Bitcoin never goes up in a straight line
Also the Federal Reserve means business with QT and a reminder of the lead time to a recession.
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 won’t emerge from a bear market by simply moving up and to the right.
$1 trillion down, $7 trillion more to go on the Fed balance sheet.
What the inversion of the yield curve tell us about the months to come.
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:
Higher rates or debasement? These are the choices to deal with the US deficit.
Spot Bitcoin ETFs are getting closer. What does that mean for the Bitcoin miners?
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Bitcoin won’t emerge from a bear market by simply moving up and to the right
There is only one thing that gets Bitcoin investors more excited than the halving: the launch of a spot Bitcoin ETF in the US.
The idea is that an ETF would lead to the large amount of institutional flow the Bitcoin market has been waiting for years. Large and possibly ongoing if your average pension fund decides to get a small exposure to BTC.
Remember that at the moment a large portion of institutional money cannot touch Bitcoin due to its unusual nature as investment. But wrapped inside an ETF it suddenly becomes more accessible.
Now we have been talking about that for month. Looking at what kind of impact this could have on Bitcoin’s price. Trying to understand whether or not it will disturb the Bitcoin miners stocks (which are proxies for BTC investments for institutions). And trying to guess whether or not we’ll get those ETFs sooner or later.
I’m not going to explain that today.
What I want to talk about is this Bitcoin pump. BlackRock gets a ticker for their Bitcoin ETF. BTC is up 20% in a week… This is a large move, but nothing we haven’t seen before.
And people are already talking about the fact the bear market is over.
To that I want to give a word of caution.
Even if the bear market is over, Bitcoin never goes up and to the right without some violent correction along the way. If you have forgotten that, look at the chart below which shows the trajectory of BTC during the drawdowns of the major bear markets.
So be cautious out there. Don’t be surprised if we end up with a retracement at some point.
$1 trillion down, $7 trillion more to go on the Fed balance sheet
The Federal Reserve means business. When they say they are running a Quantitative Tightening playbook, they are really doing the work.
Since the start of QT in April 2022 they have managed to shed $1 trillion worjth of US Treasury bonds and MBS from the balance sheet.
Relative to the QE expansion post-COVID that’s a 19% reduction. And they managed to achieve that despite $391 billion “wasted” on averting a banking crisis earlier this year.
So Jerome Powell is really trying to get inflation spike (which to be fair he contributed in creating) under control.
Now $1 trillion might seem like a lot. But we are still $4.2 trillion higher than before COVID and $7 trillion higher than before the Great Recession. So quite a long road if the Fed is ever to normalize the situation.
What the inversion of the yield curve tell us about the months to come
I am once again asking you not to ignore the inversion of the yield curve.
The yield curve first inverted 15 months ago. Historically most recessions happen within two years of this inversion event. And on average a recession starts 18 months after the first inversion.
That means if the US is going to enter a recession, then the next 6 months are the most likely period for this to happen.
If we do not see a recession before July 2024 then we’ll have an outlier. That has happened once before. The inversion event that preceded the recession of 1969-1970 occured a whole 50 months prior. But if you are playing the odds then now is the time to take this risk seriously.
Recessions aren’t good for any kind of investment. That includes Bitcoin. So I don’t advise you decide to play with leverage or highly illiquid assets in the next couple of quarters.
Your call.
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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Detailed yet readable with insights that shouldn’t be disregarded. Good work and very useful for myself. Thank you very much