Bitcoin chopping but heading into capitulation
We will stick to our guns on where Bitcoin is heading. We still hold out hope that a recovery very late in 2022 is possible. We will know when we get there. However, between now and October, November, December. It will be Ugly! Here’s why we think so. Let’s look at two DXY charts first. The top chart is close up and shows the recent reversal back up, as Bitcoin drops today. Remember, Bitcoin is the inverse to the DXY (US dollar index) chart. The second chart is zoomed out. There is a giant W pattern on the DXY dating back to 2017. Could the DXY be pushed above the 105 resistance level? This would be required if the Fed is going raise rates enough to keep the dollar strong during this inflationary period. Here are the two DXY charts below:
The Bitcoin price action was positive for a while. Now, however, Bitcoin is dropping towards $30K. Yesterday, the Bitcoin price and RSI had broken out. Bitcoin bulls are pointing to the lower DXY prices, as reason for another run to a new ATH this fall. If DXY prices keep falling yes, that would happen. However, how many more rate hikes will the Fed put out? We need to keep watching the DXY. The Bitcoin price action will inverse the DXY every time. Here is the chart below, from the bull perspective:
This next chart is hard to read. It is from Mark Moss and it shows 2 yr bonds compared to the Fed Funds Rate (FFR). It is relevant because this is most likely the most important, and least known chart, the Fed watches to decide when to stop raising rates. Known as the Fed pivot. This pivot will happen when, and if the 2 year bond yields roll over and get below the FFR. Based on this chart that will occur after the next rate hike in June, perhaps after the July rate hike. Assuming there is one in July. Here is the chart below:
When the Fed does pivot, and we think they will. That is when the DXY will really start to drop. The strength of the US dollar is held up by Fed policy. Clear as day, that is true! The problem is we don’t know what the Fed is going to do until they announce it. After the CPI is announced in 9 days, that may go a ways in showing us how much longer until the inevitable Fed pivot does happen. When the Fed announces no more rate hikes and start back to quantitative easing (QE). We know it is over then. The money printing continues and we know that must happen at some point. When? Nobody knows yet. Thus, the 2 year bond to FFR chart is important along with the DXY chart. Bitcoin is not going to have any chance to get bullish unless the DXY is falling and the money printer is working overtime! This is the default position, but 8.5%, and currently 8.3% CPI inflation interrupted the party!
Next, we have to look at the economy.
The last time 3 month bonds and 10 yr bonds started, and ended below 1.0%, and changed +0.35, it took 2 years. In 2022, it happened in 6 months. We have to go back to 1980 for the last time this occurred:
After 1980, CPI inflation got to 13% in 1982. In response the FFR got well into double digits that year. That cannot happen now due to the $30.4 trillion in national debt we have. Yet there is a limit the Fed will hit on the FFR rate. Two more rate hikes and possibly a third seems reasonable to us. That could last into August or September. Thus, leaving the 4th quarter for a bull run for Bitcoin.
Gareth Salloway has a chart below showing where Bitcoin could (between now and September) drop below the 200 day moving average. It happened twice in 2015, and once in 2020. After two or three more rate hikes, the economy will be really bad. Real Estate markets will be in decline by then. According to Gareth, after these next few rate hikes is likely when the selling really starts. Bitcoin is not there yet. Below is a bearish chart on Bitcoin, assuming the Fed keeps raising rates through the summer:
Early this year we thought the Fed may not be that serious about attacking inflation. We updated that opinion, we see them making it 2/3 the way through the third quarter. The timing of the Fed pivot will be vital for the economy, the election, the DXY chart, and Bitcoin. We don’t know when this manipulation will go the other way. Just that it will. This is not financial advise, we are not financial advisors. Bitcoin will always inverse the DXY chart. Fed policy dictates what the DXY chart is doing. The Fed cannot destroy the USD. We do not believe they will. Eventually, they will have to pivot. Until then, we need to wait. Bitcoin will run again. 2022 will be a year of education, and waiting. This is the bear market!
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