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Maximum Pain: Still Ahead
The word of the day is pain. That was Federal Reserve Chairman Jerome Powell’s favorite issue at a Federal Open Market Committee meeting in September. One simple economic release and subsequent press conference sent the market into a period of mild panic, with prices rising, volatility heating up and stocks selling off in bitcoin’s wake. The S&P 500 lost critical support at 3,850, sent bitcoin back to local lows of $18,100, and 2-year Treasuries crossed 4.1%.
Even the expected 75 basis point hike was not enough to move the markets, as complementary data from the Fed’s forecasts and Powell’s speech allowed risk assets to worry more. Powell has repeatedly reiterated that more economic pain (job losses, housing downturns, etc.) is coming to solve the current inflation problem. He cited the lack of inflation in his favorite “core PCE” (personal consumption expenditures) measure and, echoing Jackson Hole’s hawkish speech, noted that they won’t stop until the job is done.
Now it’s do-or-die for risk assets, with options to see an emergency rally this week or continue lower in valuations and prices across the board.
As long-term bullish bitcoin supporters at Bitcoin Magazine Pro, our thesis is that macroeconomic headwinds are in the driver’s seat, and given the price action in global currency and bond markets, the final panic moment is far from over. We are open-minded and flexible to change this position, but as objective market analysts we see and report what is in front of us. More on that later.
On the chain
While on-chain cyclical metrics can be useful for assessing long-term value buying (or selling) opportunities and the economic behavior of Bitcoin, we have emphasized them less over the past few months as we feel they are less relevant to short-term price. movement relative to the current macro winds.
When we look at the history of bitcoin market cycles, when we look at the data on the chain, we immediately see a sequence in which the price of bitcoin falls below the realized price (based on the average cost of all bitcoin according to its last movement on the chain). the depth of the bear market. In earlier times, this was not a one-time event, but also a time-consuming event. For months, we’ve been stressing that this bear market could last longer than many expect, and that the duration component is more painful than a rate cut.
“Since the middle-holder is underwater, most marginal sellers have already sold their holdings, and while more downside is possible, market participants are feeling the ‘pain’, which is not a rapid drop in prices, but an extended period of time spent underwater.” the beginning of a bear market.” – When will the bear market end? July 11, 2022
The BTC/USD daily exchange rate is determined entirely on margin, and given the growing macroeconomic headwinds, marginal sellers continue to dominate marginal buyers until there is a clear shift in liquidity conditions.
A smaller view shows that this extended surrender process moves coins into stronger and better capitalized hands.
For those who see this as a time to buy long-term undervalued bitcoin, realized market cap is a reliable chart showing the increase in value of bitcoin over time. The cost base has declined only a maximum of 24.07% from the period highs and is currently down 12.71%. This is a chart that we think “non-bitcoin” investors don’t understand. Even in the “all speculative” bubble that bitcoin is a part of, the network’s cost base is constantly increasing or decreasing slightly, despite wild daily exchange rate fluctuations.