In this round of cycle, the close relationship between Bitcoin, cryptocurrency and US stocks and Nasdaq is unprecedented. The scrutiny of the past cycle of cryptocurrency itself may no longer be effective. We should pay more attention to the Fed’s interest rate hikes and US stocks in history. The law of market relations.
On March 16, the Federal Reserve officially announced a 25 basis point interest rate increase, which was in line with market expectations. The risk market generally started a supplementary market. The currency circle was stimulated by the LUNA Foundation to buy Bitcoin as a reserve, and optimism gradually spread. Some investors continue to express optimism about the Q2 market, but some investors said that May may face pressure, and the expectation of raising interest rates by 50 basis points in May and shrinking the balance sheet at the same time may be reflected in the market in advance. Under the background of the exhaustion of short-term funds for LUNA to buy coins and the repurchasing of micro-strategy, the market has retreated a lot recently, which may also be a manifestation of cautious funds.
It seems that regardless of the market ups and downs, macro factors such as interest rate hikes and balance sheet reductions have become the main considerations for judging the current cryptocurrency market conditions. Looking back and drawing on the stock market's response in the historical interest rate hike cycle to guess the possible market reaction in the current round of interest rate hike cycle, although history will not simply repeat itself, it is also worth reviewing for reference.
According to statistics from Western Securities, since the 1980s, the United States has experienced six rounds of interest rate hike cycles:
In these interest rate hike cycles, the performance of global stock markets will not be so pessimistic.
If we look at the performance of US stock indexes alone, we can see that they performed better in the two rounds of rate hikes in the 1980s and the 2015-2018 rate hike cycle, although they were negative in the 1994-1994 period, but only slightly negative returns. In the other two cycles, the performance was basically flat.
In addition, according to statistics from Guosheng Securities, most US stocks fell 1-3 months after the first rate hike, but mostly rose again after 3 months.
At present, the market expects this round of interest rate hikes to be 7 times in 2022, 3-4 times in 2023, and stop raising interest rates in 2024; at the same time, it will start shrinking the balance sheet as soon as May. If interest rates are raised 7 times this year, then each future FOMC meeting will raise interest rates, which is expected to be 25 basis points. The next FOMC meeting times are: 0504, 0615, 0727, 0921, 1102, 1214.
It should be noted that our premise here is from the perspective of bulls. In other words, we tend to believe that the currency circle will complete the bottoming in this round of interest rate hike cycle, and at the same time, there is a high probability that the largest return in the previous bear market will not occur again. Withdrawal range (80%~90%).
And part of this confidence may come from the enthusiasm for investment and financing in the primary market. Under the pressure of macro-interest rate hikes, hot money/smart money does not have a high preference for the secondary market, but they are still actively flowing into the primary market to bet on industry projects. In essence, it is an optimistic view of the long-term development of the industry.
According to statistics from Dove Metrics, as of April 6 this year, there were a total of 58 fundraising events involving venture capital funds in the cryptocurrency industry, with a total fundraising amount of nearly US$12 billion.
As of April 6 this year, there have been a total of 579 project financing events in the cryptocurrency industry, with a total financing amount of nearly US$16 billion.
This is a way to observe the movement of smart money in the primary market, and for the secondary market, we can also refer to Coinshares' weekly institutional fund flow report. It is worth noting, however, that this statistic reflects the flow of funds for the last week, so there is a certain time delay.
Based on the above conclusions, if we start from the perspective of bulls, we may be able to arbitrarily draw the following inferences:
During the rate hike cycle, one to three months after the first rate hike, you may be able to wait for a good buying opportunity. March 16 is the first rate hike in this round, so the reference buying time range is 0416 ~ 0616. This range includes two FOMC meetings. basis points), then is the market panic at that time a better buying opportunity?
Finally, it needs to be declared that this article only infers the potential trend of this round from the single data dimension of the market trend during the interest rate hike cycle. The market is similar to a chaotic system driven by the interaction of many factors. A single data dimension can only as one of the decision-making factors.
Note: All opinions expressed in this article do not constitute investment advice.
References
https://pdf.dfcfw.com/pdf/H3AP2022032815555254451.pdf?1648500780000.pdf
https://pdf.dfcfw.com/pdf/H3_AP202201241542311710_1.pdf?1643041805000.pdf