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Maximum pain: always ahead of us
The word of the day is pain. It was Federal Reserve Chairman Jerome Powell’s favorite date at the Federal Open Market Committee meeting in September. A simple economic release and subsequent press conference sent the market into a mild panic with rates soaring, volatility heating up and stocks selling off with bitcoin following. The S&P 500 index lost a critical support level of 3850, bitcoin retreated to local lows of $18,100 and the 2-year Treasury rose above 4.1%.
Even an expected 75 basis point hike was not enough to lift markets as additional information on the Fed’s forecast and Powell’s speech further worried risk assets. Powell has repeatedly said that more economic hardship (job losses, declining housing market, etc.) results in solving the current inflation problem. He cited a lack of disinflation in their preferred measure of ‘core PCE’ (personal consumption expenditure) and reiterated his hawkish speech from Jackson Hole, noting that they won’t stop until the job is done. .
It’s now do or die for risky assets with options to see an immediate rally this week or likely a continuation lower in valuations and prices across the board.
Our thesis here at Bitcoin Magazine Pro, as long-term proponents of bullish bitcoin, is that macroeconomic headwinds are in the driver’s seat, and given price action in global currency and bond markets, the moment of ultimate panic has not yet arrived. We are open-minded and flexible to change this position, but as objective market analysts we see and report what is in front of us. More on that later.
While on-chain cyclical metrics can prove useful in gauging opportunities to buy (or sell) long-term value and the economic behavior of Bitcoin, we have highlighted less of them in recent months as we felt they were less relevant to short-term price. action against the current macro headwinds.
Looking at bitcoin’s market cycle history, diving into the on-chain data, one immediately notices the consistency in which bitcoin’s price falls below its realized price (average cost basis of all bitcoins according to their last chain movement) during the depths of a bear market. In previous cycles, it was not a one-time event, but rather an event that also comes with a duration. We have been pointing out for months that this bear market may last longer than expected and that the duration component is more painful than the percentage decline.
“As the average holder is underwater, most marginal sellers have already sold their holdings, and while further downside is possible, the ‘pain’ market participants are feeling comes in the form of a prolonged period of time underwater rather than the rapid decline in price that characterized the start of the bear market. – When will the bear market end? July 11, 2022
The daily BTC/USD exchange rate is pegged completely at the margin and, given the growing macro headwinds, marginal sellers have and will likely continue to dominate marginal buyers until a distinct change in liquidity conditions occurs. produce.
A closer view shows that this long process of surrender is transferring the coins into stronger and better capitalized hands.
For those who see this as the time to get bitcoin undervalued in the long run, realized market capitalization is a reassuring chart that shows the logarithmic growth of bitcoin’s cost base over time. The cost base has only fallen a maximum of 24.07% from cycle highs and is currently down 12.71%. This is the chart we think most “non-bitcoin” investors don’t understand. Even in the “all speculative” bubble, of which bitcoin is a part, the network cost base keeps rising or falling slightly despite wild daily exchange rate volatility.