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| By Alex Benfield |
Crypto has been trying to register a bottom since the lows set on Saturday, but we've yet to see any positive momentum. And today's news is unlikely to help. The United Kingdom released this month's inflation data, revealing it to be an astonishing 9.1%. That's a 40-year high and awfully close to double-digit inflation. Additionally, Germany's Producer Price Index inflation came in at 33.6%.
Talk about unstable prices! The higher-than-expected inflation and a general lack of a strong governmental plan to stop it has investors worried yet again as they're faced with a difficult truth: Inflation is here to stay, likely for a good while longer than any of us were prepared to deal with.
And the impact of it is hitting twice as hard here in the U.S. because the Federal Reserve has decided to fight it with everything it's got, raising interest rates at a record speed and finally starting quantitative tightening.
This squeeze on liquidity has hit the markets hard. Equities, bonds and cryptos have been feeling the pain. But the Fed has no reason to reverse course any time soon.
The latest jobs report from the U.S. Bureau of Labor Statistics confirmed that the number of non-farm jobs rose while unemployment remained 3.6% for the third consecutive month.
May's figures were the first since the Fed's first substantial rate hike, showing the economy can apparently withstand the squeeze as the Fed focuses on "reducing demand" — code for crashing the markets. That's the price it believes is necessary to stop inflation.
But this isn't new. We've been here before. And each time we were, the Fed inevitably reversed course before allowing the markets to spiral out of control into true depression levels.
Our bet is that this time will be the same — the Fed will reverse course after it becomes painfully obvious that the markets will collapse under the pressure of more QT and higher interest rates.
When will that point be? We can't know for sure, but I wouldn't be surprised to see it start sometime between the end of 2022 and mid-2023.
But whenever the money printer turns back on, crypto will once again be one of the biggest winners.
In fact, Bitcoin BTC, Tech/Adoption Grade "A-") is up around 700% since the COVID-19 money printing began. If the next round of money printing is as good as the last for BTC, then another 700% would push the price to north of $150,000.
Let me be clear: That certainly isn't going to happen in the near future. But if and when the Fed backtracks on its recent hawkishness, it's reasonable to assume that Bitcoin will begin to climb again.
For now, the market leader is still in dicey territory.
It did manage to move above the significant $20,000 level earlier this week and has traded above it since. However, it'll need to turn that into solid support and reclaim the $24,000 level before we can confirm Saturday's lows as the cycle bottom.
It if can, the next level of upside resistance would be $28,000 … but that feels very far away at the moment. If BTC falls, it'll need to hold above the recent low of about $18,000 or it could take even longer to climb out of this hole.
Here's BTC in U.S. dollar terms via Coinbase (COIN):
Ethereum (ETH, Tech/Adoption Grade "A") is in much the same boat as Bitcoin right now — it simply has been unable to build up any positive momentum.
The only difference between these two asset's charts is that ETH has a closer resistance/support level: its previous bull run high of $1,400. For ETH to climb back above its moving average, it only needs to climb to somewhere north of $1,200 and hold there for three days. Though, it'll be much more stable if it can regain that $1,400 level.
On the downside, it needs to remain above $1,000 to fight off more bearish action. Keep your eyes on that $1,400 level over the next few days.
Here's ETH in U.S. dollar terms via Coinbase:
Notable News, Notes and Tweets
- On the non-fungible token front, adoption has kept pace. Now, eBay (EBAY) has acquired an NFT marketplace.
- It appears that the Three Arrows Capital situation just keeps developing. It's now being reported that they owe $650 million to lending firm Voyager.
- Deloitte and NYDIG have now partnered up to bring further Bitcoin adoption to companies through rewards programs.
What's Next
After weeks of high volatility, a constant barrage of negative stories and consistent market losses, things have settled a bit in the crypto market.
Investors should use the relative calm as a respite from the recent madness … and an opportunity to prepare for what is to come next. This week will determine if the market has in fact bottomed out for now or if there is more downside ahead.
We've said repeatedly that we believe the market is close to a bottom. Saturday's lows look promising, but if they don't hold, we still think the market will bottom soon.
In the meantime, we'll continue to provide the best analysis to help you act intelligently — rather than emotionally — as this market makes up its mind. Stay tuned.
Best,
Alex
