Crypto Going Lower. Recession.

Crypto Going Lower. Recession.

Inflation is surging out of control. Consumer sentiment is the worst since the 1940s, and interest rates are rising. How is this going to affect the price of bitcoin and altcoins? I’m going to look at both of those. They’re actually showing a little bit of a divergence. I’m going to look at inflation figures as well. They are absolutely awful. People were expecting these to potentially come down. We’re going to look at how these are affecting the real economy. Then how is this affecting the bitcoin trade? For beginners it’s difficult to understand, so you can use the Jet-Bot copy trading program to automatically replicate the greatest traders and earn up to 2000% APY. Copy trading is the most efficient way to earn passive income from your bitcoin, and the platform is an authorised broker of the Binance exchange. Without having to deposit dollars on the platform, you can connect your Binance account using API keys. Begin using the Jet-Bot right away.

BTC and ETH

I basically said that if inflation was higher than expected, the market would crash, and that is exactly what happened in the stock market. Inflation is simply out of control, and something needs to be done about it. But bitcoin, yes, bitcoin did crash. I said, “You know, if that happens, we might see bitcoin fall to this next support level around $25,000.” It’s actually held up fairly well. Yes, it did dump off yesterday, but it was coming off the back of a little bit of a rally, and for some reason we are just sticking around this $30,000 level, $28 000, $29,000. You can see this support at around $28,500.

For some reason, it’s sticking here and not going lower. This is now creating a divergence between bitcoin and all other coins. Ethereum has been kind of keeping up with Bitcoin. Yes, they’ve both been going down, but the bitcoin dominance hadn’t been rising as much as in other bear markets, but you can see a clear divergence here now of bitcoin during the lunar sell-off where it really spiked down to that 25. For a period of a few weeks it is consolidating here and really finding a massive area of support around $28,500. At this level, whereas ethereum is continuing to sell off.

One reason for this could be interest rates. I’m going to go over that and like interest rate expectations, which are now, you know, expecting interest rates to rise further and for longer to try and battle what is clearly out of control inflation and what is clearly going to have to be a very awful recession. It’s the only way that this inflation gets sorted. You’re going to hear central bankers come out and say, “Well, the economy is fairly strong; we’re going to raise rates; we might not get a recession.” You know, that’s the same as them when they were printing all that money, saying that inflation wouldn’t happen and that it was transitory. Okay, so it was wrong then, and what they’re saying is obviously wrong now. The only way we’re going to get through this very terrible inflation is through a recession, so that may come earlier or later. It’s obviously going to come.

This is ethereum right here, and we’ve actually got nine or ten down weeks in a row. This is the weekly chart. I put this level on here. This is the previous support, around 1300-1400. It could very easily come down here now.

Why is this divergence happening? This is a sell-off for ethereum, but it is a consolidation for bitcoin, so ethereum is gaining ground. There are a few reasons for this. The first one is that ethereum has a lot more of its value as a result of the income that it generates. So if you know about EIP 1559, which is essentially an upgrade to the Ethereum network that directly links its value to how active people are using the chain and paying fees on it, fees on ethereum are used for two things.

Firstly, for buying back ETH and burning it, so that directly relates fees paid on ethereum to its price. It is essentially a share buyback. Now, during a recession or during what you know as a “crypto winter,” when this is happening, people use the chain less.So you know, fewer fees are paid and so less money can be used to buy back shares or buy back tokens. Okay, so fewer people use it. If the price is right, then they’re going to buy back fewer tokens.

The second is stake rewards, which comes after the merge right. Again, fees are paid and paid out as a dividend to token holders, so the value of ETH is much more closely linked to its usage and fees paid than bitcoin, which is just really valued as a store of value asset. So it’s that flight to safety. We’re seeing that now because of the recession and the inflation that people think is going to happen to rates. So you’re seeing much higher beta, you know, stocks and all coins are essentially reacting much more to the possibility of higher rates now. Bitcoin people are probably looking at bitcoin and saying, “Well, we’re going to have a terrible recession.”

What happens during a recession? Well, the Fed will flip right and so they don’t need to raise rates anymore because the recession will kill inflation and also kill the economy. What will happen then? Will they start lowering rates and printing money again? So maybe some of those bitcoin traders are saying, “Hey, we’re going to look six to twelve months out and see if the Fed flips.” That’s what’s happening right now with ethereum. There are kind of two different ways of looking at this right now. Yes, you’ve got rates. You’ve got rate expectations. You’ve got fewer fees being paid but also a lot of altcoins, including DAP tokens, that raise money in ethereum and have ethereum as part of their treasury to pay themselves for the development.

