06 Feb Bitfinex Alpha | Fed Hikes to Continue but On-chain Data Shows the Bottom Might Be Near
Early calls for a pause in rate hikes, following last week’s 25 basis point increase, are likely to fall on deaf ears. With inflation at 6.5 percent, we are still a long way above the Fed’s two percent target.
Furthermore, employment demand is robust, and the number of vacancies is growing. Indeed, such is its strength that non-farm payroll data out last Friday severely wrongfooted economists. For now, the Fed will not stop tightening, but as we have argued before if hiring and wage growth changes meaningfully, then interest rate policy will also change.
Data from the housing market suggests that we are seeing some weakening already in the economy. Residential construction as a proportion of GDP is already falling, and the number of new building permits is declining, a data point that we believe will see a further drop in the coming months. But there is still more wood to chop before the inflation demon is beaten and interest rates can take a breath.
In stark contrast, Bitcoin metrics are looking bullish. Selling from both short-term and now even long-term HODLers has been profitable for the last 90 days, with the market successfully absorbing any selling pressure. While it does not imply that the market is back to the up-only territory, it does indicate strength in the spot markets, which only appears in late bear and early bull markets.
Other technical indicators are also positive. The 90-day EMA for Bitcoins that last moved when prices were lower has now been up for the last 30 days, having risen around 20 percent. Furthermore, as discussed in last week’s Bitfinex Alpha, the net adjusted Spent Output Profit Ratio is now above one, an indication that net sales are profitable, while the ratio of Realised Profit to Losses (RPLR) is also above zero, another gauge of profitable selling. To contextualise this, the last time the RPLR hit 0.2 was in 2019, and Bitcoin’s price had fallen to around $3,600. It then went on to rally around 19x to the record highs of late 2021 just under three years later. This time round, when Bitcoin was trading around $16,000 last November, this indicator was again around 0.18, its lowest since 2011. If history repeats itself, it could rise significantly again. A 10x rise would take BTC to $160,000.
Even on a longer time frame, the technical indicators are flashing green for Bitcoin. The reserve risk ratio for BTC, which perceives the conviction of HODLers, is low. The lower the ratio, the higher the conviction. Similarly, the well-known Market Value Realised Value ratio has also recovered, with market value now above-realised value.
Such positive news came against a backdrop of more recrimination in the rest of the crypto world. Last week, the court-appointed ‘examiner’ of Celsius, the bankrupt crypto lender, revealed that her investigation showed that the company appeared to be behaving like a Ponzi scheme.
In the meantime, Osprey Funds sued Grayscale over alleged misleading advertising, and Alameda Research sued Voyager (both companies are also bankrupt) for loan repayments it said it was owed.
We also had news that the crypto protocol BonqDao was hacked after a bug was exploited in one of its oracles. More positively, however, Ethereum developers opened the new Zhejiang testnet to test the process by which long-staked ETH that had been securing the network as part of last year’s Merge could be released.
In our Learning Section, we explain the role of the FOMC and Quantitative Easing and Tightening. It’s a good refresher of how the US central bank works.