Bitcoin: Half A Year Of Drawdown
Also Ethereum is struggling, inflation and rate cuts trajectory
Welcome to the Friday edition of the Ecoinometrics newsletter.
Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets.
Today we'll cover:
Bitcoin: half a year of drawdown
Ethereum is struggling
Inflation and rate cuts trajectory
Each topic comes with a small explanation and one big chart. So let’s dive in.
In case you missed it, here are the other topics we covered this week:
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Bitcoin: Half a Year of Drawdown
The Federal Reserve just announced a 50bps rate cut, and the market is celebrating. But we'll see how long that lasts. Fundamentally, not much has changed so far.
While Bitcoin is having a good day (for once), it's worth noting that it has been in a drawdown for what is historically a pretty long time:
189 days
Bottom at -33%
Currently at -13%
As you can see on the chart, this duration for a drawdown is uncommon for Bitcoin. At least much less common that the current drawdown of the NASDAQ 100. Historically with Bitcoin either the drawdowns last less than 200 days or they become very long drawdowns (cut out from the chart).
The path of rate cuts laid out by the Federal Reserve might not be enough to get us out of this situation. What really matters is whether the US enters a recession or manages a soft landing.
Ethereum Is Struggling
Ethereum has had a tough year. Unlike Bitcoin, ETH is basically flat for the year.
The Bitcoin ETFs launch at the start of the year didn't help ETH much. Even the launch of its own ETFs in July failed to boost its price.
We recently discussed why I'm skeptical about Ethereum's short-term potential in the newsletter.
It looks like there just isn't enough money flowing into crypto to make a real difference for ETH.
The chart clearly shows the divergence between Bitcoin and Ethereum's performance since the bottom of the bear market. While Bitcoin has seen a 232% increase, Ethereum has only managed a 77% gain (for reference the chart was made just before the FOMC meeting).
Inflation And Rate Cuts Trajectory
Core inflation (CPI) rose year-on-year in August. Yet the Federal Reserve still decided to cut rates. Why?
The reason is that supercore inflation has dropped significantly. This is what really matters to the Fed right now.
Supercore inflation measures price changes (mostly) in the services sector. It's heavily influenced by wages and the overall labor market.
Until a few months ago, inflation was deeply entrenched in this area of the US economy. The fact that it's now trending down means the main cause of the Fed's inflation worries is fading.
This gives them room to start cutting rates without immediate concerns about inflation returning.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.
Cheers,
Nick
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ETH/BTC about as ugly as it gets. Second time in the most oversold RSI reading. Seasonality and alt coin time cycles kicking in. ETH chart holding macro support. Reversion coming