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CPI volatility does not disappoint
In the last article we pointed out a potential for CPI to surprise and bring more volatility – which is exactly what we got and more. We won’t go into detail on the components that caused the surprise as we’ve already highlighted a lot of those, but the main conclusion is that Core CPI was hotter than expected at 6.6% yoy and 0.4 % month-on-month with shelter (rent, housing components, etc.) and medical services as main drivers. This is the fastest change in the annual headline Core CPI since 1982. Check this out to compare the different components of the past three months graphic.
In terms of rates, the eurodollar market’s most recent implied Federal Funds rate will peak at just over 5% in March 2023 before any rate cuts take place at the end of the year.
Where is the Bitcoin price low?
With a drop to $18,000 approaching and bitcoin faces risks of new new year lows, it’s worth checking out a few key bottom price levels to gauge where the price could end up. First, let’s look at the profile of bitcoin’s fixed volume range since the bottom of the last cycle in December 2018. The vast majority of the volume traded in the market has taken place around $10,000, also an important psychological level. In a strong downward move, $10,000 is a place where many in the market have their spot cost base and may begin to feel real pain or lack of conviction.
In terms of bear market and cycle length, let’s revisit the cyclical drawdown chart for bitcoin in current and past cycles. We are currently around a 72.23% draw from an all-time high of $67,589. If we’re going to see a maximum cycle decline in less than the last two cycles — say about 80% — we’re looking at a price around $13,500. If we assume that this cycle and the rising valuations will be much worse, say about 85%, we are looking at a price around $10,100. The bull case is that we’ve found a sustainable bottom of $18,000 and we won’t see the max draw beyond 73%.
From an on-chain perspective, one of the more interesting realized price areas is the realized price held by the cohort of addresses with 10-100 BTC. Recall that the realized price is an estimate of the average cost basis based on the price when UTXOs were last moved. This particular group accounts for approximately 22.6% of all circulating supply. This group would certainly reflect a fair share of long-term holders and it has to be shown that in a deep, long-term bear market, long-term holders have yet to feel the pain or capitulation that we have seen in the past.
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