FED’s influence and the CPI on Bitcoin

Bitcoin itself is born as a rebellion against the system. To fully understand the concept, one must put oneself in the context of 2008 with a financial crisis in full swing. A lot of time has passed since then and the model has evolved in a different way than what its creators expected, surely.

But what they could not have imagined is that, paradoxically, Bitcoin has ended up doing just the opposite of what was expected of it. A decentralized asset, with a limited supply, was destined to evolve outside of institutions and central banks, but this is not the case

Change of monetary scenario

Surely what the creators of Bitcoin did not count on is the chain of events that have led us here. Although it is true that the situation that existed was unsustainable, with a continuous and uncontrolled growth of debt in a market flooded with liquidity, it is again paradoxical that precisely this ecosystem has been the one that has led to the fastest and most spectacular development of bitoin, (and other crypto assets by extension).

Probably because they represented a clear alternative

But right now the scenario has changed suddenly and drastically. We have seen how inflation has exploded and gotten out of control, we have gone through a pandemic and we have a major armed conflict…

It is clear that the environment is not conducive at all and the conditions are very different from those that have favored the development of crypto assets

Following the Fed

And with every scenario, something has happened that at other times might seem unthinkable.

The decisions of the FED have a marked influence on the crypto asset market

Although it may seem surprising, it is so. And we can clearly see it in the BTC graph

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If you do the exercise with a daily chart, you can clearly see how we have entered a period in which the Federal Reserve marks movements in the crypto asset market very directly.

Surely, one of the reasons for this event is a growing presence of institutional capital within the market capitalization of digital assets. A type of investor who does not conceive of these assets as an alternative to the current system, but as one more asset to be incorporated into his portfolio.

Medium or long term scenario

But without a doubt, the big question that arises in this new scenario is whether this change in the economic context can influence the crypto asset market in the medium or long term by changing its structure.

One of the most used graphs to talk about the long term in the cryptoactive market is the Stock-to-Flow model.

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This model is based on the deflationary structure of Bitcoin, and depicts an asset with a clearly upward trend with marked and defined cycles around a key event: the halving.

The Halving is that event that produces a 50% reduction in the supply of Bitcoin to the market, and therefore produces a deflationary effect. Until today, it was a model that had worked faithfully, always generating new increasing highs, as well as lows.

But this is a trend that has been broken with the change in the monetary policy scenario.

One of the big questions is: Is the Stock-to-Flow model still valid?

Now there are not many people who put this graph, because its structure is worrying to say the least and questions whether it follows the current trend, based on a market structure that may have changed forever.

Is this a negative? I think not necessarily. Changes of scenery always bring advantages and disadvantages. Possibly the market scenario that we had before is too rigid and conditioned to a certain macro situation where the advantage or added value of digital assets was very evident, something that does not occur with such intensity in the current situation.

I am convinced that the crypto-asset market as such is entering a new stage that will be marked by the relationship that will be established with traditional assets.

To this we must add that we are going to see a new generation of decentralized applications designed in a different way, and with different concepts and objectives than those we have seen so far, learning from the recent past and not incurring in actions or practices that have been shown to be harmful. and worthless

In this case, the field of exchanges can be especially interesting…