Emerging knowledge suggests Bitcoin highly co-related to Nasdaq – The Northlines

Matein Khalid
It is not the end, it is not even the beginning of the end but it is the end of the beginning. Churchill’s famous words express my own feelings about the latest psychotic Bitcoin cycle. This crypto-puppy was at an all time high of $68,990 last November but then plunged to $33,000 in its January lows.
So whatever crypto is, it is definitely not a hedge against inflation, as so many of its die hard groupies so touchingly believe. It also seems that crypto is highly correlated to Nasdaq and other risk assets, contrary to the digital asset class propaganda. Yet I am a nervous bull on Bitcoin at its current $43,000 price as the fall in its volatility relative to gold suggests that we can scale the New Year’s Day high of $47,000 and possibly even reach my $52,000 target in this move.
It is not easy to construct an elegant macro trading model for Bitcoin, though, as in 2018, a rise in expectation of tight money from the Federal Reserve can and does trigger a heart attack in Cryptoistan.
To get the crypto cycle right, it is essential to make a call on Federal Reserve monetary policy, money supply growth, relative asset class volatilities and the institutional ecosystem of an emergent alternative asset class. 2018 proved that the hangover from a parabolic bull market in Bitcoin can be traumatic and the past two months have reinforced this bitter lesson once again.
As long as the Powell Fed is nasty about inflation and interest rates, I have to conclude that we will see a trading range in Bitcoin, probably $33,000 to $52,000. It would thus be unwise not to take profits or hedge via the derivatives market when Bitcoin reaches the high end of a trading range.
History may teach us that $68,500 on Bitcoin owed more to the Powell Fed’s post pandemic monetary largesse and surge in US M2 money supply than any mass hysteria to own digital currencies. Yet the monetary zeitgeist in 2022 is entirely different. Uncle J is going to raise dollar rates at least four times, contract his balance sheet and slash US M2 money supply growth as the global economy emerges from the pandemic.
China’s economic woes, a stronger US dollar, $90 crude oil and a surge in inflation amid public health horror stories could plunge dozens of emerging markets into recession and sovereign debt crisis. This is not exactly the macro crucible for another wild bull market in crypto, hence my view that we are in a trading range for Bitcoin and the problem with trading ranges is that bull market runs are like summer holiday romances during my miss-spent youth, short and sweet. All good things come to an end and so will this short and sweet mini bull run from the January lows in Bitcoin. Fasten your seatbelts, lest the crypto rollercoaster crush you with its psychotic volatility. (IPA Service)
Matein Khalid is Strategic Advisor with Asas Capital, Dubai.
By arrangement with the Arabian Post


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