Bitcoin Pre-FOMC

Summary

In this video, the creator dives into the upcoming Federal Open Market Committee (FOMC) meeting, scheduled for March 19th, and its potential effects on Bitcoin and the broader market. The focus is on whether the Federal Reserve will continue or end quantitative tightening (QT), a key concern for market participants. The creator explores how market dynamics, inflation data, and policy changes may influence market trends, especially in relation to Bitcoin and Ethereum. They also discuss the impact of tariffs and the possibility of a market rally between mid-March and mid-April, highlighting the uncertainty in the current economic climate.

Takeaways

• 😀 The upcoming FOMC decision on March 19th is expected to keep rates steady, but the focus is on whether the balance sheet runoff will end or continue.
• 😀 The market is concerned more about the Federal Reserve's quantitative tightening (QT) policy rather than just the interest rate decision.
• 😀 The Advanced Decline Index (ADI) has been dropping for the past 3-3.5 years, indicating that more assets in the top 100 cryptocurrencies are in decline, unlike during 2020-2021 when the ADI was rising.
• 😀 The previous cycle saw the ADI begin to rise after quantitative tightening ended, with a lag of 3-4 months. This suggests that QT impacts market trends significantly.
• 😀 There is speculation that the Fed might end QT by mid-2025, but the most likely outcome is that it will end by the July meeting of 2025.
• 😀 The Fed's balance sheet policy has seen slowdowns in quantitative tightening, which is already affecting market conditions.
• 😀 New tariffs and the uncertainty surrounding them could be either inflationary or deflationary, depending on the overall economic situation and consumer behavior.
• 😀 Inflation has dropped recently, which may push the Fed to end QT sooner, but one data point does not necessarily make a trend, and inflation data from March is still uncertain.
• 😀 If quantitative tightening ends soon, assets like ETH and Bitcoin could experience a bounce, similar to previous cycles when QT ended and prices saw significant increases.
• 😀 The market might face weakness between February and March OPEX (Options Expiration), which could lead to a rally starting in mid-April, with potential market lows occurring around mid-March to mid-April.
• 😀 The Bank of Japan's potential rate hikes later this year could also impact Bitcoin pairs, leading to further declines in altcoins against Bitcoin, depending on the global economic landscape.

Q & A

What is the most likely outcome of the upcoming FOMC meeting?

The most likely outcome is that the Federal Reserve will hold interest rates steady, though market attention is more focused on whether the balance sheet runoff will end or not.

How does the Advanced Decline Index (ADI) compare between the last and current market cycles?

The ADI in the current cycle has been decreasing for about three to three and a half years, indicating more assets have been declining than increasing. This contrasts with the 2020-2021 cycle, where the ADI was rising, suggesting a more favorable market for asset growth.

What is the significance of the Federal Reserve's quantitative tightening (QT)?

QT refers to the Fed's policy of reducing the size of its balance sheet. This is significant because its continuation or end can have major impacts on the financial markets, including asset prices like Bitcoin and Ethereum.

What do the minutes from the January 2023 FOMC meeting suggest about the Fed's future plans?

The minutes suggest that the Fed expects the balance sheet runoff to conclude by mid-2025, which is later than previously anticipated. This indicates that some Fed participants believe QT should slow down or end sooner than mid-2025.

What role do tariffs play in the current economic landscape?

Tariffs are a point of discussion due to their potential to either be inflationary, by increasing costs for consumers, or deflationary, if the consumer responds to higher prices by reducing demand. The overall effect depends on whether the economy is in a recession or not.

How might inflation data affect the Fed's approach to QT?

If inflation continues to decrease, it could prompt the Fed to end QT sooner than previously expected. However, one data point does not make a trend, so the Fed will likely wait for more consistent inflation data before making a definitive decision.

What is the potential impact on the market if the Fed ends quantitative tightening (QT)?

If the Fed ends QT, it could lead to a short-term bounce in assets like Bitcoin and Ethereum. Last cycle, when QT ended, Ethereum/BTC pairs saw a bounce, and a similar situation could occur, potentially pushing Ethereum/BTC to around 0.03.

How does the current stock market correction compare to previous ones?

The current stock market correction has occurred much faster than the previous one in late 2023, which took longer to develop. This rapid decline has contributed to a sense of urgency and uncertainty in the market.

What is the expected market behavior around the mid-March to mid-April period?

The period between mid-March and mid-April is often a time of weaker market performance. Historically, significant corrections have occurred during this time, and a local low may form before the market rallies back up.

What might influence the timing of a rally in the market?

Factors such as the Fed's stance on QT, the debt ceiling situation, and potential rate hikes by the Bank of Japan could influence the timing of a market rally. The market might see favorable seasonality around mid-April, though there is also a possibility of continued weakness into that period.