‘More pain’ marked the highly anticipated September FOMC meeting. After the FOMC, analysts explain the mid-term thesis for Bitcoin (BTC) and how to think about its upcoming macro volatility.
Maximum pain still lies ahead
The word of the day is pain. This was Federal Reserve Chairman Jerome Powell’s favorite thing at the FOMC meeting in September. Powell gave a simple economic explanation. Then he went to the press conference. Thus, with interest rates rising, volatility heating up, and stocks selling after Bitcoin, it put the market in a mild panic. S&P 500 Index lost the critical support level of 3850. Bitcoin hit local lows of $18,100. And the 2-year Treasury interest rose above 4.1%.
cryptocoin.comAs you follow, even the expected 75 basis points increase was not enough to turn the markets upside down as the supplementary information in the Fed’s forecasts and Powell’s speech caused more concern over risk assets. Powell has reiterated many times that more economic pain (job losses, housing market declines, etc.) comes as a result of solving the inflation problem at hand. Favorite spoke of the lack of disinflation on the ‘basic PCE’ measure. Also, stating that they will not stop until the job is done, Jackson Hole repeated his hawk speech.
With options to see an immediate relief rally this week, or possibly a further downward continuation in valuations and prices in general, risk assets are now in or dead. As long-term bullish Bitcoin advocates, our thesis is that macroeconomic headwinds are in the driver’s seat. Also, price action in the global currency and bond markets suggests that the final moment of panic is yet to come.
On-chain Bitcoin (BTC) analysis
On-chain circular metrics are useful for long-term opportunities to buy (or sell) value. It also provides utility for evaluating the economic behavior of Bitcoin. However, they are less relevant to short-term price action compared to current macro headwinds. That’s why we’ve highlighted less of these in the last few months.
Looking at the history of Bitcoin market cycles and on-chain data, the consistency in the depths of the bear market that the Bitcoin price has fallen below the actual price is immediately noticeable. This is based on the average cost of all Bitcoins based on their on-chain recent movement. In previous cycles, this was not a one-time event. It was more of an event that came with time. We have been recording for months that this bear market will last longer than most people expect. We also stress that the duration component is more painful than the percentage drop.
It is necessary to set the BTC/USD daily parity entirely on the margin. Given the increasing macroeconomic headwinds, marginal sellers continue to dominate marginal buyers until a significant change in liquidity conditions occurs.
A closer look shows that this prolonged capitulation process is transferring cryptocurrencies to stronger and stronger hands.
Bitcoin price weighted by the actual price is proof that we are in bear territory. But it shows we still have room down there. For those who see this as the time to buy long-term undervalued Bitcoin, the realized market cap is a reassuring chart that shows Bitcoin’s daily increase in cost basis over time.
The cost base fell only a maximum of 24.07% from cycle highs. It is currently 12.71% down. This is the picture we think most “non-Bitcoin” investors fail to grasp. Even in the “everything speculative” bubble of which Bitcoin is a part, the cost basis of the network is constantly increasing despite daily parity volatility. However, it falls marginally. The cost base has now dropped by just 12.71%.
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