experienced a 6000% bull market. This is the exact opposite of what one would expect. To summarize this section, federal policy has little to do with major market fluctuations. The volatility comes from complex tidal waves that are not known in the market. The Fed is just trying to flatten the edges.
It’s hard to write a good summary for this part of the podcast, because we were living the day before the data was dropped. In the podcast, I cover the Eurozone CPI as it rose slightly, to 7.5% in April YoY (YoY), with the MoM rate of change dropping from 2.5% in March to 0.6% in April. This is the story most people miss in the CPI: Monthly changes slowed rapidly in April. I’ve also covered CPI forecasts for the US in a podcast, but we now have solid data for April. The US core CPI fell from 8.5% in March to 8.3% in April. The change on a monthly basis decreased from 1.2% in March to 0.3% in April. Once again, a significant decrease in the rate of increase of the CPI. The CPI can be very confusing when you look at the annual numbers.
Inflation in April appears to have been measured at 8.3%, when in fact, it was only measured at 0.3%.
The next topic we cover in the podcast is rent. I often hear a misunderstanding of the CPI metric for a shelter and especially an owner’s equivalent rent (OER). For starters, it is very difficult to gauge the impact of increases in housing costs on consumers in general. Most people don’t move around much. We have 15 or 30 year fixed rate mortgages which are absolutely not affected by current home prices. Even the lease contracts are not renewed every month. Contracts usually last for a year, sometimes longer. Therefore, if a few people pay higher rents in a given month, it will not affect a person’s average shelter expenses or a landlord’s average income.
Taking current market prices for rents or homes is a dishonest way of estimating the average cost of housing, however failure to do so is the CPI’s most quoted criticism. Warning: I am not saying that the CPI measures inflation (printing money); The price index measures to maintain your standard of living. Of course, there are many layers of subjectivity in this statistic. OER more accurately estimates changes in housing costs for the average American, smooths out fluctuations and separates pure shelter costs from investment value.
Bitcoin price analysis
The rest of the episode talks about the current Bitcoin price movement. I start the bullish rant by showing the retail price chart and talking about why it was delayed and confirmed. With the hash rate at all-time highs and ever increasing, this indicates that the value of Bitcoin is somewhat at its current level.
Recent years have seen shorter and smaller gatherings and smaller and shorter declines. This graph indicates that a decline of 50% is the new normal, instead of 85%.
Now, we get into some technical analysis. I focus on the Relative Strength Index (RSI) because it is very basic and a building block for many other indicators. The monthly RSI is at levels that usually indicate cycle lows. Currently, the monthly metric shows that Bitcoin is more oversold than it was at the bottom of the Corona crash in 2020. The weekly RSI is equally oversold. It’s as low as the bottom of the Corona crash in 2020, and before that, the bottom of the bear market in 2018.
The index of fear and greed is also very low. This metric shows “extreme fear” that typically scores at relative lows and at 10, the lowest rating since the COVID-19 crash in 2020.
In short, my contradictory (upward) argument is:
- Bitcoin is already at historical lows and could fall at any moment.
- The global economy is getting worse and bitcoin is free of counterparty, which is good money, so it should behave similarly to 2015 at the end of quantitative easing.
- The Fed will have to reverse its story in the coming months which could ease downward pressure on stocks.
- Bitcoin is closely tied to the US economy at this point, and the US will weather the upcoming recession better than most other places.
This he does for this week. Thanks, readers and listeners. If you enjoy this content please subscribe, review and share!
This is a guest post by Ansel Lindner. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.