In a recent report by Capriole Investments’ Charles Edwards explored the Federal Reserve’s ever-expanding war chest and its potential implications for the Bitcoin and crypto market. As Bitcoin gears up for its halving in April 2024, a pivotal event that will make it scarcer than gold, understanding the macroeconomic environment becomes crucial.
Why Macro Matters For Bitcoin And Crypto
Edwards underscores the inherent interconnectedness of global markets, asserting, “Bigger markets drive smaller markets.” This symbiotic relationship is evident in the crypto realm, where altcoins’ performance is closely tethered to Bitcoin’s movements. Drawing a parallel with traditional markets, Edwards elucidates, “Bonds drive equities, equities drive Bitcoin and Bitcoin drives altcoins.”
Contrary to the prevailing sentiment of an impending recession in 2023, the equities market defied expectations with a robust rally. This surge was not arbitrary but was propelled by the groundbreaking integration of usable AI, which has the potential to significantly augment GDP. Edwards directs attention to the NAAIM Exposure Index, a barometer of NAAIM managers’ equities exposure. The current readings of this index are reminiscent of those in June and October 2022, both of which signaled local bottoms for the S&P 500.
Furthermore, the AAII sentiment survey results, which are currently moderate, could provide a more convincing buy signal if they align with the NAAIM Exposure Index. Another metric that Edwards holds in high regard is the Put/Call ratio. This ratio offers insights into the relative bullishness or bearishness of market participants in the options market. A recent spike in this ratio suggests that the traditional finance market might be on the cusp of a near-term upward movement, Bitcoin and crypto could follow.
However, Edwards tempers this optimism with a note of caution. For a more definitive bullish signal, the S&P 500 would need to breach and sustain above the pivotal monthly resistance level at 4600. A consistent performance above this threshold would dispel any notions of a transient “dead-cat-bounce.”
Macro Fundamentals: A Mixed Bag
The broader macroeconomic picture presents a mosaic of varying hues. The aggressive tightening cycle, a hallmark of the Fed’s recent monetary policy, is still being assimilated by the markets. With the reservoir of household savings accumulated during the Corona stimulus years now…