Crypto markets rallying but damage remains severe

Posted on

key takeaways

  • Bitcoin is up nearly 50% from its low, but still two-thirds down from its all-time high
  • Some on-chain metrics show how pale the rally is compared to the previous decline
  • Positive news from the industry remains few and far between as markets prepare for the latest interest rate policy to be revealed at Wednesday’s FOMC meeting

Let’s start with a riddle. If your wealth increases by 47%, which had earlier fallen by 77%, what is your profit/loss?

The answer is a horrific 67% loss.

Bitcoin investors are facing a buying spree at all-time highs at the end of 2021. While the markets have started the year in spectacular fashion, it is important not to lose perspective.

However, humans have short memory. Nearly 50% Up From Bitcoin Bottom Post-FTX Collapse, the crypto markets are buzzing about them again. It’s amazing what hope can do to people, huh? And by hope, I mean hope that interest rates will come down again.

Federal Reserve controls the price of bitcoin

i wrote a piece Last week Regarding this latest rally, if it shows anything, it just proves once and for all that bitcoin is trading as an extremely risky asset.

Bitcoin was crushed last year as central banks around the world flipped hawkish for the first time in bitcoin’s existence. The cheap money of the last decade is no longer available, and the yielding, higher-risk assets that used to be available on other investments like T-bills have collapsed.

The tech sector, notoriously sensitive to interest rates, has been laying off employees left, right, and center — Meta, Salesforce, Twitter, Google, and the list goes on.

This latest rally comes now as inflation begins to cool, fueling hopes that the choking pains of monetary policy will indeed one day end.

the market remains ruined

While the picture is undoubtedly looking better than it was two months ago, the crypto market is still in a world of pain.

Bankruptcy is still flowing – see origin filing Last week – while there are many other potential downside catalysts as the market still goes through a chaotic Sam Bankman-Fried mess: DCG still presents a lot of uncertainty, for example.

While the price is trending, there is no particularly good news to explain this rally. As I said, this is all macro, with investors staring squarely at the Federal Reserve.

Some charts paint a good picture of the pain that is still present in the markets. Despite the recent uptick, the Net Realized Profit marker, which is an on-chain metric calculated by comparing the price of coins recently moved to the price they previously moved, shows that the recent rally has How pale compared to the scale. fell last year.

Seriously, there’s no need to complicate things. Despite the glut of “hedge” narratives and “uncorrelated investments” floating through COVID, it is clear as night and day that bitcoin is trading off interest rate expectations right now.

The chart below is perhaps the most significant of all crypto over the past few years.

Ultimately this small uptick could reverse very quickly depending on how things shake out at the upcoming Fed meeting. It can also do the opposite if things turn out to be spookier than market prices in the end.

Either way, it’s clear what’s driving the market right now.

Leave a Reply

Your email address will not be published. Required fields are marked *