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CPI volatility does not disappoint
In the last article, we highlighted the potential for the CPI to surprise on the upside and bring more volatility – and that’s exactly what we got and more. We won’t go into the components that caused the surprise in detail since we’ve already highlighted many of them, but the main takeaway is that core CPI turned warmer than expected at 6.6% year-on-year and 0.4% month-on-month. with housing (rent, housing components, etc.) and medical services as the main drivers. This is the fastest rate of change in the annual core CPI since 1982. To compare the different components over the past three months, see this chart.
As for rates, the latest implied federal funds rate from the Eurodollar market shows a peak just above 5% in March 2023 before any rate cuts at the end of the year.
Where is bitcoin price low?
With a drop to $18,000 looming and bitcoin facing risks of new year-to-date lows, it’s worth taking a look at some key low price levels for assess where the price might end up. Let’s first look at the pattern of bitcoin’s fixed volume range since the December 2018 low of the last cycle. The overwhelming majority of volume traded in the market occurred around $10,000, also a key psychological level. In a strong downward move, $10,000 is a place where many market participants have their spot cost basis and could start to feel real downside pain or lack of conviction.
In terms of bear market and cycle length, let’s revisit bitcoin’s cyclical decline chart in the current and previous cycles. Currently, we are hovering around a 72.23% decline from a record high closing price of $67,589. If we’re going to see a maximum cycle drawdown on less than the last two cycles – say around 80% – then we’re looking at a price of around $13,500. If we assume that this cycle and the surge in valuations will be much worse, say around 85%, then we are looking at a price around $10,100. The bullish case is that we have found a sustainable floor at $18,000 and will not see the maximum drawdown reach more than 73%.
From an on-chain perspective, one of the most interesting realized price areas is the realized price held by the cohort of addresses that have 10-100 BTC. Remember that the realized price is an estimate of the average cost base based on the price when the UTXOs last moved. This particular group accounts for approximately 22.6% of all circulating supply. This group would certainly reflect a decent proportion of long-term holders and it’s worth arguing that in a deep and prolonged bear market, long-term holders haven’t yet felt the pain or capitulation we’ve seen in the past.
Relevant previous articles:
