The Five Stages of Fed Grief
or: How I Learned to Stop Worrying and Love the Nuke
In her landmark 1969 book On Death And Dying, psychiatrist Elisabeth Kübler-Ross outlined the now-famous “five stages of grief.” And even though current clinical criticism considers the model outdated, the Denial/Anger/Bargaining/Depression/Acceptance path has become ingrained in the intervening half-century.
The crypto markets have felt like a bull funeral recently, so maybe it’s time to see where Dr. Kübler-Ross would rank us.
DENIAL
It turns out, despite the beliefs pushed forward by paper-pushers whose models only work on paper, that flooding the market with trillions of freshly-printed dollars would make each individual one as cheap as dirt. And while the utility of such a solution to the black-swan event of COVID-19 is debatable, what’s not is that sooner or later the bill would come due.
However, the Federal Reserve was way late in realizing this pig-obvious discovery, pushing the idea until late last year that inflation would be “transitory.” But markets have been living in denial as well, getting continually roiled whenever any Fed chairperson made sensible statements about killswitching the money printer.
ANGER
There’s certainly enough of that going around, and while I don’t want to lean too hard here into the political maelstrom, it certainly seems as if the November midterms are portending a firm rebuke to Bidenomics. It’s clear that the “Putin Price Hike” spin is already running out of torque. If that’s the best they’ve got, it’s going to be a long, hot summer.
And long hot summers get longer and hotter if fuel is north of $4/gallon and food costs are outrageously high.
BARGAINING
The Fed is attempting to force investors into a Sophie’s Choice: put the brakes on the markets, or we’ll do it for you with stiff interest rate hikes. Honestly, some correction was badly needed in this area, as the two-year cash orgy the government threw to keep the post-COVID economy afloat ended up leaving the markets a bit, um, priapistic.
But as mask and vax mandates continue to fall away and the world parties like it’s 2019 (well, except for China), the underlying health of the economy is improving. What was a corpse kept alive by massive jolts of defibrillation and atropine is now a recovering patient, which is adding horsepower just when the Fed is trying to throttle down.
The distended dollar also has a counterintuitive side effect: in an inflationary environment, the greenback might be debased, but other currencies get debased more. So while the dollar sneezes, other currencies, like the yen and the yuan, catch pneumonia. The net effect is that the U.S. Dollar Index (DXY) might close a month higher than at any time since 50 Cent first hit the charts:
And as the denominator of most financial transactions (including, of course, the BTC/USD pair), if the dollar is swole (and 50 Cent sure is, amirite?), the numerator looks smaller.
DEPRESSION
This is where we came in, with the tedium of a choppy crypto market briefly quelled by the hopium of a quick rally, only to see it snuffed out when the Fed wags its finger and tut-tuts.
Bitcoin maxis bill the asset as “digital gold” and “the ultimate inflation hedge,” but to the market, the king crypto and all of its subjects are basically tech stocks. Which makes some sense, as web3 is on the absolute bleeding edge of new tech. But crypto needs two types of investors to really rocket: retail and institutions. The former is spending most of their marginal dollars on gas and groceries, while the latter grew up with the mantra “Don’t Fight The Fed” and are following that playbook, rotating out of cyclical equities.
But while it feels like the end of the parade, it’s important to remember: Bitcoin is testing lows not seen since . . . March. Of 2022, not 1987 or 1929; despite what TA permabears think, there’s no reason to get out on the ledge . . .
. . . yet.
ACCEPTANCE
It’s important to accept this:
Remember the Nasdaq chart I posted up there, the one that looked like it was powered by two Viagra and a Victoria’s Secret catalogue? Even though, as I write, the NDX had its worst day in almost 18 months, it could plummet 30% tomorrow and still only be in about the middle of its decade-long historical channel.
And whether it ought to be or not, we must accept that Bitcoin is, for the near term at least, attached at its hip, the Pichael to Nasdaq’s Michael. A 30% haircut to BTC puts $30,000 in play. LOOK AT IT.
Now accept this: that’s probably the lowest it can fall. Michael Saylor’s entry point is around there, Do Kwon isn’t remotely close to done buying, and other dormant whales have woken up. Hash rates just hit a new all-time high, Fidelity will let its 401(k) investors stack sats, and Australia has just approved a spot Bitcoin ETF.
The most realistic downside is 30%. The upside is unlimited.
You may not want to buy, but you definitely want to HODL.
And if the market does fall, you get the opportunity to buy world-changing tech at numbers you probably never thought you’d see again.
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