A lack of supply because manufacturers, supply chains that had to turn off the rails as shutdowns happened. All of that would be worked out and things would move on. And this is important because the fed doesn't want to use monetary policy to try to fight a supply chain dislocation that just doesn't make sense. But the markets never really believed, at least in my eyes that the fed was going to be able to keep its dovish stance for as long as it wanted to. Phase two was this sort of nebulous in between phase, where Powell and the other members of the fed started to acknowledge that maybe this inflation wasn't so transitory. They thought that it was probably still largely due to supply chain disruptions and that supply demand mismatch, but it kept persisting and it kept lingering longer than they thought. What's more it was getting harder and harder for them to justify keeping such dovish policy because so many people had dropped out of the workforce and that was leading to challenging calculations around the other side of their mandate, which is maximum employment. Phase three, which I believe really started around Powell's renomination was the we will fight inflation phase. It was an end to the whole transitory talk. It was an acknowledgment that this could go on a lot longer, and it was an acknowledgment that there were political ramifications because the U.S. population was seeing consumer prices rise, and it was a commitment that this group of people had the tools and was going to use the tools to make sure inflation wasn't an ongoing concern. That got us to the last FOMC meeting of the year where the fed signaled that there could be three rate hikes in 2022 and that tapering would wrap up faster than anticipated. Now this was quite a hawkish turn in the September meeting there was only one anticipated rate hike in 2022, and there wasn't even full universal conviction around that. However, the tone of the presser afterwards with Jerome Powell very much signaled that he was not going to be on some sort of anti inflation crusade. And so the market's largely sloughed it off, actually responding well to having a little bit more clarity around what they could expect in 2022. However, yesterday, the meeting notes from that December FOMC meeting were released, and there were a couple new things that market actors honed in on. First was the timing, many took the minutes as a signal that as Neil Dutch head of U.S. economics at renaissance macro put it, the fed is on a glide path to a march rate hike. Most people were expecting these rate hikes to be the second half of the year, march was a little earlier, and march made it possible to see a fourth rate hike in 2022 depending on how things went. The second and much bigger discussion was around the balance sheet. In December after the FOMC meeting concluded, the discussion was all around the speed of the taper and interest rate hikes, but it didn't get into discussions of the balance sheet. Notes, however, show that there was a briefing from staffers relating to the normalization of the now $8.8 trillion balance sheet. And by the way, this new term balance sheet normalization used to be called quantitative tightening. So keep your eye on that sort of marketing shift as well as we talk. Now, during the last rate hike cycle, which came in the 2010s, the fed waited two years after lifting rates to begin trimming their assets. This time, from the notes, quote, participants judged the appropriate timing of balance sheet runoff would likely be closer to that of policy rate liftoff than in the committee's previous experience. And also quote that some participants judged that a significant amount of balance sheet shrinkage could be appropriate over the normalization process. So this is what really has markets going badly. So let's look at some of the reactions. Mac ten suburban drones points out that this shows a pattern. This is the third month in row the fed has escalated their hawkish policy stance. In November they were on a single taper, December brought double taper now per the FOMC meeting, they're talking about balance sheet reduction. Lisa abramowitz tweets the fed had a hawkish tilt in the December meeting, but the meeting minutes showed that members were even more inclined to remove accommodation than many expected, especially given the extensive discussion of the balance sheet. Scott minerd, everyone's favorite person to ignore his Bitcoin predictions and the CIO of Guggenheim said fed minutes much more hawkish than I'd expected. Fed seems intent on raising rates and shrinking the balance sheet simultaneously. Clearly the recipe for a financial accident. Ross Gerber tweets fed causing a taper tantrum. They did this before. We expect them to change their tone with all the issues from Corona. A fed induced recession would be a disaster. Yellen needs to take power for a walk. If that isn't going to solve things by creating a recession. We'll have stagflation with this recipe. Powell did this in 18 and it was a bad year. Hence the sell off. CNBC showed a chart with their polling suggesting that 40% of respondents thought it was likely to see a fourth rate hike in December, something that no one was really anticipating before these minutes were released. Alex Krueger tweets markets may be overreacting short term, but looking beyond hard to overestimate how hawkish the fed minutes were. QE reduction plus three hikes okay, but three hikes plus accelerated quantitative tightening was not on anyone's radar. And the fed is likely to deliver in less inflation subsides faster than expected or credit markets collapse. There's of course a political dimension to this as well. Luke Grumman said today we got more evidence that the fed is no longer operating a dial. It is operating a switch. Global economy on and global economy off. If the fed keeps us up, Dems try to just may want to start asking what polls better in November midterms. 