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Maximum pain: Still in front of us
Words of the day are pain. Those were the favorite words of Federal Reserve Chairman Jerome Powell during the Federal Open Market Committee meeting in September. A simple economic release and subsequent press conference sent the market into a period of mild panic with rates surging higher, volatility heating up, and stocks selling off with bitcoin afterward. The S&P 500 index lost key support at 3850, bitcoin was brought back to a local low of $18,100, and 2-year Treasuries are up more than 4.1%.
Even the expected 75 basis point increase is not enough to turn the market around as additional information in the Fed projections and Powell’s speech put risk assets on further jitters. Powell has reiterated many times that greater economic pain (job losses, housing market decline, etc.) He cited the shortfall in inflation in their favorite “core PCE” (personal consumption expenditure) measure and reiterated his Jackson Hole hawkish speech, noting that they would not stop for until the job is completed.
For now, do or die for risk assets with options to see an immediate downside rally this week or more likely continuation of the downside in valuations and prices above. overview.
Our thesis here at Bitcoin Pro Magazine, as long-term bullish bitcoin proponents, is that macroeconomic trends are at the helm and with price action. In the global currency and bond markets, the final moment of panic has yet to come. We are open and flexible to that change, but as objective market analysts we see and report what lies ahead. More on this later.
While on-chain cyclical metrics can be useful for assessing Bitcoin’s long-term value buying (or selling) opportunities and economic behavior, we’ve been ticking less of them over the past few months because We feel they have little to do with short-term price action compared to current macro headwinds.
Looking at the history of bitcoin market cycles, when diving into the on-chain data, one immediately notices a consistency where the bitcoin price falls below its actual price (average cost basis). of all bitcoins according to their final movement on-chain) during the depth of the bear market. In previous cycles it was not a one-time event but one that also comes with duration. For months, we’ve been emphasizing that this bear market can last longer than most people expect, and that the time component is more painful than the percentage drop.
“When the average holder was underwater, most marginal sellers sold their holdings, and although further reductions were possible, ‘pain’ was felt by market participants in the form of a gap. longer time in the water than the price drops rapidly. the beginning of the bear market. “ – When does the bear market end? July 11, 2022
The BTC/USD daily exchange rate is set purely on margin and, with growing macroeconomic difficulties, marginal sellers have and will likely continue to dominate marginal buyers. until there is a marked change in liquidity conditions.
A closer look shows that this investment withdrawal will translate coins into stronger and better-capitalized hands.
For those who see this as a time for bitcoin to be undervalued in the long term, the actual market cap is a chart that is guaranteed to show the log growth of bitcoin’s cost base over time. The cost base is only down 24.07% from the cycle high and is currently down 12.71%. Here’s a chart that we think most “non-bitcoin” investors don’t get. Even in the “speculative everything” bubble, of which bitcoin is a part, the network’s cost base is still rising or falling slightly despite daily exchange rate fluctuations.