Bad News is Good News for Bad News

The last few weeks offered some relief in price action to the upside. As it appears, the markets continue to trade in the same structure as outlined in previous letters and it seems unlikely that any real trend direction will develop for the time being. There’s also still not a big difference between crypto markets and traditional markets, so we’ll just refer to them as markets until that changes.

Just like it has been the tradition for the rest 2022, the markets are bound by the difficult context they are trading in. On one side there’s havoc caused by economic tightening and on the other side there’s potential worse havoc if central bankers don’t get the rampant inflation under control.

For this reason, markets are surprise-surprise still zig-zagging, exhausting both bulls and bears in the process. In fact, we are currently seeing narratives changing at such a rapid rate that shifts in sentiment happens almost on a weekly level at this point:
Good news comes out, and bulls jump on the bandwagon. Bad news comes out, and bears are back alive. Ultimately, leaving both sides worn out without clarity over any real trend development. In other words, we are still stuck in the tantrum outlined almost a month ago. 

The Markets are Bipolar

The market dynamics are always difficult to understand. Anyone claiming otherwise are either not understanding their complexity or making simplifications. However, I think it is safe to say that market observers have received a few extra gray hair lately as conditions continue to surprise us (note: I know I have).

Last week, the Federal Reserve had their press conference. Few would have anticipated BTC would pump in the wake of them deciding to hike the rates with a higher-than-expected 75 basis points. The 75 basis point rate hike should imply a worsened outlook for economic activity and risk assets such as crypto should be crippled in wake of such news as it was the case previously . Instead, crypto markets took a wild swing upwards immediately after the press conference.

Bad News are Now Good News

For some time, investors have been speculating that the Federal Reserve will change their course in terms of its fiscal policy. The more aggressive the Federal Reserve will get, the more markets will pull the brakes and the more likely it would be that we would reach a point where political pressure would force the FED to change course. In other words, at some point the bad news should be good news for bad news. And following this belief and disbelief that the FED would change course has been a big contributor to the shifting sentiment. However during the latest Federal Open Market Committee meeting (FOMC) subtle signs were given that things would play in a different tune.

Instead of sticking to the usual manuscript regarding future expected interest hikes, the FED’s chairman, Jerome Powell, responded to a question saying that it will be “hard to predict rates 6 months from now. We will be fully data dependent”.

This statement is worth highlighting as it raises questions to the expected route earlier communicated of a total of 12 rate hikes. Instead, the statement suggest that we can now expect the FED will monitor and act to the situation rather than front-run the situation. Alfonso Pecatiello did a great run-down of this so if you’re interested, I suggest you read his latest letter.

Technical Analysis

A few readers of my latest letters have requested for me to go through a few price charts of mainly BTCUSD and explain my thoughts. As a capable technical analyst, I am always happy to do so, but the truth is that currently I find that exercise somewhat unnecessary with the rapidly shifting sentiment and contextual disarray.

Conclusion here for me remains that technical analysis is a great tool for trading and investing but it is just one of the tools we should have at our disposal when dealing with financial markets. Right now, this tool is not the one I will resort to. Based on the other data points I follow, I believe markets will continue to trade sideways for the foreseeable future but will note with a great deal of caution that I am becoming slightly more bullish for each week passing. When it makes sense again, I promise to include more price charts in my letters again.

Worth Highlighting

• Taiwan situation is becoming dire
  The China-Taiwan situation is escalating greatly with a House Representative from the US flying there as China is advising strongly against this.

• Digital Assets Fund Continue to See Positive Inflows
  Digital asset investment products saw inflows totalling US$81m last week, signifying the 5th consecutive week of inflows totalling US$0.53bn.

• Ethereum Inches Closer to Its Merge
  Ethereum is getting closer to the 19th of September, the latest announced merging date. If this date holds water or not for the merge is yet to be known but hints in trading volume for ETH shows an steady increase over the last week.

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I greatly value the increase in readership as it makes my time more well spent composing these weekly letters.