What they’re thinking is that we’re seeing a crypto winter. You know, they have PTSD about previous crypto winters. They’re all just dumping their ethereum for US dollars or USDC because they need that cash to fund their Dapps and their tokens over the next few years, and so that’s what you may be seeing with ethereum as well, is just this sell-off of we need to get out because we need to have that money for our development. So yeah, it’s interesting that ETH kept up a little bit with bitcoin. That’s just not happening anymore.

Inflation!!!

Here’s where the inflation is really surprising. Inflation for some sectors started coming down in April, and in May it’s up again. This isn’t good news because, as you can see, the price of oil is going ever higher, right? So at what point does inflation start coming down? Because oil is really the thing that sparks inflation in most other sectors as well, including food because of transportation costs and everything like that, oil isn’t coming down. We’re always going up further than this. This is kind of really bad news.

So what we can see here is that food, uh, all items are rising faster. It’s not just rising, it’s rising at a faster pace. This is really terrible news for the economy. 1.2% in May, then energy and commodities up 3.9, but look at this, uh, fuel oil up 16.9. There are two things happening here. The first is that the market sells off for two reasons.

Firstly, it’s because they say, “Well, inflation’s so high that the Fed is just going to have to raise rates higher and longer and that means everything gets tighter and businesses can’t borrow right now, so fears of a recession.”

The second issue is that inflation is so high right now, and oil is so high, that it completely separates the Fed when oil rises above a certain point and demand is so low. We all look at the price of oil. We filled up our cars. We look at the price of food and we just choose not to participate in the economy anymore. Okay, we pull back all of our spending and that obviously feeds through to other companies’ retail. Everything is like that. So it’s not just the Fed. The market now thinks that, well, the Fed is going to have to tighten. The whole economy looks at this and just says “We’re out.” Okay, we’re not going to spend it. So that’s when you get these really terrible, very sharp recessions. Oil can go up, inflation is going to remain high, but at some point demand is going to flick the other way, and so that’s what the market is pricing in now because the market looks 6 to 12 months ahead. So it’s looking ahead and saying retail just can’t keep up with this inflation. There’s going to be a recession at some point, so central bankers will say that they can navigate through this and they’ll have a soft landing. That’s absolutely not the case. These are the worst figures in generations. These are the worst figures since the great depression in terms of how much stocks have fallen off. So if anyone’s thinking that this won’t be kind of a bad recession, I just don’t see how.

Rates spike

On the inflation figures yesterday, we got this huge spike in the 10-year treasury in the states. This clearly shows that we were very close to the three-point level of inflation. That means the Fed has to raise rates higher or at least do 50/50 at the next three meetings. So you saw this big spike in rates right here. The market is doing its job again here, saying inflation is too high, we’re going to raise rates again, so this just fuels fears of a recession and a slowdown in the economy.

Expectations

It’s a really complex picture because, obviously, if the economy falls, you wouldn’t expect all coins to do well, but obviously, at some point when rates start contracting again, they may start to pump, as, you know, essentially they are a derivative of what rates are, so you can see here a really simple picture. Real average hourly earnings for all employees decreased, so people are getting poorer right now. You know, inflation is high; wages are going up to try and meet that, but not as much as inflation, so people are getting poorer right now. This is what inflation does. This is why you need to keep it down.

People are starting to think about whether they should raise Then in September, a lot of the market was thinking about a 25 basis point move, but what you’re seeing is way more people now actually entering this area, which is another, which is a third, 50 basis points. That’s what they’re really looking at now.

BTC macro

Mortgage applications in the United States are of particular interest here. This is important as well, because we look at bitcoin and crypto, but essentially most people’s wealth is stored in their house. This is where inflation really comes from as well in terms of house prices and rents, so this is actually starting to decline right now, so home purchase mortgage applications are way down from the top. This is actually not great news for everyone, but in terms of the markets for crypto-bitcoin. This coming down is eventually showing signs of, well, maybe the economy is starting to just slow down a little bit and that may feed through to the inflation figures over the next few months, which may settle the markets a little bit in terms of their prices and in terms of how strong the Fed has to be.

Really, if you’re trading BTC or all coins right now, you’re trading macro right, so like Stanley Druckerman says, I want to highlight this:

It’s just how bad is the recession going to be and how bad is it going to get before the Fed starts to flip again. Um, so that could be a very short-sharp shock or it could be a, you know, a period of six months or so where it’s just kind of worse and worse and worse. If everyone’s just been beaten into submission, then they can start lowering rates again to try and stimulate the economy, but inflation is the thing you have to look at if you’re looking at whether altcoins and bitcoin can move up again, not until inflation is sorted out.

[This article is a transcription of a video made by Money ZG]

Original video: https://youtu.be/-kWuaGa3Ysw ]