Sometimes, Neutral Is a Positive
|By Alex Benfield|
The traditional equities markets have been in an absolute panic over the past few weeks as investors have started to price in the Federal Reserve's plan to hike rates.
The S&P 500 is down more than 17% from its all-time high registered in January of this year. Tech stocks have performed even worse.
Inflation in the United States has climbed to over 8% on a year-over-year basis and is hitting just about every American in ways they've likely never seen before. Every trip to the gas station or the grocery store is another reminder of the dire situation at hand.
The Fed has attempted to hike rates multiple times since the 2008 Financial crisis, but they've never had to fight off inflation like the kind we're currently seeing. The problem is dire and must be addressed. But the question at hand is whether the Fed can effectively counter this problem and manage a "soft landing" in the markets.
My guess is that a "soft landing" is not possible. America will have to either deal with high inflation or crashing markets.
And that's where crypto comes in.
Remember, Satoshi Nakamoto created Bitcoin (BTC, Tech/Adoption Grade "A-") in response to this exact problem. Satoshi saw how monetary policy directly affected citizens in a negative way, so he created the hardest money the world has ever seen, Bitcoin.
The idea was that people worldwide could take advantage of this store of value by holding Bitcoin and essentially opt out of the painful monetary system that is currently plaguing America, and indirectly, the rest of the world.
And as adoption grows, we've seen that reality start to take shape.
In the years that have passed since Bitcoin's creation, this space has evolved, and new financial tools have been introduced.
We now have the likes of Ethereum (ETH, Tech/Adoption Grade "A"), which has its own decentralized financial (DeFi) sector built on top of it. With DeFi, users can now opt out even further by loaning and borrowing cryptocurrencies, trading cryptos and managing their money on their own using self-custody wallets.
The DeFi ecosystem continues to rapidly grow as the smartest minds in the world are now flooding in from Wall Street and Silicon Valley to work in the crypto industry.
To see the crypto market trading sideways during a time when other markets are panicking is reassuring. While those investors are looking for what they can sell for additional liquidity, the on-chain metrics show that the number of long-term crypto HODLers is at or near an all-time high, and many in the market flat out refuse to sell their crypto.
I pose this question: Where else would you rather hold your money?
With equity markets in a freefall, inflation watering down the value of your cash holdings and mortgage rates increasing, don't you owe it to yourself to at least look into holding cryptocurrency?
Sure, not all cryptos are created equal. But select, top-performing cryptos should be in any diversified portfolio.
Top cryptos like Bitcoin. In the chart below, you can see it's been trading in a tight range between $28,000 - $31,000 for the past two weeks.
Usually, we'd be bored or concerned with sideways trading, but as I said earlier, it's welcome in the midst of the broader panic. The QQQ Nasdaq index is down over 4.5% in that same time.
Keep in mind that crypto is supposed to be the more volatile market.
Bitcoin needs to hold above the low it made on May 12 of about $25,500 to fight off the bears. Even better, if it can regain $30,000 as strong support. That would give it a better foundation before it attempts to challenge overhead resistance at $32,000 and $35,000.
A rally in the coming days that could help BTC gain some momentum isn't unlikely. But we still expect any bounce to be short-lived unless traditional markets follow in the same direction.
Ethereum (ETH, Tech/Adoption Grade "A"), the No. 2 crypto by market cap, is another top performer. It's been trading flat since the May 12 low as the bulls and bears have been battling over the key $2,000 level.
The important levels to watch out for on ETH's chart are the summer 2021 low of $1,750 and the January 2022 low of about $2,400. If the bulls can push ETH back over $2,400, they should be able to buy themselves some breathing room.
Here's ETH in U.S. dollar terms via BITSTAMP:
Notable News, Notes and Tweets:
• Ari Paul of Blocktower drafted a great Twitter thread that showcases how important stablecoin projects could become for the crypto industry.
• The Bitcoin Fear and Greed index, which tracks market sentiment shows, that investors are panicking right now. That usually signals that a buying opportunity is near.
• JPMorgan Chase (JPM), which has previously been a big critic of Bitcoin, now says that Bitcoin and cryptocurrencies are their preferred alternative asset class … Oh, how the tables have turned.
It's not unreasonable to feel bored by the current sideways price action in crypto or worried about the recent tailspin in equity markets. In environments like these, it can be easy to lose track of the positive developments in the space.
But I want to assure you there arereasons to be optimistic right now.
Crypto adoption continues to track upwards and on-chain metrics confirm that people are holding onto their Bitcoin at record levels.
Other metrics — such as the Fear and Greed index and our own Crypto Timing Model — show that a buying opportunity is close at hand.
That isn't to say we expect things to drastically turn in favor of the bulls. In fact, prices could still fall in the coming weeks, especially with the Fed officially starting the quantitative tightening process in June.
Still, we do anticipate a crypto market bottom will be confirmed sometime before the end of the summer. That means there'll be some exceptional buying opportunities coming soon.
Sideways price action can be boring, but don't let it distract you from the excitement going on behind the scenes.