Do you load up on BTC to front-run the fireworks or keep cash on the sidelines, ready to scoop up the panic? It's a high-stakes game of timing; this time, it’s not only about the charts. 

The Fed chairman took the mic today, and now markets are digesting – which way do we go from here?

TLDR

• Powell signals Fed to remain restrictive, 25bps hike possible in Dec
• Stocks and bonds sell off post-Powell interview, 10Y yield tops 5%
• Bullish BTC catalysts ahead - ETF approvals, 2024 halving
• The key is timing BTC exposure for catalysts vs keeping powder dry for potential market panic

Disclaimer: Not financial or investment advice. Any capital-related decisions you make are your full responsibility.

Powell to the stand

Today, David Westin sat down with J Powell (the Fed Chair) to interview him on the economy, rate hikes, and what is on the horizon for monetary policy.

Powell acknowledged that the economic data had come in surprisingly stronger than he and other economists expected. He also said that the economy and markets seem to be adjusting to a higher rate environment in response to this better-than-expected data. But he also acknowledges that rates do work with a lag - despite the fact we’re now just shy of a year since the last 75 bps rate hike (Nov 2022). 

Another key takeaway was seeing Powell internally debate whether rates were meaningfully restrictive. He acknowledged that rates were likely restrictive, but how restrictive he said would be difficult to currently know - due to the lags of prior rate hikes. 

Ultimately, Powell did try to finish with a slightly more dovish tone, suggesting that the Fed needs to be aware and cautious of geopolitical issues, along with the lags rate hikes come with. He also alluded to a weakening labour market despite still being strong.

One key quote Powell finished with was, “We may be going into a more inflationary period, but it’s hard to know”. This is due to oil having gone higher whilst the economy also moves into a seasonal period of increased spending. 

The Fed likely needs to remain restrictive, and a further rate hike is certainly not ruled out. We’ve been told the November meeting is a ‘live’ meeting; they could raise rates again. 

But, it looks more likely that the Fed will allow more data to come in, pause in November, and if it continues to come in hotter than expected, then this may mean the December  ‘live’ meeting will lead to a 25 bps rate hike.

 In our opinion, if the data continues to come in strong, the Fed will do another 25 bps rate hike in December, although this depends on the bond yields at the time.

Bond market pricing and how it spills into Bitcoin

In the aftermath of Powell’s interview with Westin (of Bloomberg), Equities ($SPX) and Bonds have sold off. For the first time since 2007, we have a US 10-Y Bond yielding 5.00% (4.992% at the time of writing).

When seeing this reaction in traditional markets, you’d expect crypto to sell off as $SPX is. However, BTC is holding relatively strong, up approximately 1.1% on the day, with some alts like SOL up 7%. It should be said that many of the other alts are down on the day, but the major alts are holding up relatively well, along with BTC. 

In the long term, the Fed and markets (the bond market) may have to do more tightening if the data continues to come in strong. The Fed have to get inflation back down to 2.00%, and currently, they’re a long way off (3.7%, but inflation looks like it’s rearing back up slightly). If this is the case, liquidity conditions are likely to tighten/decrease, which should negatively impact crypto prices. 

Cryptonary’s take 

Here’s how to play Bitcoin here.

With all the above being said, we need to consider that if we’re solely in cash, we’re now not just playing against price, but we’re playing against the timeline, matched against the events. For instance, if we expect growth in the US to slow significantly next year, and we’re waiting for something to break that drives markets lower, and we then buy panic/dip - we may not get the lows we want. 

Suppose a recession or a breakage in the economy or financial markets drives price lower at some point next year. We’d ideally like to be buyers of that. However, if we have the Bitcoin ETFs likely to be approved in December/January, we then also have the halving in April 24; we really need to increase our exposure to these events if a market panic is not going to come before these events. That essentially means we’re judging to see if the recession does come, whether it comes in time for us to buy into the markets before the ETF approvals and the halving. For us now, the above is the key battle and the battle we need to win. 

You’re not just playing against price, but you’re playing the timeline and the events within that timeline. We need to have relatively decent exposure before the bullish catalysts (ETF approvals and BTC halving) but also enough ammunition (USDT) on the sides that we can buy up a panic in markets. This assumes that a market panic (caused by a recession or a breakage in the economy or markets) doesn’t precede the bullish catalysts for crypto (ETF approval, BTC halving). Over the coming months, we will explore the above concepts and alter our positioning based on the data and the timeline of events. 

As always, thanks for reading.

Cryptonary, OUT!