Will Potential The TradFi Beat Down Ruin The Crypto Party? 🤔💼

Welcome, Re:crypto fam! 🌟 Get ready for another special edition of Re:crypto. 🚀 This week, I'm excited to share more insights I've gained, delving into why I believe the FED cutting rates might not be historically favorable for Bitcoin and the crypto markets as a whole.

But wait, Breaking News!!! 📢 The SEC has given the green light to the long-awaited Bitcoin ETFs. 🚦 After a decade of anticipation, the SEC finally approved a spot Bitcoin ETF on Wednesday, January 10th. 🎉 They gave the thumbs up to 11 ETF applications, and guess what? Trading kicked off on Thursday, January 11th, soaring to a whopping $4.8 Billion in trading volume! 📈 The approval signals a significant surge in interest for this product.

Now, the burning question: Did it shake up Bitcoin's price? 🤔 Well, looking at the chart, the impact of the Bitcoin ETFs on its price seemed rather subdued, with Bitcoin experiencing a slight dip on the day. 📉 Let's dive deeper into the crypto world together! 🌐💙.

This marks a historic moment in Bitcoin and the cryptocurrency market as they stride one step closer to mainstream adoption. 🚀 While I don't think it's a straight shot from here, it's undeniable that many professional financial advisors in the United States now have a regulated product linked to Bitcoin. 🌐 They can confidently recommend this to their customers, offering a positive outlook for Bitcoin's future.

Personally, I still hold the belief that purchasing and holding Bitcoin directly is the superior option. 💪📈 However, the introduction of an ETF adds a layer of ease and convenience, especially for less savvy investors. 🤝💼 It's about making the crypto journey accessible to all! 🌍🔗 #BitcoinRevolution #CryptoAdoption

Todays Lesson:

Time for today's lesson! 🎓 In the last edition, we delved into charts illustrating the aftermath when the Federal Reserve cuts interest rates post an inverted yield curve period. 📉 This week, I've got more charts and indicators to support why I think history won't repeat itself this time.

Let's kick off with a gem from The Conference Board: the Leading Economic Indicator (LEI). 📊 The Conference Board crafts Indexes that serve as beacons, signaling the peaks and troughs of business cycles in major economies worldwide. 🌐 For those curious minds, you can explore it at conference-board.org. 🧐🌍 Ready for some economic insights? Let's dive in! #EconomicAnalysis #ChartsUnveiled

Now, let's decode the LEI above! 📉 Its primary purpose is to signal when an economy is plunging into a recession. 🚨 Anything beneath the red line of -4.4% growth rate, marked by the blue line on the chart, is a clear indicator of a recession. 📊 The LEI scrutinizes 10 different economic measures over a 6-month period, neatly laid out in the table below.

Impressively, the LEI boasts a flawless record in predicting recessions. 🏆 Currently, it sits with a perfect score, having accurately foreseen economic downturns. 🎯 As the table reveals, in November, stocks were the lone positive contributors to the LEI. 📈📉 Let's navigate the economic landscape together! 🌐💡 #EconomicSignals #LEIInsights #MarketWatch

Hold on tight, because according to the LEI, we might already be in the midst of an economic recession! 📉 Now, let's shift our focus to the next chart, unveiling the fascinating world of money supply. 💸 This gem is from longtermtrends.net, illustrating the dynamic interplay between M2 money supply growth and inflation.

Dive into the intricacies of economic indicators with me! 📊💡 Brace yourselves for the insights this chart is about to reveal. 🚀💰

Hold onto your hats because this chart reveals something ominous! 😱📉 Notice how the last time the money stock contracted from the previous year was during the Great Depression. 📅 Back then, they were battling deflation, a not-so-pleasant scenario. 🌧️ But what's even more intriguing is that, tracing all the way back to 1870, whenever the money stock shrank from the previous year, deflation followed suit.

