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Fed Failed - Chung's Weekly Digest  (6/12)

Higher than expected CPI causes sharp sell-offs as inflationary pressure continues to spook the market.

Fed Failed to Contain Inflation

The US’s annual inflation rate rose to 8.6%, the highest rate since December 1981, causing a market-wide sell-off as high energy costs continue to accelerate the rate of inflation. The Federal Reserve (Fed), despite taking numerous measures, was unable to contain inflation. 

Source: Energy costs become the main driver of inflation as the pressure mounts on the Fed to hike interest rates 

The S&P 500 and Nasdaq dropped 2.9% and 3.5% respectively after the Bureau of Labor Statistics released the Consumer Price Index (CPI) on Friday. Bitcoin ($BTC) and the wider crypto market took a hit. Bitcoin is currently trading at $27,532. 

Source: Bitcoin is diverging further from the 200-day moving average, indicating that Bitcoin has entered into a bearish phase in a macro market cycle.

Ethereum ($ ETH ) has also suffered a heavy blow after falling to a 15-month low below the crucial $1,600 mark. This came just days after Ethereum completed a test merge on the Ropsten network. 

Source: Ethereum has been underperforming Bitcoin as the Merge draws closer as market participants continue to exercise extreme caution

Selling momentum remains strong as the broader market retreats from risk assets until the US’s monetary policy stabilizes. 

Weekly Recap

Market Sentiment

Source

Many investors are swapping their investments for risk-off assets. Bitcoin and other crypto-assets are deemed volatile assets. The bearish sentiment in the crypto market will likely continue unless the following takes place:

  • The end of the Ukraine-Russia crisis
  • The US’s monetary policy stabilizes 
  • A comprehensive crypto regulatory framework is introduced

Unless Bitcoin’s price pushes past the 200-day moving average, there is no reversal in sight. This bearish phase will likely continue for the next few months until the Fed manages to reign in inflation. Inflation is a real threat to the US economy and the sanction on Russia is causing a deepening energy crisis. 

Source: Whales are also finding opportunities to buy the dip as the number of wallets with a balance of more than 10k continues to rise

Coins to Watch

  • Optimism ($OP) - Optimism is one of the anticipated layer-2 solutions after Arbitrum. 
  • $OP’s price tanked after its airdrop and the recent exploitation.
  • Optimism will tap into the liquidity of Ethereum’s ecosystem. 
Source: Optimism has charted exponential growth as one of the leading layer-2 solutions built on the Ethereum network
  • Ethereum ($ETH) - Ethereum’s recent sharp dip could be a result of investors taking a backseat as Ethereum heads into the Merge. 
  • This is the perfect opportunity to implement a dollar-cost averaging (DCA) strategy. 
  • Ethereum will continue to dominate the smart contract platform because of its first mover’s advantage. 
  • Solana ($SOL) continues to dip, bringing this crypto asset into oversold territory. 
  • $SOL will likely recover in the coming months as the sheer size of its ecosystem will drive the demand for its native coin. 
  • Solana’s backers have remained steadfast with the layer-1 platform even after the recent outages. 
  • Solana has one of the best risk/reward ratios for the top-10 crypto asset by market cap.

Navigating the Bear Market

Most market participants that did not cash out will likely see a significant drop in their portfolio size. There is no indication that the market uncertainties will end soon. Therefore, a few steps can be taken to mitigate risks. 

  • Avoid leverage trading 
  • Implement a dollar-cost averaging (DCA) strategy
  • Choose institution-backed projects with a sizeable market cap
  • Avoid low-capped altcoins
  • Choose projects with a healthy community engagement and a roadmap
  • Identify value builders in the ecosystem
  • Avoid putting all eggs in a single basket, diversify your portfolio.

There might be a further downside, but it would be impossible to catch the absolute bottom. Low capped altcoins that can give exponential gains should be a secondary priority. Risk management is the key to building a healthy portfolio. 

Come back next week for another iteration of Weekly Digest: Chung's Picks of the Week from BSC News. Be sure to follow Chung Yee on Twitter.

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