‘You know, it’s tough to know. It’s looking at the commodity prices and trying to gauge when they started to fall and then how long it takes to pass through to the consumer. I guess I would say I’m not super surprised, but I do think that this is the top of the CPI readings. I do think that by next month you’re going to have a full month plus of oil falling and copper falling. I mean, all these other commodities are just collapsing pretty dramatically, and that’s probably going to start to show at least next month a slight downtick.’ – Gareth Soloway.
The major news in the past day has been the release of the June CPI (Consumer Price Index), which showed a year-over-year increase of 9.1% last month, up from the previous 40-year high of 8.6% in May. Bloomberg estimated that economists were expecting June’s reading to show an 8.8% increase, according to estimates compiled by Bloomberg. The higher than anticipated cost caused a dip across all markets as bitcoin went below the $19,200 mark.
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At the time of writing, bitcoin has slightly rebounded to the $20,000 level. As a guest on Greg Dickerson’s podcast, trader Gareth Soloway gave his input on what he believes is next in both traditional markets and cryptocurrency after the CPI reports. Gareth believes that because of the historic nature of bitcoin always having the fed pump money during a downturn, if bitcoin retraces back to below the $17,000 level, then we can easily get to $12,000 or even below $10,000.
There are many factors involved, and Gareth admits that the market can rip either way. Based on past cycles, he suggests preparing for a downturn around a small rip forward:
‘When that print came out, they were kind of like, oh my goodness, the end of the world, and you saw the markets initially get crushed. We saw a big gap down, but the market started to recognize exactly what it was. What we’ve just said, which is that this is peak inflation all right, At least in the near term, this is as high as it’s going to get, at least in the near term. It doesn’t mean, and I think you would agree, we’re not going back to 2%. I mean, that’s not happening for a long, long time, if ever.
It’s the market wants that little bit of hope and just to see that number down ticking, which if you look at any commodities out there, you should see that next month. You know, a lot of people were getting into number one. We’ve been down into this 2017 high. I mean, we’ve developed a little bit, we’ve been above it a little bit as of yesterday. We were below. Now we’re back above today.
Here’s that line right there, but I think people are not most crypto investors. All they do is focus on crypto and, again, I think that’s what my stock background has been very good for, kind of seeing the bigger macro picture, and you have to understand that if the dollar wasn’t surging, I think crypto would be much higher than it is right now. If the dollar is topping and you can already see the reversal in crypto as the dollar’s falling today, I think crypto trading has upside. I’m still in a situation here where my midterm outlook is still down but my near-term outlook is to the upside. I think we take out the short-term highs of $22,000 and I think you’re probably headed back to at least $25,500 here. That’s assuming the dollar really has topped and starts to come in over the next couple weeks.
I think the markets already have kind of the game plan here. I think that’s the amazing thing that most investors have to understand is that by the time that CPI came out this morning, the markets, the algorithms reacted. Small investors reacted, but smart money simply bought like crazy because they knew the number was about to expire. We’re looking forward to next month right now, and I think the same thing with the Federal Reserve is that the markets are already seeing the odds right, so a high percentage of 75 and a lower percentage of 100. The market is already saying that if they do a hundred, that’s good news because they’re going to go on hold, possibly until after the midterms, and then who knows, maybe the economy will be so much stronger that they don’t feel the need to continue raising rates so aggressively.
I think that’s the way the market looks at it. I think we could actually be up for a little bit of a summer rally now even if the Fed hiked 75 basis points or 100 basis points, but ultimately there’s still too much junk in the system. We’ve seen bankruptcy. We’ve seen how Terra Luna kind of collapsed all these other things, but I don’t think I mean for me, I still look at how many cryptocurrencies are out there. That’s still problematic for me. How the heck can there still be over $10,000, or $15,000 or 20,000 cryptocurrencies? Where does the washout finally occur? Or it’s better to use crypto trading bot.
It would be hard for me to imagine that we’re really done here, especially because of this right. Previous cycles have always had the fed assisting by printing, but this is the first cycle that we do not have, as common logic would suggest. This would be the worst of all the cycles versus the best of all of them now that you do have more adoptions. I think you have to factor that in. I think that maybe if regulation came out, that could be a possible major positive as well, but I’m still in the camp. I think we’re headed lower after we get some sort of uptick here.
I mean, let’s say that price gets driven down to $12,000 or $10,000 on bitcoin, which I don’t know where Michael Saylor’s margin calls come in. I know he has leveraged out a little bit, but that would be the other thing that would be really scary. If we started to break, let’s say, the $17,500 low, where is his point, where Microstrategy has some issues there, I don’t know. I don’t remember. Initially I heard it was around $21,000 and then I think he kind of updated it and said it was lower than that. That would just be something else to kind of keep in mind that when you have an illiquid asset like bitcoin, if any of these, I mean, did you hear about Mt. Gox? So they appear to have 150 000 bitcoin that could be unloaded. He doesn’t care about that right now. If we get another leg down, all of these margin calls, bankruptcies, and other factors will start to trickle in.
I could almost be on your page where maybe this is a bottom. If we don’t go at all any lower, that would trigger more bankruptcies, which would be more liquidations and those. But if we do take out $17,500, that’s where I would get real nervous – a minimum of $12,000, possibly less than $10,000.
What do you think of Garrett’s analysis?
[This article is a transcription of a video made by Only The SAVVY]
Original video: https://youtu.be/uoEVMYrsRLA]