The crypto winter is showing no signs of thawing as markets brace for impact from several major economic events this week.
All eyes are on Federal Reserve Chair Jerome Powell's speech on Wednesday as investors seek clarity on the central bank's path forward amid growing recession fears. New data on GDP, inflation, housing and consumer spending could also rattle already anxious markets.
With bitcoin sinking below $26,000 over the weekend and total crypto market cap shedding nearly $10 billion, the bears appear to be tightening their grip. But volatility could present prime trading opportunities. Here's what crypto holders need to know to navigate the choppy waters ahead.
Buckle Up For A Volatile Week
According to financial markets newsletter The Kobeissi Letter, volatility is set to return with a vengeance this week as uncertainty swirls around the Fed's next moves.
Several key economic reports are on tap, including revised Q2 GDP figures, inflation data, housing starts and consumer confidence. But the main event is Powell's speech on Wednesday.
While the chair is not expected to signal any changes to current policy, his remarks will be closely parsed for clues about future rate hikes. Even slight shifts in tone could spark significant market reactions.
"The return of volatility is fantastic news for traders," Kobeissi wrote in its weekly outlook. "More Fed uncertainty is back and we are ready for it."
With October -- historically a bearish month for stocks and crypto -- fast approaching, jittery investors may head for the exits at the slightest provocation. Buckle up for a bumpy ride.
Key Events That Could Rock Markets
Here are some of the major economic data releases and events to watch this week:
- Tuesday: New home sales and consumer confidence figures. Both expected to show continued economic weakness.
- Wednesday: Revision of Q2 GDP growth forecast to 2.3% from 2.1%. Powell's speech at town hall event.
- Thursday: PCE inflation data. Core PCE inflation seen falling slightly to 4% from 4.2% in August.
- Friday: Personal income/spending and University of Michigan consumer sentiment. Will offer more clues about economic health.
While the Fed chair's remarks will grab headlines, the other reports -- especially inflation and GDP -- could also impact crypto prices. Bad news would likely extend the bear market.
Bitcoin Flirts With $26K As Selling Accelerates
After a brief recovery attempt last week, bitcoin has resumed its downward slide. BTC dropped below $26,000 over the weekend for the first time since mid-July.
More worryingly, it's struggling to hold that level, dipping to $25,900 during Monday's Asian trading. That opens the door to a potential drop towards $25,000 or lower as sellers remain in control.
Ether is also under pressure, falling back below $1,700. Meanwhile, total crypto market cap sits around $1.08 trillion -- basically unchanged over the past two weeks despite considerable volatility.
With recession fears mounting and the Fed still aggressively tightening policy, crypto is unlikely to break its slump anytime soon. Expect more pain ahead as uncertainty builds.
Ayn Rand's View: Markets Demand Certainty
If Ayn Rand were alive today, she would likely argue that the Fed's equivocation and mixed signals are largely to blame for unsettled markets desperate for certainty.
In Rand's objectivist view, rational self-interest and profit motive drive free markets and human progress when unencumbered by government intervention. Central bank money-printing and interest rate manipulation create distortions that undermine public trust.
Investors have a right to unambiguous facts and reliable frameworks for planning. Instead, Fed vacillation and opaque communications breed doubt. Until monetary authorities provide consistent guidance and follow principled rules, markets will remain hostage to Fed whimsy.
True stability requires a gold standard, separation of bank and state, and an end to central planning in favor of unfettered commerce. Markets work best when left alone.
Opinion: Time For Fed To Clearly Signal The Endgame
While a dovish pivot seems unlikely given Powell's hawkish stance, there is a growing sense that the Fed may need to slow its roll, with rate hikes now clearly dragging on growth.
The central bank should avoid shock and awe tactics. A series of smaller 0.25 point hikes over the next several meetings could limit recession risks while still containing inflation.
Most importantly, Powell must use this week's speech to provide a clearer roadmap of where rates are heading and how decisions will be calibrated going forward. The Fed needs to restore confidence that it has a steady hand on the tiller through choppy waters.
Ambiguous communication has left investors unmoored. It's time to map out the endgame so markets can plan accordingly.
How Bitcoin's Decentralization Could Shine In Crisis
If economic instability intensifies, it could highlight benefits of Bitcoin's decentralized design compared to fiat money overseen by central banks.
With no single entity controlling Bitcoin, it cannot be manipulated for political or financial gain the way Fed policy so clearly influences markets. Its programmed monetary policy cannot change on a whim.
This provides advantages when the failings of central banking are exposed. Bitcoin acts as a hedge against inflation and monetary debasement. Its fixed supply schedule ensures scarcity and transparency.
If recession takes hold, more investors may turn to crypto for a life raft independent of government mismanagement. Harder assets like Bitcoin and gold will become more attractive.
So future crises could end up bringing crypto markets back to life as faith in institutions falls.
Prediction: Continued Volatility But Uptrend More Likely In 2023
While more downside is possible in the short term, odds still favor recovery by late 2022 or early 2023 as rate hikes ease inflation and certainty returns.
Crypto winter won't last forever. The Fed will eventually pause rate hikes as the economy shows signs of tackling inflation. Risk asset markets will rally when that happens.
Patient investors could be rewarded by buying at lower prices during this bear shakeout. Market bottoms are often marked by extreme fear like today.
Of course, recession risks make the outlook foggy. But this technology is here to stay, and market cycles come and go. The long-term crypto growth story remains intact.
Historical Parallels To Today's Crypto Winter
Cryptocurrency observers have drawn parallels between current conditions and previous crypto bear markets triggered by macro shocks:
2018-2020 Crypto Winter
- Caused by bursting of massive ICO bubble and regulatory pressures
- Bitcoin fell over 80% from peak, hitting cycle bottom around $3,100
- Took over a year to regain prior highs
2013-2015 Bitcoin Crash
- Mt. Gox exchange collapse exacerbated by Chinese ban rumors
- Bitcoin plunged from $1,000+ to below $200
- Bear market lasted approximately 2 years
Like today, those periods of epic decline were marked by macro uncertainty and loss of faith in crypto's potential. But each resolved with the technology rebounding in time.
There's light at the end of the tunnel. Winter won't last forever.
Question: How Much Further Could This Bear Market Have To Run?
Forecasting crypto bottom is notoriously difficult, but judging from past cycles, current conditions could indicate more pain ahead before a sustained reversal.
Bear markets historically see 80% or greater declines from peak pricing. So far, Bitcoin has fallen about 70% from its November high. Minimum downside could be retesting the June 2022 lows around $17,500.
However, extended economic weakness or government restrictions could push the drop to $12,000 or below. Upside is unlikely until Fed rates peak and inflation shows clear signs of abating. That process could easily take 6-12 months in a protracted recession scenario.
Patience and discipline will be key. But trying to time the bottom is often futile. Dollar cost averaging and macro trend analysis offer better risk management strategies.
Question: Should Crypto Investors Buy The Dip Now Or Wait It Out?
Trying to pick the bottom is risky, but gradually accumulating crypto on major price dips can make long-term sense for disciplined investors with high risk tolerance.
Cost averaging helps avoid the regrets of missing a reversal. Waiting for the perfect entry often backfires. And bear markets don't last forever.
Still, catching a falling knife can be dangerous. New lows below $17,500 would signal increased downside risk. Prospects brighten closer to the June bottom.
Given high volatility, limit buy-in amounts and leave ample dry powder. Invest only what you can afford to lose. Breathing room prevents panic selling.
Time in the market beats timing the market. But scaling in cautiously allows upside exposure while minimizing downside risk.