Key Takeaways

• Bitcoin is up close to 50% from its lows, but is still down over two-thirds from all-time highs
• Some on-chain metrics show how much the rally pales in comparison to the prior fall 
• Positive news from the industry remains few and far between, as market prepares for latest interest rate policy, to be revealed at FOMC meeting Wednesday

Let us start with a riddle. How much profit/loss have you made if an asset you own rises by 47%, having previously fallen by 77%?

The answer is a gruesome 67% loss. 

That is the predicament facing Bitcoin investors who bought at all-time highs in late 2021. While markets have kicked off the year in scintillating fashion, it is important not to lose perspective. 

Humans have short memories, though. With Bitcoin up nearly 50% from the lows post-FTX collapse, crypto markets have that giddy feel about them again. It’s amazing what hope can do for people, huh? And by hope, I mean hope that interest rates will come down again.

Federal Reserve controls the Bitcoin price

I wrote a piece last week about how this latest rally, if it shows anything, simply proves once and for all how much Bitcoin is trading as an extreme risk-on asset. 

Bitcoin was crushed last year as central banks worldwide flipped hawkish for the first time in Bitcoin’s existence. With the cheap money of the last decade no longer available, and stout yields available on other investments such as T-bills, high-risk assets collapsed. 

The tech sector, also notoriously sensitive to interest rates, has been sacking employees left, right and centre – Meta, Salesforce, Twitter, Google, and the list goes on. 

This latest rally now comes as inflation begins to cool, with hope renewed that the pain of suffocating monetary policy will, in fact, one day come to an end. 

Market remains ravaged

While the picture undoubtedly looks rosier than this time two months ago, the crypto market is still in a world of pain. 

Bankruptcies are still flowing – see Genesis filing last week – while there are numerous other potential downside catalysts as the market still delves through Sam Bankman-Fried’s chaotic mess: DCG still present a lot of uncertainty, for example.

While prices have been running, there is no particularly good news to explain this rally. As I said, it’s all macro, with investors staring squarely at the Federal Reserve. 

A couple of charts paint a good picture of the pain still present in markets. Despite the recent upturn, the net realised profit marker, which is an on-chain metric calculated by comparing the price of recent coins moved to the price at which they previously moved, shows how much the recent rally pales in comparison to the scale of the fall last year. 

In truth, there is no need to complicate things. Despite the bluster of “hedge” narratives and “uncorrelated investment” that floated around through COVID, it is as clear as night and day that Bitcoin is trading off interest rate expectations right now. 

The below chart is perhaps the most important one in all of crypto over the last couple of years. 

That little bounce at the end could reverse very quickly depending on how things shake out at the upcoming Fed meeting. It could also do the opposite if things end up being more hawkish than the market has currently priced in. 

Either way, it is clear what is moving markets right now.