6th Nov: Bitcoin defends $21,000, US Fed raises rates by 75 bps, Elon Musk, Twitter, and DOGE drama - Weekly Newsletter

This week’s top headlines:

i) Bitcoin regains momentum to $21,000 after bouncing from the $20,000 support.

ii) The US Federal Reserve raised the benchmark interest rate by 75 basis points as largely expected. Markets rallied initially but dumped shortly after.

iii) Bank Negara Malaysia (BNM) shadowed the Fed’s aggressive movement and raised the Overnight Policy Rate by 25 basis points to 2.75%.

iv) Fidelity Investments is offering 401(k) investors to allocate part of their portfolio into Bitcoin.

v) The billionaire, the bird, and the dog. Elon Musk’s Twitter takeover drama deepens. Doge rallies by 260% in a week.

Scroll down for the details:

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A summary of what I covered in my previous issue (30th October):

i) Bitcoin rallies to $21,000 while the US dollar falls as investors expect the Fed to reverse its aggressive stance (or pivot) in 2023.

ii) Markets were pricing in a 75 basis point hike for the FOMC meeting on 1st and 2nd November (more will be discussed below). Future hikes remain scattered.

iii) Elon Musk has freed the bird. The billionaire acquired Twitter for $44 billion and fired top executives shortly after.

iv) Facebook’s parent company, Meta, has lost a record $650 billion after it started venturing into the Metaverse a year ago.

Now to this week’s news…

i) Bulls reunite! Bitcoin has defended the $21,000 mark after a brief retracement this week. As covered in my previous issue, I expected a slight adjustment to Bitcoin's price because the Relative Strength Index (RSI) showed that buyers were overexcited.

ii) The next resistance for bulls to overcome is $22,500. I do not expect Bitcoin to break it any time soon because the rally in the past two weeks is getting a bit euphoric. Considering the current market outlook and comparing Bitcoin to equities, you'll realize that the uptick this week is unrealistic.

Therefore, I am expecting a slight retracement because the RSI has once again reached the overbought level.

A series of short squeezes pushed Bitcoin to $21,000.

In the past two weeks, over $2 billion of short positions were liquidated as Bitcoin surged to $21,000.

Traders were swing trading Bitcoin before this happened. They went long whenever Bitcoin dipped below $19,000, and went short when it touched $20,000.

When Bitcoin unexpectedly broke through $20,000 on Oct 26, many short traders had to buyback their positions or get liquidated. The result was a sudden surge in buying pressure, known as a "short squeeze".

The Federal Reserve raised rates by 75 basis points as widely expected.

i) On 2nd November, Jerome Powell announced the fourth consecutive 75 basis point hike during the FOMC press conference. Markets have largely anticipated this move and briefly rallied following the announcement.

ii) Bulls had a spark of excitement when Powell mentioned that the Committee will take into account the cumulative tightening of the policy (ie. the lags in which rising interest rates affects the economy). There are clear signs of the economy slowing, and it will soon be time for the bank to hike rates in smaller increments such as 25 or 50 basis points.

In simple terms, the Fed believes that rate hikes in the future will get smaller, but they're not going away soon.

iii) The rally was cut short when Powell dispelled rumors of the Fed halting or "pausing" interest rate hikes. He explained that the Committee cannot afford to stop hiking rates because inflation is still four times higher than the Fed's goal of 2%.

“It’s very premature, in my view, to think we are talking about pausing our rate hikes. We have a ways to go,” Powell said during the Wednesday press conference.

iv) Though the Fed has cleared the air on "pausing" rate hikes, they are still uncertain as to how high rates will be in 2023, but Powell said that it is likely to be higher than anticipated.

The market became divided after his speech. Predictions on the upcoming FOMC meeting in December now show an almost 50-50 split between a 50 bps increase or a 75 bps increase:

Bitcoin and equities tanked after Powell's speech, but quickly regained momentum when the US released its jobs report.

