Well, the final week of July is upon us and it’s going to be a very interesting week.
Major financial events are coming to a head, which could influence the price of Bitcoin
and the crypto markets. Will the markets shrug these events off or will they be the catalyst
for another bear trend!? Well find out in about 10 minutes….because it’s time for Chico Crypto!
Yeah Bitcoin looked great last week…going on a bull rally from a low of 19k to reaching
24k midweek…but that run petered out towards the end of the week with Bitcoin retracing
back down to 22k. Why didn’t BTC keep running? Well because this week we have 3 major things
going on in the traditional world of finance. Earnings for major companies are being released,
the next FED FOMC meeting, and finally US GDP data is being unveiled for quarter 2.
So let’s talk about each, and how they could affect the Bitcoin price. Beginning
with the one on the top of everyone’s mind…The FOMC meeting &.Interest rates!!
Rising interest rates to be exact which is a climate the US hasn’t been accustomed to in a
very long time. For a two-year period dating back to early 2020, and for much of the decade prior to
that, the Fed has pursued what is termed an “easy money” policy. This includes maintaining the fed
funds rate at fairly low levels and expanding its balance sheet of bond market holdings.
As we can see from this chart, interest rates had been held near
0 from 2009 all the way up until 2016…then we started to increase…but the RONA hit,
and interest rates came right back down to 0 in 2020 where they were held up until 2022.
For a majority of Bitcoin’s existence…it has enjoyed a climate of low interest
rates. So how is Bitcoin performing in this much different environment,
when the FED is dead set on raising rates?
Well back in March we had the first interest rate raise? It was a modest one…of just 25
basis points and this came on March 16th of this year. So how did the BTC price react during this
time? Well pulling out the price chart…we can see the price days before the announcement on
March 16th deflated…but after it was announced the price ran from just under 40k to over 47k.
Why did this happen!? Well the Markets were expecting this type of raise…but
they were pricing in a higher raise, and preparing for the worst… which didn’t happen,
so when expectations were met…the price ran…
What happened at the next FOMC meeting in May!? Well the FED decided to up their
game…they raised rates by 50 basis points on May 4th. What happened to
the Bitcoin price? Well as we can see the price increased the days before the hike,
but after the hike was announced….down baby down….from 40k down to the 30k levels.
Now why did the price react like that this time? As we can see, the markets before the meeting were
expecting a 50 basis point raise…expectations were met…so what was the deal this time? Well
for one….no one expected this outlier….the Terra Luna collapse of 60 billion dollars….it
was a major contributor to the fall from 40k to 30k…but there was also this….going
back to the article on the basis point raise, we can see the FED at this meeting
detailed their plan for reducing their balance sheet. which also contributed to
downward pressure for risk on assets (Link #3 Fed Raises Rates May)
How about our most recent interest rate hike, just last month in June. Well June 15th,
the FED announced they were going forward with another increase. Raising interest rates by 75
basis points. How did the Bitcoin price react to this? As we can see
leading up to the announcement, the price was retracing and then when the announcement came,
the price retraced some more from 22k down to 20k.
Once again, the markets expected this…a 75 basis point raise,
so when expectations were met. The markets only reacted slightly downward….
So out of 3 rate hikes this year….the Bitcoin price has reacted good with upwards movements
once in March with the smallest hike, and bad twice…large downward movements
with the 50 point raise in May, which was exacerbated because of Terra Luna,
and then small downward movements with the 75 point raise last month in June.
So now that we know the history of this year's
interest rate hikes. What is going to happen this time!?
Well let's hear it from the bird's own words on what just may be coming. Homeboi Jerome,
Federal Reserve Chairman, had this to say after June’s raise.
He doesn’t expect 75 basis point raises to be common. Although with
this one in July either a 50 point or 75 point will be appropriate. No
talk of a 100 point raise…so me thinks that is totally out of the question.
So what are the markets expecting? Well Bloomberg covered this, a 75 point raise,
and the article states “Federal Reserve Chair Jerome Powell is likely to slow the
pace of interest-rate increases after front-loading policy with a second
straight 75 basis-point hike next week, economists surveyed by Bloomberg said.”
So we are running into another big rate hike,
of which the markets are fully expecting. Just like last month in June.
So many would expect the markets to react just like they did after the June hike,
with the price pretty stable only deflating a bit.
But we have things coming that we didn’t have last June….like the Quarter 2 US GDP data which
comes out Thursday, the day after the interest rate decision tomorrow
on Wednesday. This is coming from the Bureau of Economic Analysis,
and as we can see with the last reading, for quarter 1, US GDP decreased by 1.6 percent.
So what are people expecting this time around!? Well here is the thing going into this one…a
second negative GDP reading will officially confirm the US is in a recession. A common
rule of thumb for the definition of a recession? Two quarters of consecutive negative GDP growth….
So a negative reading would be very bad. Is a negative reading
expected!?? Well let’s listen to Treasury Secretary Janet Yellen thoughts on it..
So how negative will it be? Well a Trader Fortune on twitter tweeted this. Atlanta
FED *Downgrades US GDP Q2 forecast: -1.6% vs -1.5%(Prev) US is already in a recession. Next
week the FED will hike another 75bps into a recession, which will likely be
officially confirmed the following day. The major risk for Stocks is to the downside…
Expectations are negative 1.6 percent….which would officially mean recession!! And trader
fortune thinks there is major risk to the downside for stonks. So in my opinion,
it is very probable the crypto markets will get hit worse than June….
But guess who is frontrunning the BAD GDP data!?? The White House is…they put out this blog July
21st…and it states “What is a recession? While some maintain that two consecutive quarters of
falling real GDP constitute a recession, that is neither the official definition nor the way
economists evaluate the state of the business cycle. Instead, both official determinations
of recessions and economists’ assessment of economic activity are based on a holistic look
at the data—including the labor market, consumer and business spending, industrial production,
and incomes. Based on these data, it is unlikely that the decline in GDP in the first quarter of
this year—even if followed by another GDP decline in the second quarter—indicates a recession.”
So, the Whitehouse is changing the definition of a recession as they know this will be a 2nd
consecutive quarter which the whitehouse doesn’t consider a recession, but many top economists do.
But that’s not all, remember I said it’s earnings season…Over 40 percent of the
Nasdaq is reporting their earnings this week…and it includes top names like Apple,
Microsoft, Amazon, Google, Meta, Qualcomm, T-mobile, and Intel…
Volatility is guaranteed this week. The only question is up or down. Well most of you know
my opinion, get ready for the bears to take back control. Cheers I’ll see you next time!