Even in 2008, there was a hint of deflation, but the money supply never actually contracted from the previous year. 🔄 Now, we stand at a potential turning point – the possibility of the money supply going negative without accompanying deflation. 🤯 I'm not here to predict the future, but it raises the question: Is this an anomaly, or are we heading towards deflation? 🤔💭 Keep an eye on this as banks seem to be tightening the reins on money creation, as depicted in the chart below. 💼💰

Back to the FRED database we go! 📊 This chart unfolds the story of Commercial and Industrial Loans for All Commercial Banks. 🏦 Now, what's intriguing here is that lending doesn't usually take a nosedive until after a recession has already made its entrance. 📉 In fact, take a peek at the chart below – it vividly illustrates that banks tend to ease up on lending as the FED begins its rate-cutting dance. 💃💰

Ah, the 2008 financial saga – let's revisit that chapter! 📆 Back then, it seems like they were fashionably late to the recession party as they amped up lending right into the recession. 🎉 Perhaps they were believers in the soft landing narrative – a story we've heard before. 📰✨ Interestingly, if you dig into news articles from 2007, you'll encounter a sense of déjà vu. 🔄 It's almost like they're dusting off the same script from back then and using it today.

Take a sneak peek at this snippet from a Reuters article featuring Janet Yellen, who was the San Francisco FED President at the time. 📄💬 

If you read that and didn't know the year, you might think she said it today. 🤯 Sounds eerily familiar, doesn't it? History, not always repeating, but definitely rhyming.

Now, let's shift gears and observe a peculiar pattern – ever noticed when lending gets super tight? 🤔 It's usually towards the end of the FED's rate-cutting extravaganza. 🎢 Surprisingly, as the Banks dance to the tune of lowering interest rates, it actually results in a decrease in loan creation. 💔🏦 Check out the chart below – a visual tale of how lending takes a hit when the FED opts for drastic rate cuts. 📉📊 

Taking a trip down memory lane to the '70s, the trend holds – whenever the FED hit the brakes on rates, lending took a nosedive, eventually going negative. 📉 Now, mechanically explaining this phenomenon might be a puzzle, but observing the behavior of the money wielders, aka the banks, suggests a fascinating twist. 🕵️‍♂️ It seems that lower interest rates, instead of leading to looser financial conditions, paradoxically result in tighter ones, with banks hesitant to loan money. 💸 The belief that lower rates equal financial ease gets a reality check.

Let's dig into interest rates – they're like the market's crystal ball for growth and inflation expectations. 🌐 Especially when it comes to the long-term ones. If long-term rates soar while short-term ones remain steady, it's a signal that the market anticipates economic growth. 📈 Translation: people flock to the market for the long haul, favoring equities over bonds. 📊 So, when interest rates drop, it becomes a safety and liquidity signal. If banks and broker dealers lack confidence in the economy, opting for a 4% short-term return over the riskier 7.5% over 30 years makes sense. 🤔💼

Now, let's shine the spotlight on tax receipts – the government's financial pulse. 💰 When tax receipts decline from the previous year, it's like an economic smoke signal, foretelling a recession. 🚨 The chart below showcases the dollars collected in taxes, steadily climbing until it takes a dip just before meeting those ominous grey vertical bars representing recession periods. 📉💡 

Let's zoom in on those enigmatic grey bars, and what do we find? 🧐 Taking a closer look at the period from 1981 into 1982, we see a decline in taxes collected, painting a vivid picture that foreshadowed a looming recession. 📉💰 It's like a historical breadcrumb trail guiding us through the twists and turns of economic cycles. 🗺️ Let's unravel more tales from the economic timeline! 🔍📊 

In 1990, the trend was mostly flat as we approached the 1991 recession. 📉💼 It serves as a reminder that economic narratives can take on various forms, each chapter offering its own set of plot twists. 🔄 Let's continue our journey through the economic landscape! 🌐💡 

Absolutely, the economic storyline took a noticeable downturn after 2000, signaling the Dot Com bust on the horizon. 📉💻

A clear decline from 2007 into the Great Financial Crisis in 2008 📉💻

Indeed, the storyline continued with a dip in tax receipts in 2019, hinting at the economic challenges that would unfold in 2020. 📉💸 It's like a prelude to the unexpected twists and turns that awaited us. 🔄 Let's delve deeper into the economic narrative and uncover more insights! 🕵️‍♂️📊 

Finally brings us to the decline in Taxes received from 2022 through 2023📉💰 

Is this a sign that we're on the brink of a recession in 2024? 📉📆 I'd say the probability is pretty high, considering the reliable indicators that have historically predicted economic downturns. 🕵️‍♂️💡 While nothing is a guarantee, each indicator adds weight to the likelihood. 📈 One crucial point to remember: the market is not the economy. 🌐📊 It looks ahead, gauging future growth and positioning itself accordingly.

