Macro economic fed monetary policies are the driving force of not just the equities market but across all markets of the financial system including crypto assets. This has never been more apparent to the crypto asset class than it is right now. The US dollar is currently experiencing the worst inflation it has seen in 40 years. Inflation is bad because it devalues the currency and reduces the purchasing power. It’s really bad for risk-on assets because of the implications of high inflation. High inflation means the fed will use its “tools” in its monetary policy toolbox to help bring down the inflation rate to acceptable levels. Rising interest rates is their front line of defense against inflation.
Interest rates determine how much it costs borrowers to get a loan. Higher interest rates means there is less of an incentive to borrow money, it’s more expensive. The higher the rates go generally the less money people borrow. Less money being put into the market means there is less buying pressure and when there is less buying pressure it means bears are firmly in control.
All risk-on assets will generally see a continued sell off across the broader markets as a whole. This doesn’t mean down only, there could be a week or multiple weeks where there is a rally but it will get sold off and we will trend lower then where the rally started.
When the fed makes a dovish reversal on interest rates we will likely see a reversal in price action as well. Now the only way realistically the fed makes a dovish reversal is if inflation peaks and is trending down. With the latest CPI data for the month of May showing inflation still rising strong, it means the fed will continue its hawkish policy on rate hikes.
So wen bottom? When inflation has peaked and it is beginning to trend down we will likely see a reversal at that time. You don’t know if inflation has peaked until you have months of CPI data showing inflation going down. Which means at a minimum we need to see 3-4 months of CPI data going down. Which means the bottom for risk-on assets including crypto will at the earliest occur in Q4 2022 but more likely sometime in 2023. I know that’s not a very narrow time frame but it is something to look at when making decisions to navigate the crypto market. We have plenty of time to make our investing decisions before prices sustainably go up.
Crypto has never seen these macro economic market conditions before. We are in uncharted bear market territory here. This is only my opinion and it could be completely wrong so don’t take this too seriously. I’m not a professional, just a retail investor. Food for thought.