Sep 19, 2023

Bitcoin (BTC) is back above $27,000 as many traders anticipate no change in rates – as the FOMC's 2-day meeting kicks off today.

Video transcript

Us, traders are anticipating no change in rates as the Federal Open Markets Committee two day meeting kicks off today. Joining us now to discuss the crypto markets is Forex dot com. Global head of research, Matt Welner. Good morning, Matt. Hey Martin, thanks for having me on. So I assume you are with the vast majority of humanity that thinks that there will be no change in rates today uh this week. But uh do you see uh at least even a potential for another sad 25 basis points uh increase before the end of the year just because? Yeah, absolutely. I, I do not think we should close the door on rate hikes and I do not expect the Federal Reserve tomorrow to close the door on rate hikes. In fact, I expect the median dot in their dot plot where they forecast where interest rates and other economic variables will be that could well still signal another interest rate hike. Probably in the December time frame. Inflation continues to remain above expectations. So right now, it's a good opportunity for the fed to, to sort of sit on their hands, be data dependent as they've argued they have been for, for years now and uh see if that data continues to support another rate hike. But if we just take a step back, the broader trend is the fact that we're nearing people interest rates really across the globe. We might see one more rate hike in England. We might see one in Switzerland this week. But at the end of the day, we're, we're probably one and done in a lot of these countries and that, that peak interest rate phenomenon and the potential for future rate cuts is something that could be supportive of the crypto asset markets as we move into 2024 and beyond. Yeah, that, that has to do, of course, with the idea that uh if rates stay the same or even lower, it makes it easier for uh people to take on risk and, and the cost of borrowing if, if rates fall uh becomes cheaper and they could take on leverage. But something interesting happened yesterday. We had a, we, we had this flash sell off if you will. Um And I'm wondering how much of that it, it, it doesn't seem at least to be based on macro issues, but it does. Do you think that it was specifically related? I don't know, I wanna say potentially Binance, it could well be um this is something that perhaps is of most interest to very short term traders. It, it, it was a, a big drop. On a short term basis. But I, if we take a step back again, we're still in that broader range. As the chart shows, we're, we're finding a lot of support around 25 K. We're finding resistance up at 32 K. We dropped from the mid 20 sevens, I believe in this, this flash crash back down to 27 K or so. And we're, we're sort of in no man's land in the middle of that range. I would say if we can get sustainably above 28 K that opens up the highs of the year near 32 K. Meanwhile, if this 25 K range breaks, which is certainly a possibility, especially if central banks do start to squeeze in a couple last rate hikes, maybe we'll, we'll see some downside toward 24 K. But uh the short term outlook is very much range bound. II, I guess my question has to do is I, I mean, are there any structural issues that the market seems to be concerned about? I, I think it, I think it all relates back to the macro environment. It's just much less favorable than it has been for the entirety of Bitcoin's life and uh Ethereum and all the other crypto assets. We, we were in essentially a 0% interest rate regime for almost that entire period. Now, we have to see how these assets perform in a higher interest rate uh regime and And frankly, I think some of the performance we've seen this year from Bitcoin and Ethereum and other crypto assets has sort of, um, uh, put to rest, some concerns that it was solely a low interest rate phenomenon. We're still seeing decent performance, uh, at least prices holding up despite the high interest rates. And I think that's something that's very bullish long term. Is there anything interesting going on in the market besides Bitcoin? Well, there's always interesting stuff going on. I think we, we're still in that sort of, uh, maybe, uh crypto spring period. Everyone talks about a crypto winter. We've certainly seen a bounce back in prices, but there's a lot of building underneath the surface. Um, if we're talking about Bitcoin, some of the things like ordinals and inscriptions are, are essentially types of NFTS almost on Bitcoin that I think has, uh, provided a bit of a lift to the crypto asset. And of course, in Ethereum and other smart contracts, we see, uh, apps being built gaming, I think is, is an area that got overhyped a couple of years ago but is starting to find a little bit of product market fit. So, uh, it, it's, it, nothing is really broken through to the mass consumer adoption stage, but we're, we're sort