GM DOers!
The US CPI came in hot yesterday at 3.1%, while expectations were 2.9%. 🥵
As a result, Bitcoin dumped 3% on the news. 😢
So did the expectations that the FED will cut rates in May – from 60% to 35% in just a few hours…
As highlighted in our PRO report last week on “what causes crypto cycles”, liquidity is the key driver – for the crypto cycle to take off, we need lower rates! 🚀
But the FED has stated they aren’t lowering them until inflation is below 2%.So are we doomed? Or what’s going on with inflation? That’s what we're going to briefly explain below! Hate it or love it, the macro environment has a huge impact on risk assets like crypto and stocks.
Therefore, as an investor, it is important to keep a regular eye on the macro scene.
We usually share macro updates with PROs through premium reports and Discord, but today, we're offering our free readers key insights to invest successfully in this space.
Let us know your thoughts on this type of content by using the feedback poll at the end of the article!
Ok, let’s dive in… ⏬
The State of Inflation 📊
In January, yearly inflation fell to 3.1% from 3.4%, higher than the 2.9% expected.
Core inflation (excluding food and energy) stayed at 3.9%, surpassing the 3.7% expected.
So, in reality, the rate of inflation is down from the previous month, as you can see below.
However, the markets are freaking out because the experts estimated these numbers to be slightly lower.
Funnily enough, these estimates are almost always off. In the past 18 months, these ‘experts’ were right only 3 times.
It’s kind of crazy to me that the markets are still following these estimates…
The S&P 500 went down 1.4%, though it was down like 2% on the news before seeing a nice recovery.
The NASDAQ saw a similar pattern – down 1.6%...
🎙 Bullish Signals Are Coming, But No One Is Paying Attention
Bitcoin is now in the top 10 largest assets in the world.
The GBTC sell-offs are slowing down, and the halving is in 60 days. Are crypto markets about to rip?
Find out in our latest podcast episode, on your favorite podcast platform.
So What’s the True Inflation – aka Truflation? 🤔
Truflation is an independent inflation dashboard that checks current prices for things like shopping, homes, energy, food, doctor visits, and travel to show how inflation is changing in real time.
It uses millions of data points and complex formulas to show a more accurate reality of inflation. The government's numbers are nowhere near as in-depth as Truflation.
Today, Truflation shows a 1.39% inflation rate.
Whether the CPI or Truflation shows the most accurate numbers is up for debate.
Regardless, it’s pretty clear that the inflation rate is heading down.
Here’s another chart showing where the inflation rate stands for each section of CPI.
We can see that the lagging areas, like shelter (which makes up 60% of inflation), education, apparel and services (things that always lag in an inflation cycle) are falling off a cliff right now…
Some of these areas just take time… but the trend is very clear. Inflation’s heading down.
Looking Ahead: FED Rate Cut by May?
How the FED works:
If inflation is high, they increase interest rates to make money more expensive to get.
If inflation is low, they cut interest rates to make money easier to get.
Ever since lowering rates to 0% after COVID, the FED has increased interest rates, in an attempt to control high inflation.
Nowadays, everyone’s expecting the FED to lower interest rates, since inflation has consistently come down.
In early January, 90% of participants in a prediction market were forecasting that the Federal Reserve would reduce interest rates by May 2024.
Today, that percentage dropped to 33%.
So what does all of this mean? Where are we heading next? Here’s what I think. 👀
Wrapping Up – Is Macro Bullish 🐂 or Bearish? 🐻
If the FED cuts interest rates by May this year, then that’s extremely bullish for risk assets.
Crypto will especially benefit because a potential rate cut would be perfectly in line with the Bitcoin halving, which typically sparks a bull market too.
Again, the Bitcoin halving doesn't trigger bull markets; global liquidity cycles do, as detailed in last week's PRO report. Check that out here.
In terms of inflation, there are 2 scenarios that experts have been predicting.
1. That inflation today will play out like after World War 2.
So far, this scenario has been playing out almost identically, as you can see on the chart below.
Following this pattern suggests:
Heading towards a negative inflation rate (below 0%)
🚫 Eliminating inflation for a few years
🔺 Seeing a spike in inflation a few years later
📊 Finally stabilizing under 2%
2. That inflation today will play out like in the 70s
Following this pattern suggests:
Approaching a low point for inflation:
Expecting significantly higher inflation rates in the near future
This is probably the consensus at the moment. But I don’t think this will happen.
Here’s what these people are missing.
In the 1970s, inflation went up because a huge number of people (the baby boomers) started working, buying houses, and having families all at the same time.
This led to a lot of people wanting the same things at once, which had never happened before.
Today, the situation with people's ages and stages in life is very different. So, there's not much reason to think that high inflation will stick around for years.
I believe that inflation will follow a pattern similar to what we saw from 1940 to 1980, with inflation continuing to decrease over time.
If the scenario plays out as I’m expecting it to, then we should be getting rate cuts sooner than later (I expect them to start in Q2, 2024), which will be very bullish for crypto.
Line that timeline up with the Bitcoin Halving in April and the Ethereum ETF approval in May and we have one hell of a few months ahead of us! 🐂
2024 is going to be a good year to those who stay the course. Don’t get caught up in the hype cycles or the short-term dips like the one we had yesterday.
Good luck out there, friends! ✌
Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤️
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Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
