Playing with Fire? FED to Announce Official Inflation hikes tomorrow
By Christopher Attard on The Capital
Tomorrow, the Fed Chairman Jerome Powell is set to deliver a speech where he’s expected to lay out a set of measures aimed at pushing inflation rates higher than ever before. Meanwhile, wallets with over 1000 bitcoin have just surpassed the $92 billion valuations, indicating that high net worth investors are buying bitcoin at these levels.
Finally, after months of fierce competition, USDT transferred value has flipped that of bitcoin; but why has this happened?
Let’s find out!
The Federal Reserve is playing with fire
In recent history, bitcoin has garnered the attention of institutional investors as a hedge against inflation. Back in May, hedge fund manager Paul Tudor Jones sent the bitcoin world into a frenzy when he revealed he was “betting on bitcoin” to protect against the “unprecedented expansion of every form of money.”
Tomorrow, the US Federal Reserve chairman Jerome Powell will lay out a set of measures that are set to push inflation to never-seen-before levels — and those are just the official numbers. The chairman is expected to signal a more relaxed approach to managing price pressures that would insinuate a stronger uptrend in long-term US inflation.
The Fed chief “will outline what could be the central bank’s most active efforts ever to spur inflation back to a healthy level,” CNBC’s financial editor Jeff Cox wrote on Monday.
Why does this matter?
As things stand, there is already an increasing appetite to question the intrinsic value of money, and this event could fan the flame given that devaluing people’s purchasing power isn’t exactly optimal.
While the path that is being taken here will be cause for celebration for those in government-backed stocks — at least in the short term — this perspective fails to take into account that more dollars in circulation generally means less value per dollar.
Of course, deflationary economists would argue that the demand for dollars is so astronomical that the money printer can work on overdrive indefinitely. However, in a macrocycle, a larger inflationary trend does not discount periods of deflation to quell USD-denominated debt (for example).
This train of thought is one that’s often touted by gold-bugs, who have certainly enjoyed fresh all-time highs in commodities of late. In the digital age, however, bitcoin is just the better option given that is digital, borderless, and absolutely scarce.
As a long term play, investors who recognize where this chain of events is likely to lead will continue to pile into safe-haven assets, particularly those that are not tied to the successes or failures of any specific country — i.e. bitcoin and crypto.
All in all, it’s safe to say that interesting times lie in wait.
Bitcoin safe haven status breeds new whales
A fresh Glassnode chart shows the number of bitcoin wallets holding 1000 BTC or more continues to increase.
Currently, the total amount of value in these wallets exceeds $92 billion, which speaks to a narrative that readers of this newsletter are all too familiar with.
Interestingly enough, similar behaviour was observed in previous multi-year bull cycles. But while the narrative was of a similar nature, the scale of it this time is on a completely new level.
Now that the ‘safe-haven — inflationary hedge’ narrative is picking up speed (and with good reason), it would be prudent to expect addresses with 1000 BTC to continue surging as investors and traders hedge their diversified portfolios — of which stocks have now reached all-time highs.
USD Tether 7-day transferred value flips bitcoin’s
After months of rapid growth, it seems that the USD-pegged stablecoin Tether (USDT) transfer value has finally flipped that of bitcoin on a 7-day adjusted transfer value.
Just last week, Tether’s transfer value reached over $3.55 billion compared to bitcoin’s $2.94 billion, according to data from Coinmetrics.
This is a big milestone for stablecoins as Tether continues to take the lion’s share of on-chain transfers by a long shot. Additionally, stablecoins are increasingly being used in the budding DeFi craze through applications like Uniswap and Curve, both of which probably played a role in Tether’s surge.
Barely a week ago, Tether’s market capitalisation reached record highs, surging passed the $12 billion mark. Of course, stablecoins are very popular with traders, in part due to their stability when trading against cryptocurrencies and altcoins. Ultimately though, while Tether’s fate lies with that of the USD, its popularity as the number one on-ramp to purchase bitcoin and other cryptocurrencies remain unmatched for now.
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Bitcoin (HTF) enters a trading range?
Bitcoin took aim at lower targets during Tuesday trading. The number one cryptocurrency broke down below $11,500 and even touched $11,140 before closing the day at $11,340.
Consequently, bitcoin has confirmed its breakdown out of both the trading channel and horizontal support, which suggests a probable extended period of sideways price action. As defined in previous newsletters, $12,000 is the range high that bulls will be targeting, while $10,500 is the range low that bears will be sizing up.
The pivotal level still rests above $11,400. However, given the daily bearish engulfing candle, bulls will have to prove themselves if they are to retain control on all time frames, otherwise a close at the pivot point will probably be consolidation before bearish continuation to the range low.
Technically, a bounce at $10,500 should be expected if this correction were to continue.
4-hour (LTF) relief rally?
On lower levels, bitcoin has found support on the 4-hour 200-EMA, which also coincides with a TD-sequential 9 reversal signal and noteworthy traded volume at this price-point. As such, some kind of relief rally should be expected. However, in order for bulls to reverse the trend, Tuesday’s losses will have to be at least partially reclaimed ($11,600 — $11,800) to avoid the risk of snowballing bearish momentum to lower levels.
From a more speculative perspective, it’s possible that bitcoin has formed a “falling wedge” structure, which is a bullish reversal pattern for all intents and purposes. Technically, the target for this pattern would be the top of the structure at around $12,400. But given the lack of any meaningful divergence on the RSI at these levels, there’s little evidence to support a full reversal back to the highs other than the naked structure.
Having said that, the Bitmex futures funding rate has flipped into sustained negative territory for the first time since August 7th on the 4-hour chart. On that occasion, and several others before it, bitcoin reversed to prior levels within a matter of days. Another reason to avoid overly bearish sentiment even on the 4-hour time-frame is the relatively low amount of volume, which appears to mirror similar levels in another “flash crash” on August 11th.
While these indicators do not speak to an imminent reversal, they do warrant a degree of discretion for traders betting against bitcoin.
Ultimately, it appears that bitcoin will probably continue to trade within a range under $12,000 for the time being. If the fractal mentioned in the previous newsletter were to replicate itself once again, then this range will probably be short-lived so keeping an eye out for a bottoming structure in addition to external factors like the SPX and gold makes sense.
Fundamentally, whether it’s total hashing power, number of wallets, whale accumulation, or otherwise, on-chain bitcoin metrics keep making all-time-highs so it would be incorrect to presume that a healthy correction would cascade into anything larger provided $10,500 remains intact.
Bulls lead the way.
May your gains be high and your losses low.
Catch you next time.
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