All news is bullish
Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
After months of unabated downtrend, markets have finally seen some relief this week, with BTC scraping highs of $24k and the industry’s total valuation reclaiming the $1T mark. The aggressive rally has left many participants perplexed, given that the cross-sector pump has coincided with a slew of negative earnings reports, a mammoth 9.1% CPI print, and increasing geopolitical upheaval.
BTC has enjoyed >20% gains despite the volatile climate
Dominance
Interestingly, ETH has stolen the spotlight on the current relief rally, outperforming BTC by >30% in the past week alone. With the Merge growing closer, and mainnet deployment tentatively slated for 19 September, the rally from sub-$1k lows seems set to continue momentum – at least, if the rest of the market continues to play ball.
ETH:BTC
Macro
Markets rallying despite a fresh high for US inflation invariably pressures the Fed to take more aggressive action than in the past. As per their own admissions, an unprecedented 100bps rate hike could likely be on the cards come next Wednesday.
Meanwhile, the EU continues to struggle with the impact of sanctions imposed by the union on Russia. Germany in particular has warned citizens to brace for blackouts and electricity bills ranging from €1500-€3000 as winter approaches. Having reduced their use of Russian gas, Germany has seen a major reduction in their energy supply – a crisis that has been compounded by the dubious decision to decommission nuclear plants across the EU’s strongest nation. Despite the European Central Bank (ECB) finally taking somewhat significant action on Thursday with a 50bps hike, the eurozone’s economic outlook remains tenuous at best. Factor in Italian Prime Minister Draghi’s resignation, and it seems that Europeans are likely to face more pain ahead.
Forward Focus
As we’ve discussed previously, bear market rallies are often surprising, aggressive, and difficult to rationalise. However, the lack of liquidity in the space at present – even in equities – makes igniting these moves an easy task for market makers. Despite the velocity of the latest rally, BTC still remains firmly within the current trading range, after rejecting the breakout above $24k.
What hasn’t changed is the increasingly dire lived realities of ordinary people faced with a skyrocketing cost of living and largely stagnant wages, which all but evaporate when one factors in rampant inflation and increasing repayment rates.
As we continue to ride these uncharted waters, it’s become glaringly obvious that many at the helm only know as much as a passionate layman. The ECB’s unforgivable inaction is likely to cause ripples of instability across the globe, and is already manifesting in many regards.
Undoubtedly, it’s important to enjoy the gains as they come, and there’s no telling how long markets continue to remain disconnected from actual economics. That being said, all things must achieve balance eventually, and the fervour of upswings needs to be tempered with the understanding that while markets may behave irrationally, they are in no way immune to the overarching effects of a global recession. By all means, cast lines and catch fish, but be wary of the tsunami looming just out of view.