In a worst-case scenario, we might face a storm of multiple problems – a global banking crisis, a monetary crisis, a global economic recession, and asset price deflation. 💨💰 This would be a challenge for every market, including the crypto market, as it's intricately linked to the traditional market. 🌐📉 However, if we manage a soft landing, then there's nothing to worry about.

Now, let's turn our attention to some charts and explore what we might expect if an economic recession unfolds. 📊 I'll be using the NASDAQ for analysis, as crypto didn't exist in past recessions (excluding the pandemic). Since Bitcoin and other cryptocurrencies are often viewed and traded like tech stocks, we can draw assumptions about their potential reactions. 📉💻 Let's dive into the charts and unravel the possibilities! 🔍📈 

First up, let's turn our gaze to the weekly chart from 1990. The FED decided to cut rates in July, and what unfolded? The NASDAQ took a nosedive, plunging straight into a 33% drawdown from peak to trough. 📉💔 

Let's examine the timeframe of this occurrence. It took a duration of 91 days for the market to navigate through the turbulence and find its bottom. 📅⏳

Taking a leap forward to November 2000, the market was already on a downward trajectory when the FED initiated rate cuts. What followed was a staggering 72% drawdown from that point. 📉💥 

From the market's peak to its bottom, there was a substantial 83% drawdown. 😧💔 

Diving into the timeline, note that from the moment the FED initiated rate cuts, it took a prolonged 679 days for the market to finally find its bottom. ⏳📅 

Absolutely, the Dot Com bust was indeed a painful chapter for tech stocks. 😣 From the market's peak to the eventual bottom, it spanned a hefty 917 days. 📆💔 

Zooming in on 2008, an interesting twist in the plot unfolded. Initially, when the FED made the decision to cut rates in July, the NASDAQ experienced an uptick before undergoing a painful 54% drawdown. 📈📉 

It took a span of 497 days for the market to reach its bottom. ⏳📅 

Those episodes were not just economic recessions but also entailed monetary crises and both witnessed deflationary busts from over-inflated bubbles. The Dot Com bust brought deflationary pressure to tech companies, while the Great Financial Crisis saw deflationary impacts on housing. The intricate web of economic dynamics!

Now, pondering how this might affect crypto remains an unknown journey. However, we do have a glimpse into how they reacted during a banking crisis. Back in March, during the Silicon Valley Bank panic, Bitcoin experienced a drawdown of 17% in just over a week. 📉💥 

Indeed, even Ethereum, a significant player in the crypto realm, felt the impact. During the Silicon Valley Bank panic in March, Ethereum witnessed a drawdown, slightly more pronounced at 18%. 📉💔 This dual movement of major cryptocurrencies reflects the interconnected nature of the crypto market during periods of financial turbulence. 📊🌐 

These aren't crystal ball predictions for how the market will unfold, but rather examples of historical market reactions during economic and monetary turmoil. 📉🌐 Whether these scenarios will play out similarly this time is uncertain. What's certain is that if the market heads south, there might be some pain. 😬 As for the extent of that pain, well, predicting another Dot Com bust is uncertain, and let's hope not! Going through another bear market isn't on the wishlist.

In the intricate dance of the financial system, you never quite know who's left without clothes when the tide goes out. 🩱 It's not just what's on the books; it's the off-book stuff that can catch you off guard – the invisible problems. 🕵️‍♂️ Yet, armed with historical insights, it's wise to be prepared for potential challenges. 🛡️ Having a plan in place is key – not a call to sell everything, but a nudge to have your hedges ready, just in case.

So, Re:crypto fam, that wraps up this special edition of Re:crypto! 🌟 I know we've delved into a lot of macro and Tradfi topics, but it's crucial to be aware of the potential impact on crypto if Tradfi takes a hit. See you next week for your regularly scheduled edition of Re:crypto, where our crypto journey continues together! 🚀💙