Bitcoin, Jason Yanowitz, FED discussed on The Breakdown with NLW

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But I still think the impact here is a bit more muted than that January QT surprise. Indeed, if you listen to all the smart observers, what they're focused on is not the potential of problems from rate hikes, but what happens when you remove liquidity from markets? That's I think what people are going to be looking out for next. Welcome back to the breakdown with me. And I'll W. It's a daily podcast on macro Bitcoin and the big picture power shifts remaking our world. The breakdown is sponsored by nexo IO, arculus, NFTX, and produced and distributed by coin desk. What's going on guys? It is Thursday, February 10th, and today we are talking about the weird back and forth tension between macro being good and macro being bad for crypto and what it all means, but before we do that, if you're enjoying the breakdown, please go subscribe to it, give it 5 stars, leave a nice review or if you want to get deeper into the conversation join the Discord. You can find the breakers Discord at the link in the show notes or go to bit dot LY slash breakdown pod. As usual a quick disclosure in addition to them being a sponsor of the show, I also work with FTX. And one final note before we get into today's fascinating topic. This week I'm incredibly pleased to have a special sponsor in meld. If you've ever wondered how the rich are able to spend their money and still stay rich, it's because they borrow against their assets. Meld is creating a protocol that can be used by anyone, and which offers this exact service, but in a decentralized way. Users of melds protocol will be able to borrow dollars, Euros and other Fiat currencies against their cryptocurrencies. If you want to learn more about the first DeFi non custodial banking protocol today, go check out meld dot com. That's Emil D dot com. Thanks again to meld for sponsoring the show. So last night I was doing a Twitter space's discussion with the crew over at blockworks, and one of the things that came up in a question from Jason yanowitz over there was how to make sense of the weird dualistic nature of crypto right now. On the one hand you have this sense that maybe the chickens are coming home to roost, the macro environment is looking really good. You've got rates that are likely to get raised later this year and other sort of fed policy things that could get in the way of a crypto bull market. But then on the other you have continued interest from institutions. NFTs booming, all of these positive scenes, right? Over the last two weeks we've seen Bitcoin recover in a big way and drag some other assets with it. So what's really going on? I think to understand we need to first look at how crypto has been correlated with the macro over the last couple months. You started to really see this in December of last year. That was the point at which the fed started changing its tune and came out with their dot plot predictions that suggested that there would be at least three rate hikes in the year 2022. Markets mostly shrug that off. In fact, they sort of like that the fed was finally taking inflation seriously versus continuing to claim it was transitory. However, even at that time you did start to see markets price in the likelihood of these rate increases. And it didn't happen all at once it wasn't some big sort of exodus from risk assets, but if you look at what started to happen Vis-à-vis institutions in Bitcoin, coin shares each week publishes their list of whether funds are flowing into or out of Bitcoin and crypto related products from institutions. Around the middle of December, they started to flow out. And that was some of the first sign that we were clearly heading into a different type of macroeconomic environment. What really started this January off with such an aggressive downward shift was the publishing of the fed's meeting notes which showed that they were thinking about not just peeling back support for the market in terms of bond purchases and not just raising rates, but in fact, going all the way to quantitative tightening. That means selling assets removing liquidity from the markets. After previous episodes of QE they had not shifted to QT so quickly and markets did not like that at all. That's why we saw such an exodus from risk assets of which Bitcoin and crypto were part of that. At the same time, I saw this other thing happen, which was the Bitcoin and crypto world kind of almost remember that although it was in some way tied up with those larger macro forces, it was still something that was independent, distinct, long-term focused and having other types of inputs that determine how the market is doing it at any given time. And I think that's a good setup to get us to this week where we have two very different forces going on in terms of whether people are feeling bullish or bearish. So let's talk first drawing through that macro and monetary policy theme into the discussion of inflation. We just today got the inflation numbers back for January and inflation hit 7.5% year over year last month. That's the highest growth in inflation since 1982, or for decades if that's your preferred nomenclature. The year over year gain in December was 7% and from December to January over that last month was 0.6%. The so called core price measure that excludes food and energy, which are considered to be highly volatile, increased 6% year over year. And again, 0.6% from December. Now importantly, when it comes to inflation, it's often less about the headline number and more about the expectations. And in this case, economists had projected 7.3% year over year growth and 0.4% month to month growth. 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