How will the crypto move in this rate hike cycle？
On March 16, the FED officially announced a 25 bp interest rate hike, in line with market expectations, and the risk market generally opened up a complementary market. The expectation of a 50 bp rate hike and tapering in May may be shown in the market sentiment in advance. In the background of LFG buy BTC of short-term funds exhausted and micro-strategy mortgage re-buy, the recent market still retreat a lot, which may also be a manifestation of capital caution.
It seems that regardless of the up and down of the market, macro factors such as interest rate hike and QT have become the main consideration in the current cryptocurrency market market judgment. Meanwhile, in the background of high correlation of the stock market in the cryptocurrency circle, it may be natural for us to think that we can review the reaction of the stock market in the historical interest rate hike cycle to guess the possible market reaction in the current interest rate hike cycle, although history will not simply repeat itself, it is also very worthwhile to Although history does not simply repeat itself, it is well worth reviewing for reference.
According to data from Western Securities, the United States has experienced six interest rate hike cycles since the 1980s.
And during these rate hike cycles, the performance of global stock markets will not actually be much more pessimistic.
If we look at the performance of U.S. stock indexes in isolation, we can see that they performed better in the two rounds of rate hikes in the 1980s and in the 2015-2018 rate hike cycle, and although they performed negatively in the 1994-1994 period, they only had small negative returns. In the other two cycles, performance was essentially flat.
Also, according to data from Guosheng Securities, U.S. stocks mostly fell 1-3 months after the first rate hike, but mostly regained ground 3 months later.
Expectations for this cycle
Currently, market expectations for the current round of rate hikes are that there will be 7 hikes in 2022, another 3-4 hikes in 2023, and a halt to rate hikes in 2024; and that tapering will begin as soon as May.
If there are 7 rate hikes this year, then that means each future FOMC meeting will raise rates by an expected 25 basis points. The next FOMC meetings are: 0504, 0615, 0727, 0921, 1102, 1214.
It should be noted that our premise assumption here is from a long perspective, in other words, we are inclined that the cryptocurrency circle will finish bottoming out in this rate hike cycle, while there is a high probability that the maximum retracement range (80%~90%) in the previous bear market will not occur again.
Under the pressure of macro interest rate hike, hot money/smart money does not have a high preference for secondary market, but still actively flows into primary market to bet on industry projects, which is essentially a bullish view on the long-term development of the industry.
According to Dove Metrics, as of April 6 this year, there have been 58 fundraising events in the cryptocurrency industry, with a total fundraising amount of nearly $12 billion.
As of April 6 this year, there have been 579 project funding events in the cryptocurrency industry, with a total funding amount of nearly $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 look to Coinshares' Weekly Crypto Asset Flow report. However, it is worth noting that this statistic reflects last week's flows, so there is some time delay.
Taking the above conclusions together, if we take a long view, we may be able to arbitrarily conclude that:
In the interest rate hike cycle, 1~3 months after the first rate hike, you may be able to wait for a good buying opportunity.
If the first rate hike is on March 16, then the reference buying time range is 0416 to 0616, which includes two FOMC meetings. If there is a FOMC meeting with a higher than expected rate hike (e.g. 50 bp), then is the market panic then a better buying opportunity?
Finally, it is important to note that this article only extrapolates from a single data dimension of market movements during the rate hike cycle to infer potential movements in the current round, as the market is similar to a chaotic system driven by many factors interacting with each other, and a single data dimension can only be used as one of the factors to assist in decision making.
Note: All views expressed in this article do not constitute investment advice.