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- 🥜 Why Crypto Just Crashed
🥜 Why Crypto Just Crashed
PLUS: Inflation is back
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GM to all 69,178 of you. Crypto Nutshell #514 keepin’ it chill… 🦭🥜
We're the crypto newsletter that's more epic than trekking across Middle-earth to destroy a ring of unimaginable power... 💍🔥
What we’ve cooked up for you today…
🏦 Inflation is back
😰 Should we be worried?
🦸 BlackRock saves the day
💰 And more…
Prices as at 2:15am ET
INFLATION IS BACK 🏦
BREAKING: US Federal Reserve cuts fed funds rate by 25 basis points
The Fed just did what everyone was expecting:
They cut rates by an additional 0.25%
This follows a 0.25% rate cut in November and a 0.50% rate cut in September.
Here’s what Fed Chair Jerome Powell had to say:
"In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/4 to 4-1/2 percent."
Continuing on, Jerome Powell explains:
"Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated."
But…
Aren’t rate cuts supposed to be bullish?
Why’d Bitcoin tank after this announcement?
Bitcoin reached a low of $99,000
Well in the press conference following the FOMC meeting, Jerome Powell made some interesting comments…
According to the Fed, we’re likely only going to see 2 more rate cuts in 2025, whilst the market was expecting 4:
"From here, it's a new phase and we're going to be cautious about further cuts."
Many interpreted these comments as the Fed taking a more hawkish approach to monetary policy.
Quick note: A hawkish monetary policy stance is one that favours higher interest rates and tighter monetary conditions to keep inflation under control
The Fed also raised their 2025 inflation expectations from 2.1% to 2.5%. (Which contributed to the hawkish outlook even further)
But it wasn’t just Bitcoin that felt the impact of the Fed’s decision.
The entire crypto market is down ~4.5% on the day.
And even the stock market sharply fell. (The S&P 500 is down ~2.95%)
But there’s another reason that Bitcoin took a tumble…
During Jerome Powell’s press conference, Powell was asked whether he sees value in the US Government building a Bitcoin reserve.
Here’s what he had to say:
"We're not allowed to own bitcoin… The Federal Reserve Act says what we can own and we're not looking for a law change. That's the kind of thing for Congress to consider, but we are not looking for a law change at the Fed."
Just 2 weeks ago, Powell was praising Bitcoin saying that “a competitor for gold”.
That’s quite the switch up…
Funnily enough, Jerome Powell’s answer to this question actually makes sense and isn’t inherently bearish on Bitcoin.
The Fed doesn’t even own any gold in the first place.
That’s the US Department of Treasury’s job.
So if a strategic Bitcoin reserve were to happen, it would be the Treasury holding the Bitcoin, not the Federal Reserve.
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SHOULD WE BE WORRIED? 😰
When crypto falls, it falls fast.
Bitcoin fell from over $106,000 before the Fed meeting to under $99,000 in no time.
That’s pretty scary - should we be worried?
Matt Hougan says: absolutely not.
Matt Hougan is the Chief Investment Officer at Bitwise.
Over the past year, Matt has built a strong reputation for accurately predicting trends in the space.
Today, he broke down why today’s flash crash is nothing to be worried about.
To start, Matt pointed out that the drop was initially triggered by the Fed:
“Obviously, the big catalyst today was the Fed announcement. The Fed cut rates by 25 basis points as expected, but lowered expectations for next year from 4 cuts to 2 cuts.”
However, this was made so much worse by leverage in the market:
“This being crypto, however, the initial pullback wasn’t the end of the story… $600 million of leveraged long positions were blown out in today’s market, exacerbating the pullback.”
$600+ million wiped out in under 12 hours…
But here’s why we shouldn’t be worried:
“So, is this a hiccup or a reversal? My guess it’s a hiccup…
Crypto now has internal momentum, and nothing about today’s announcement interrupts the mega-trends:
1. The pro-crypto reversal in Washington policy
2. Rising institutional adoption and ETF flows
3. Bitcoin purchases by governments and corporations
4. Major tech breakthroughs in the programmable blockchain space”
Matt finished with this:
“Crypto's in a multi-year bull market. 50bps of projected rate cuts won't change that.”
We’re with Matt on this one.
It’ll take more than a hawkish Fed to derail crypto’s multi-year bull run.
That said, today serves as a clear reminder why leverage isn’t a smart move for 99.9% of people.
As the late Charlie Munger wisely put it:
BLACKROCK SAVES THE DAY 🦸♂️
Usually when Bitcoin dips like this we expect to see some large outflows from the ETFs.
But that wasn’t the case…
Yesterday, the Bitcoin ETFs saw net inflows of $275.3 million.
This was all thanks to BlackRock who saw net inflows of $359.6 million on the day.
Whilst every other ETF experienced either a net outflow or 0 flows.
Whenever we talk about the Bitcoin ETFs we always like to throw in a crazy stat that shows how successful they’ve been.
And the one we’ve got for you today is pretty ridiculous…
On Tuesday, IBIT saw net inflows of $741.4 million.
Just this inflow alone would place IBIT in the top 20 ETF launches for the year.
And so far this year has seen the launch of over 700 new ETFs!
Shifting gears to the Ethereum ETFs now…
And it’s the exact same story as the Bitcoin ETFs.
In total, the Ethereum ETFs saw net inflows of $2.5 million. (It’s better than negative flows…)
Which was all thanks to BlackRock who was once again the only fund to see an inflow on the day. ($81.9 million)
It’s also worth pointing out that yesterday brings BlackRocks Ethereum inflow streak up to 14 days in a row.
And since launch (July) the Ethereum ETFs have now seen ~$2.5 billion in net inflows.
Despite $3.5 billion in outflows from Grayscale’s Ethereum Trust.
Without BlackRock scooping up as much as they can, we’d likely be much lower right now…
CRACKING CRYPTO 🥜
Galaxy CEO predicts Bitcoin market cap will overtake gold in 5 to 8 years. Novogratz sees Bitcoin's market cap climbing past gold's amid record momentum and rising institutional adoption.
Ohio lawmaker introduces Bitcoin reserve bill allowing state to buy BTC. Ohio has become the third US state behind Texas and Pennsylvania to see bills introduced to establish Bitcoin reserves as part of the state treasury.
Trump Administration Has Already Unlocked 'New Era' for U.S. Crypto: JPMorgan. Donald Trump's victory in the November presidential election is already ushering in a new era for crypto in the U.S., JPMorgan (JPM) said in a report.
Kraken unveils Ethereum scaling layer Ink months ahead of schedule. The move reportedly comes “months ahead of schedule,” according to the company, which initially targeted early 2025 for a release.
WHAT WE’RE READING 📚
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CAN YOU CRACK THIS NUT? ✍️
Select your answer below and you’ll be redirected to the results page. (answer explanation can be found after “Meme Corner”)
When did infamous ponzi scheme "BitConnect" shut down? |
MEME CORNER 😂
Because what would the crypto world be without its share of memes?
Trivia Answer: D) January 2018 🥳
Bitconnect shut down in January 2018
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