Aug 21, 2023

Bitcoin appears to be stabilizing around $26,000, after last week's decline took the largest cryptocurrency by market cap to as low as roughly $25,500 from $29,000. Opimas LLC CEO and founder Octavio Marenzi discusses the potential macro factors driving bitcoin's price lower.

Video transcript

Bitcoin appears to be stabilizing around $26,000. After last week's decline, took the largest Cryptocurrency by market cap as low as roughly $25,500 from $29,000. Joining us. Now to discuss the crypto markets is LLC CEO and founder Octavio Morenz. Welcome to the show. Octavio. Good to see you. Thanks for having me. Good to see you too. Now, let's talk about that liquidation that we experienced uh late last week. What do you think is driving investors to liquidate? Why did we see such a drastic drop? Well, I think you've seen a big run up in Bitcoin prices over the course of this year so far. So it's been a spectacularly performing asset class so far this year. And I think a lot of the enthusiasm was predicated on the idea that the fed at some stage in the not too distant future was going to stop increasing interest rates and actually reverse and start decreasing them. And that's very, very favorable for inflation assets or anti inflation assets like Bitcoin gold and things like that. What we saw last week was basically, I think quite the opposite happening. First of all, we saw the inflation numbers were starting to tick up slightly again. Much of the decreases we've seen in inflation basically lower energy prices, lower gas prices, lower crude oil prices, those have largely reversed now. So of course, the past month and a half, we've seen crude oil prices come up quite a bit and that's eventually going to get reflected in the inflation numbers. So inflation is going to account on ticking up slightly, I think for the coming months and that is going to put pressure on, on the fed to current current increasing interest rates. And we saw the fed minutes come out last week as well where we saw some of the, the thinking of the members of the board of Governors of the fed who basically said, yeah, we're going to have to carry on tightening. So the bias I think at the Fed right now is more tightening rather than less. And that is going to be coming clearer and clearer and put pressure on Bitcoin prices in the coming weeks and months, I think, yeah, you know, we were all hoping that we were all hoping that the the tightening would start to ease. But as you point out more could be coming, talk to me a little bit more. Let's dive a little bit deeper into what your short term outlook on Bitcoin is. As we see, more pressure from the Fed. Well, I don't really have an actual term outlook for Bitcoin in terms of price targets and things like that. I think that's something we've learned not to do or not even to strive to do. It's a very difficult volatile asset to try and forecast. But I think we're going to see the FED come out with another 25 basis point increase a couple of times this year at least. And that's going to drive interest rates into the 67, even 8% interest rate range on the short term fund rates on the fed fund rates. And that's going to be pretty negative, I think for Bitcoin overall now, does it come down 10 15 20%? Does it stay flat? I can't really tell you that. I think it's a fool's Erin to try and do that, but I think the upward momentum that we saw was basically run its course at this stage. Um, and I would disagree that we are sort of in the early stages of a new ball run. I mean, yes, this year has been very, very good so far, but I fear that's sort of coming to a close now and we're not going to see much more, more upward momentum in Bitcoin as an AA class. Now, I was actually gonna ask you about that. So thank you for bringing it up in our last segment. We also spoke about, um, Ether Futures, ETF S last week as we saw these liquidations either outperformed, uh, Bitcoin a little bit. It could be because of that news. Do you see that Ether and Bitcoin following the same trend towards, of the, towards the end of the year or if we get this ETF application, do you see maybe Ether outperforming? I see it basically being very, very tightly correlated. I mean, people can, of course, invest directly in Ether. They don't have to go through an ETF or any sort of other exchange traded product. They can get the exposure of themselves directly. I don't think that's really what's going to be driving the price. It might attract some new investors in, but I don't think it's going to be overwhelming, bear in mind in Europe, we've seen crypto etfs exist for a number of years now. I think the vast majority of crypto investment, however, it happens directly into Bitcoin or rather than adding the fees that you get through an ETF. So that's been the preferred mechanism for at least European and Asian investors to get exposure in those markets, uh rather than going the roundabout route of buying ETF. I understand an ETF for some firms, it's easy to hold particularly institutional investors. But certainly on the retail side, we've seen the vast majority of investment happen through the exchanges directly. We simply open an account with coin base or Binance or one of those exchanges and, and start trading there. All right, let's take a look at this chart. Now, Bitcoin, the US inflation adjusted bond yield are again moving in opposite directions exhibiting the strongest negative correlation in four months. The 30 day correlation coefficient between Bitcoin and the US inflation adjusted bond yield turned negative this month declining from 0.28 to negative 0.7 to a level last seen in April. Now, this is all according to trading view. Can you explain the significance for us here which we'll be taking away? Listen, I haven't seen this chart here, so I'll have to study it a bit. But what are we looking at? We're looking at basically a correlation between Bitcoin and the real return on 10 year yields. So I've seen the real return 10 yields coming down and Bitcoin coming down with it. I think really what we're seeing, Bitcoin is responding to basically this risk of future interest rate increases more than anything else as opposed to the real yield on, on 10 years. So we've seen the yield on 10 years come up quite significantly just in the past couple of weeks. And I think that's what we're seeing. The pressure is on the uh on the Bitcoin prices rather than any sort of real return uh uh uh issues that, that you're seeing in the bottom chart. So I'm not sure that that correlation is really the one that I would be focusing on. I think it might be a bit of a sort of a spurious correlation you're seeing over the course of the past 30 years. But I think the real thing is the underlying over four interest rate. All right, Octavio, we are going to have to leave it there. Thanks so much for joining the show this morning. Thank you. That was LLC CEO and founder Octavio Morenz.

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