-> On Thursday, US jobs data came in stronger than expected but also hinted at some slack in the tight labor market, raising hopes that the Federal Reserve might ease up on tightening credit conditions.

-> The Dow Jones estimated 205,000 more jobs, but it grew by 261,000.

-> However, unemployment rose to 3.7% from 3.5% in September (higher than analysts' predictions of 3.5%). Wage inflation dropped to 4.7% from 5% in the prior month.

-> The data clearly showed early signs of pricing pressure coming down. The three major stock indices (Dow, SNP, Nasdaq) edged higher before closing on Thursday.

Fidelity Investments is offering 401(k) investors to allocate part of their portfolio into Bitcoin.

-> Retirement savers can now opt to invest part of their monthly salary into cryptocurrencies.

-> There are six options to choose from: Bitcoin, Ethereum, Solana, Polkadot, Cardano and USDC. Fidelity began offering crypto investment opportunities this fall, and plans to add more crypto assets in the near future.

-> Fidelity Investments is one of the largest retirement fund managers, holding over $11.8 trillion in assets.

-> This may also be one of the reasons why Bitcoin rallied much stronger compared to US equities this week.

Bank Negara Malaysia (BNM) raised the Overnight Policy Rate (OPR) by 25 basis points, as expected.

i) In an effort to tame price hikes and hotter-than-expected core inflation, BNM has hiked the benchmark interest rate from 2.50% to 2.75% - the fourth consecutive 25 bps hike so far.

ii) BNM stated that the future outlook for Malaysia's monetary policy is uncertain as it will depend on the ongoing inflation data.

iii) Goldman Sachs expects BNM to continue to hike rates to a peak of 3.5% in 2023 before pausing.

iv) Our local currency continued its downtrend against the US dollar, closing at RM4.75 on Friday evening.

v) The ringgit's weakness is expected to worsen because the Fed's current stance clearly outmatches BNM's aggressiveness.

I wrote a thread about this on Twitter recently. Read more for the details.

Quick summary

i) Bulls, let’s not get too excited. Though Bitcoin has gained over 6% in the past week, it is still down over 70% from its all-time high, and uncertainties still loom ahead. Expect a retracement as buyers are starting to weaken.

ii) The Fed dispelled rumors of "pausing" rate hikes and will not pivot anytime soon. Powell clarified that the Fed will be less aggressive as they allow the monetary tightening to take its effect on the economy. We should therefore expect credit conditions to continue tightening and the US dollar to rally.

iii) Fed raised interest rates by 0.75%. They believe that ongoing increases in the target range are appropriate. The strong labor market is the Fed’s main challenge to lower inflation. While it is showing signs of cooling, the Fed needs more time to formulate a better conclusion.

The story of a billionaire, a bird, and a dog.

Elon Musk's recent buy out on Twitter has sparked huge controversy from both the left and right extremists.

After sacking a few of the top executives from the platform, Musk fired the entire Twitter board, leaving him as the sole director of the company.

Musk proceeded to implement an $8/month subscription plan for Twitter Blue, which will allow subscribers to keep their "blue-tick" verification status, see less ads, and have more priority in search feeds.

iii) The new plan drew backlash from famous celebrities, authors, and politicians. One notable American politician, Alexandria Ocasio-Cortez (or famously known as AOC), tweeted the absurdity of having to pay $8 a month for free speech:

Hours later, Musk replied:

Musk also tweeted a screenshot of AOC's sweatshirt for sale on the politician's website on Wednesday, indicating the irony of having to pay for free speech:

iv) The drama does not end. Ever since Musk's takeover, the meme cryptocurrency Dogecoin (DOGE) surged by over 260% in less than a week, sparked by rumors that Musk will accept crypto payments using DOGE.

His recent tweet during Halloween explains everything:

Musk's impact on Doge:

Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This newsletter was written at 11.00 AM on 6th November 2022 and completed at 4.45 PM the same day.

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