6% inflation or U.S. recession. Zero hedge tweets has someone explained to Biden with the fed crashing the market will do to his polls, and the 6 poppy says if the fed crashes the market this year, combined with the handling of the pandemic, this is going to be the biggest political massacre we've ever seen for Dems come midterms this fall. But there is a different perspective as well. So let's look to a slightly more sober and different take from Mark Dow, who writes feds barking to buy time to try and get a better handle on how much inflation is likely to come down on its own. They don't want to hike only to find out they've overestimated overheating part of inflation story, but still want to be in a position to hike enough if need be. So this goes back to that Jeff Snyder argument that I mentioned at the beginning. That was basically saying by showing off and surprising the market with extra hawkishness actually getting into the QT quantitative tightening balance sheet normalization discussion. Earlier than expected, it buys the fed some time to actually see how things play out in the markets without having to actually do anything. He reinforces exactly this, saying, barking about quantitative tightening is a freebie for the fed. Easiest way to dampen sentiment without hiking, reverse placebo effect. Give them more time to see how soon and how much supply constrained prices increase in some prices start to decline. I actually think there's something to be said for this perspective that there's a lot of value for the fed in trying to throw the market in one direction based on what they might do to give themselves more time to actually let markets resolve without them having to do anything at all. But let's shift over now to the Bitcoin side. I gave my two cents before about why Bitcoin is more correlated than it was before and why that correlation shouldn't seem unexpected. And I'm also quite sure I don't need to get into prices. As you've no doubt been checking them on the way down a little bit more than is healthy. But as we sit here under 43,000 currently, let's again look at some community reactions. Alex Krueger again points out a funny foible in 2020 investors by Bitcoin as they worry about inflation. 2021 and 22, investors sell Bitcoin as they worry about the fed worrying about inflation. This reinforces to me the idea the reality that will help you understand Bitcoin that it exists as both a risk asset and a flight to safety asset at the same time in different timelines and for different people. You have Bitcoin holders who view it just as a speculative game, the farthest thing out on the risk spectrum who are going to flee at the first sign of trouble. You also have an ever growing set of toddlers who view it as a lifeline in whatever storm is to come next. And then frankly, you have a lot of people in the middle who have long-term conviction but who are working with personal or institutional mandates that force their hand in short term movements. Anyway, moving to more reactions, there have been a lot that I've seen with conviction that the fed is just going to have to reverse course. Dylan Leclair tweets honestly would love to see Bitcoin inequities continue to grind down over the next month. Max opportunity is when not if the fed blinks and reverses course. It's anyone's guess when that comes. There's also a lot of sentiment out there that people IE the fed shouldn't have this much power. Reinforcing the fundamentals of Bitcoin for so many. Dennis Porter from the smart people shit podcast tweets, even rumors that the fed will raise rates causes massive panic selling across the globe. A 7 member board of humans shouldn't have this much power over our lives. We need a monetary policy that is predictable and controlled by code. There are some who are pointing out that although the market is tanking, people aren't really freaking out. Checkmated from glass node posted a tweet showing the divergence between Bitcoin's illiquid supply and its price and said thanks for the cheap stats anon. Bitcoin sent straight to cold storage just like all of these coins. Love me a good old divergence. Let it run as hot and as deep as you want, the reversals will be swift and powerful, have seen this movie before. And of course, what he's referring to is the fact that more and more Bitcoin is leaving and has been leaving exchanges even with recent turbulence. Bitcoin leaves exchanges when people have long-term conviction and it moves back onto exchanges when they're getting ready to sell. The fact that the market is going down while the illiquid supply of Bitcoin, IE the supply of Bitcoin not on exchanges is going up, suggests that nothing has changed ultimately in terms of HODLer conviction. Still, not everyone is convinced that this is going to be an easy time for all crypto assets. Adam Cochrane wrote a great thread and I'm going to read the back half of it. Hopefully it's a market over spook in the fed does this softly, but clearly pressured to move faster than even suggested last month. In my personal view, this is bearish overall, very bearish on growth, but outperform on value in havens. If we do slip into a macro bear, it will be interesting to see how a lot of new sectors that didn't have scale last bear out like NFTs. Now, as we wrap up, even though there seems to be pretty universal acceptance of the notion that this Bitcoin move is macro driven, right? Fed driven. It's worth noting that this week Kazakhstan shut off the Internet and with it their 18% of the Bitcoin hash rate. This is obviously something that we need to be paying attention to and something that I'll be getting into later this week. For now, the next thing to watch is inflation numbers on Friday and the market's reaction there. And going forward, I believe it will be increasingly important to keep track of the domestic U.S. political landscape as it relates to markets and the midterms. But we'll wrap there for today, I want to say thank you again to my sponsors nexo dot IO, abra and NFTX, and thanks to you guys for listening and hanging out. Until tomorrow, be safe and take care of each other. Peace..