Is the Winterbottom In?

Thunder Trading Update - 19/07/22

* Pictured Mark Winterbottom (2015 Supercar Championship Winner)

Purpose:

Dear readers, we have conducted a large survey of our readership and discovered many of you would like to hear more often from us to better keep up with the market and also to learn and improve your understanding of what's really happening in the crypto space. We have instituted a more frequent, separate "Thunder Trading" note that will go out a couple of times a week when markets give us something significant that warrants a deeper look.

This is the first edition and will cover talk of a bottom in the current cycle being formed. It's a very important event and could inform trading decisions. None of the content is designed as financial advice and you should do your own independent research before making any investment decisions.

What is a Winterbottom?

The Bitcoin market and more broadly the Crypto market has experienced many cycles over its life. The cycles have Bitcoin moving through phases when it shoots for the moon with incredible speed and has everyone very excited. It also has Bitcoin experiencing brutal crypto winters that can break inexperienced investors but also serve as incredible buying opportunities.

If you can pick the apex of the top and bottom you can experience incredible life changing returns that will have you looking like our hero Mark Winterbottom. You might just feel like standing on top of your car. Currently we are in a crypto winter phase where almost all currencies are significantly off their all time highs. A Winterbottom is the absolute lowest level reached over a crypto winter.

Current rebound off bottom:

Why are some analysts calling a Winterbottom?

Charts like this one have Bitcoin firmly in the oversold zone suggesting it's a generational buying opportunity.

Likewise, technical traders following the Pi Cycle would note that the Pi Cycle bottom has been indicated. The pi cycle bottom is a simple indicator that is based on two long-term moving averages: 471-day SMA and 150-day EMA. The signal lights up when the latter falls below the former.

Bitcoin hit a low of $17,593 USD after inflation forced the US Fed to raise rates by 0.75%. Many saw it as just step 1 in a long line of falls following expected interest rate hikes.

However markets can move ahead of the news and can move with changes of expectations. That's what happened this time, when the US printed an inflation figure of 9.1% punters thought that the Bitcoin price might push to 11k but instead it rallied hard to a monthly high. The reason seems to be that expectations changed. People are not expecting the Fed to be able to keep up with their interest rate rises as planned. This includes Australia where the ANZ economists have just issued a note to investors saying the RBA will accelerate their tightening plan by more than 1.65% by end of 2022.

The Fed will need to stop hiking rates when something breaks, and that point is getting closer by the day.
We'll be keeping our eye on

Signs of a US recession, housing crisis, and/or accompanying unemployment
Global issues in the dollars outside of the US (known as the "Eurodollar"). Weakening currencies in Japan, Europe and others will make US denominated debts harder to repay, and can trigger further sell-offs in US assets.
Issues in the US repaying its own sovereign debt at the higher interest rate

Should the impact of any of these become too great, then expect the Fed to reverse course and promptly re-engage the money printers.

Why we have to be cautious:

The real world situation in Financial Markets is still highly problematic. Inflation is high and interest rates are still rising all over the world. Tightening monetary policy is generally bad for Bitcoin. So we have to be careful going in at this time.

As crypto is widely perceived as a risk asset, their prices are highly sensitive to changes in interest rates and with an upcoming Federal Reserve meeting with a potential 100bps rate hike on the agenda, more downside can be experienced but for those with a keen eye on the wider macro picture, this can be an incredible opportunity.

If we cast our eyes to the chart below it shows a fascinating correlation that can be the light at the end of the tunnel for investors the world over and that's when the US10Y yield falls below the Fed Funds Rate the US Central Bank is quick to change course on their monetary policy pivoting towards a looser monetary conditions and dusting off the printer to engage in stimulus not to save asset investors but to prevent the US money markets from collapsing.

Risk vs Reward

Do I buy in now at $22,000 or do I do the prudent thing and wait for the Fed to announce that they are reducing interest rate expectations? That's a really interesting question. On the one hand, going in now off the back of what looks to be a winter breaking rally is tempting. You can still lock in $22,000 USD entry price which is so cheap compared to the near $70,000 USD all time high.
On the other hand if you could buy after confirming that the Fed is loosening (or at least stopping the tightening) you could be way more certain that circa $17,000 was the low. Here's the thing though, once the Fed announces they are no longer raising rates, the price of Bitcoin will rally hard and the price you pay will more likely be at a level of around 30,000 which is the next key level.

So there's a risk vs reward balance here, you could earn much higher reward going early but at greater risk vs low risk of waiting for the macro situation to play out. At the end of the day it's your call as to which approach suits your strategy.

Source: Pantera Capital

Stormrake Team

custody@stormrake.com

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