of in that period of the cycle and there's certainly some green shoots that, uh, that I think we, we should keep our eyes on to see if something starts to get momentum uh whether that could help lead us to the next stage in, in a new uh crypto bowl cycle. Matt. Let's take a look at this chart on Bitcoin dominance. It shows it's at 50% and still trending higher unpack what we're seeing here. Yeah, of course. So Bitcoin dominance is just the proportion of the total crypto market cap. Uh uh Bitcoin makes up it historically, it was very high when crypto, when Bitcoin was the only crypto asset, uh it, it dropped very low. I I in bull markets as traders kind of invest in higher volatility, riskier alt coins that are seeing bigger returns. The key thing to watch with this chart moving forward is the fact that Bitcoin dominance tends to trend higher in bear markets. And and we are seeing Bitcoin dominance trending higher, in fact is right about at 50% after getting as low as below 40%. Uh it uh in the in the peak bull market period. So what traders will be looking at to sort of signal the the next leg higher in crypto assets as a whole would actually be Bitcoin dominance falling. That indicates that investors in the space are feeling more optimistic, get optimistic, more uh eager to take on risk and buying what's a little bit further out on the risk curve. Of course, all of this is pretty far out uh relative to traditional investments. But if you start to move towards some of those alt coins. That's when we see Bitcoin dominance rolling over. And that's when we can really see, uh of course, Bitcoins still rising, maybe not as fast as small coins, but that's really what investors will be looking to see uh for the next full, you know, 111 thing that we've, uh you know, a, a common theme that a few of our guests have had is that the, this kind of seems to be the apocalypse, which is a term that I brought up yesterday that there are fundamental issues that are involved, which uh is scaring people away from the alt it. Do, do you think that that's going to affect Bitcoin dominance in a different way? I mean, I mean, you know, you talk about risk on, risk off or increased appetite for risk would put people into all. But uh doesn't that hurdle rate get higher and higher? Uh actually, because of the fundamentals behind the adoption of all coins and people just saying, you know what, I'm not getting anything out of this. Why do I need this? Is that, does that kind of change that equation a bit? I, I think it, it, it's a, a savvy observation. I, I think a lot of it relates again to that macro environment where previously we had 0% interest rates, we had venture capitalists eager to spray money at anything having to do with crypto and, and getting again themselves further out on the risk curve. Now we're in a more reserved environment and I think that's going to take some of those long tail assets and, and just frankly make them not, not investable and, and not at a stage where they can start to get some momentum. But uh alt coins is a very broad topic. I do think uh some of the smart contract platforms obviously ethereum, things like solana and avalanche are getting some traction. So I, I think there's certain um chains, coins tokens that have made it over the threshold, but certainly to your point, it's gonna be uh I think a lot more difficult for things to come out of nowhere and get a lot of sustainable momentum and be, be uh tokens that we're talking about in the next cycle and beyond Matt, what are the whales doing? Are you doing any whale watching? How important is it to watch these big wallets? Uh When it comes to what's going on in the markets? Yes, it's absolutely essential what I like to look at, especially when it comes to Bitcoin are long term holders. Um different providers uh define this in different ways. But essentially, uh the, the numbers show if, if someone's held Bitcoin for about half of a year, that indicates they're not a trader, they're not trying to flip it for quick profits. And a lot of times those are the coins that, that essentially go into the cold storage and are never seen again. And uh that figure, if you look at Bitcoin long term holders is actually a approaching its highest level ever as a proportion of total supply near 75%. I think this is a potentially bullish sign and, and something we frequently see before uh big bullish moves because again, that that creates the environment for a supply shock. So if there is a catalyst that has traders rushing to buy Bitcoin, essentially, there's a much smaller proportion of that that's really liquid and available. And that can really juice prices. Again, if there's any sort of catalyst that causes demand to pick up, Matt, thank you very much for joining us this morning and providing that insight. My pleasure. Thank you. That was Forex dot com, Global Head of Research, Matt Weller.

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