This will be a long read, it took me days of research, it is a pessimistic view but all based on facts.
If you are not interested in understanding broader market risks then dont read further.
If you have a lot of your money invested in Crypto its worth reading.
I am not doing this to spread FUD or sway your decision, my posts are a labour of love, i earn nothing from this.
I own Crypto, I am 100% pro Bitcoin and many other projects, i recently purchased more long term spot.
If you chose the red pill, read on.
Firstly, If we go back to the end of 2023 it was widely predicted that the FED would cut interest rates 5-6 times this year, this would be needed to stave off recession, fast forward 6 months and we have had no cuts, we also have no clear direction, this does not show signs the FED is in control of the US economy.
Powell and the FED are focusing on inflation and unemployment and are using this as validation that their higher for longer stance is working.
Inflation is a lagging indicator, its like looking backwards to see what is ahead of you, also the labour market can collapse at a rapid rate once it starts to deteriorate, it is not always a gradual decline.
Here are some things to consider that show the FED might be about to cause a recession,
-The Sahm rule, The Sahm rule is an indicator which tracks the moving average of unemployment, the rule has applied to every recession since 1948, currently the Sahm indicator is flashing a risk warning, if (only if) unemployment keeps rising at the pace it has in the last 3 months it will trigger the Sahm rule recession warning in the coming months. Unemployment and job loss dynamics feed on themselves, if people lose their jobs, they stop spending money, leading to more jobs losses.
-Spending on the US national debt interest(not debt just the interest) is now the second largest item in the US budget, it has surpassed the National defense and Medicare budget, it is expected to reach $870 Billion in 2024 (3.1% of GDP)
-Hundreds of US banks at risk of failure or falling below their minimum capital requirements.
- Credit card default rates at the highest level in 12 years.
- Delinquency transition rates increased on all debts types in the last quarter.
-Yield Curve inversion is now the longest on record, for decades the Yield curve inversion has been a leading indicator used to signal a recession.
-Pending home sales fell by 7.7% in April, they fell in all regions, this is the slowest pace since 2020. Pending home sales is a forward looking indicator(unlike existing home sales) as the contract is signed several weeks before the house is counted as sold. Pending home sales have a far reaching ripple effect on the economy, when people buy homes they spend on renovations, a morgage is sold, brokers are paid and so on, it is a leading sign of economic health.
-Consumer spending and retail sales declining (Consumers make up 70% of the US GDP)
-Consumers appetite for nonessential goods declining.
-Consumers more likely to trade down or use pay later option when making purchases.
-Many G10 Central banks have already started lower rates as they see the recession risk, many have done so with inflation still above the target price, The Fed remains stubborn.
-In most major recession and economic crashes of the past, we have seen a stage of Euphoria which pre-dated it, this is exactly the same conditions we have seen in Crypto, S&P 500 and many other stocks over the last year.
-In many stock market crashes of the past we have seen similar conditions to what we see today with Nvidia. The Nasdaq and S&P 500 gains are all being supported by Nvidia, yes AI is booming but this also shows risk, firstly it shows extreme greed(FOMO), Secondly it shows investors are not finding value(diversity) in other stocks, this is a huge warning sign for the overall market.
There are many other warning signs, these are just a few that need to be noted.
Each of these warning signs alone are not enough to cause alarm, but when you combine them all (and others) it is time to pay attention.
If the FED had lowered interest rates even once i would have a more positive view, i just cant look past 5-6 cuts now becoming possibly 1.
These signs may take many months to materialize but if(only if) many do it will be terrible for crypto, also note the FED might take drastic steps if these do materialize (lower interest rates too late in desperation, pump stimulus into the economy) this can lead to a last gasp(short lived) Euphoric Bull phase.
If Unemployment starts to break down and we see increased numbers in the next 1-2 months i would advise positioning yourself for the worst case scenario, expect the best but prepare for the worst.
Cash out some/most of your crypto or stocks if this happens(this depends on your short-mid term financial sittuation), ask yourself is the possible 5-10% extra you could make worth the risk of a massive shock( Im assuming most high leverage traders didnt make it this far, so this applies mostly to Spot holders)
I dont presume to know more than the FED, i research and listen to analysts i trust, not paid analysts who are employed to ONLY be bullish.
Now, more than ever, it will be important to monitor the US economic data, especially the labour market, dont ignore or be stubborn if this shows signs of breaking down further.
This is not anti crypto or FUD, i post to try help people who dont understand market risks.
Many new traders dont see how Crypto and the global economy is linked but it is, if we see a recession or crash then crypto prices will be hit hard, it will be a firesale. Crypto is a "Risk on" investment, BTC is the only current store of value, many other large proof of stake networks will hold up better in a higher risk environment(ETH,SOL) because large holders stake funds for staking rewards and to secure the network, also now in re staking, these positions are not easy to exit, they take time(weeks possibly) to close, they will have far greater support.
The FED has stood by its policy for to long, they will need to act fast and correctly in the coming months, it could already be to late(Policy changes take a year or more to have an effect)
The market will be very sensitive to data in the coming months, especially Unemployment and Inflation, before you do anything, before you enter any trade, monitor the news ahead for the week.(Forexfactory.com)
It sucks but the price of Crypto is now firmly in the hands of the FED and the policy decisions they make in the next 3 months, dont be naive and think otherwise.
Please also note i recently did a portfolio breakdown, this seems to contradict that, it doesnt, that portfolio was for long term spot(1-2 years), i purchased many of these projects at the prices i listed, if BTC falls further i will buy more, i also noted in that post and in previous posts that the most sensible option currently is to have most of your portfolio in BTC 60-70%.(Held off exchange)
For now nothing has changed, i still feel those entries were good, should we see further warning signs i will re evaluate(and post), i will hold BTC regardless.
I am not predicting an imminent crash or recession, most analysts and the FED dont foresee a recession, what i am saying is we need to monitor the labour market, we have many warning signs, too many to ignore at this point, if the labour market breaks down further(over a few readings, or a rapid increase in unemployement) it will be the final warning sign i need.
Also this is not a post intended to make you short the market, as noted things can take many months to materialize, we could also see further upside if we get positive readings in the coming months(this is what i want), even if we dont the market might pump if the Fed makes policy moves in desperation.
"The market can stay irrational longer than you can stay solvent"
It took me a long time to research and write this post, if you made it this far(and found this helpful) a like is always appreciated.
Thanks for reading.
Peace.
#CryptoTradingGuide #CPIAlert #BTCFOMCWatch #ETHETFsApproved
