.png)
In this week’s report
30-year mortgage rates continued to rise alongside hotter-than-expected inflation numbers this week, exceeding six percent for the first time since late 2008.
The 30-year fixed mortgage rate currently sits at 6.02% (Fig. 1).
Rising interest rates are in part a result of the FED’s rate hikes to crack down on inflation. The increased mortgage rates and overall rate hikes are implemented in order to halt spending.
Rates began to rise in 2016. They reached their peak at the end of 2018 and continued to decrease well into 2020. Rates on a 30-year fixed rate mortgage hit their low in January of 2021 at a mere 2.65%.
When the COVID mania hit the United States the FED dropped the federal funds interest rate to between 0% – 0.25% (the federal funds rate does not refer to mortgage rates but directly affects it).
The FED decreased rates so during the COVID mania more to encourage borrowing on home loans, as well as other loans, and increase overall spending during the economic downturn which was taking place.
30-year mortgage rates remained largely stagnant throughout 2021, but since early 2022, they saw a stark increase, starting the year at 3.11% and ending the month of June with an increase to 5.70%.
This drastic decrease is due to the FED releasing the detrimental effect their actions have had on the economy (although they will never admit it) and upping rates to decrease spending (reduce the amount of money in the economy).
More rate hikes are on the horizon, so expect mortgage interest rates to rise this year further.
With all this on the horizon, and September historically being a poor month for most investments, we recommend extreme caution, we expect things to take a turn for the worst very soon.
CPI came in at 8.3% year over year in August, exceeding the expected 8.1%. Although it is a decrease from 8.5% in July, the release of the CPI still had a negative impact on the market (Fig, 2)
Core CPI, which excludes volatile prices and is the FEDs primary inflation gauge has climbed 6.3% since August 2021.
Due to the CPI news Bitcoin saw a 5% dump and Ethereum plunged 6.8% regardless of the Merge having been near.
The immense effect that these types of news releases have on BTC signals that it still does not quite function as an inflation hedge and rather remains a risk on investment just as Stocks etc.
The NASDAQ, US30, and S&P500 also opened their daily session sharply lower after the disappointing CPI numbers were released.
Fed policymakers have made it extensively clear that their top priority is to bring down inflation to its 2% target, therefore, more pain is certainly ahead for market participants.
Although, this financial pain will not be felt just by market participants but will likely soon be felt by the global economy to a much greater degree than we are currently witnessing.
Nothing looks good, we are seeing inflation at decade highs globally in tandem with a energy crisis amongs the western regions. This is not to spread fear, but rather to recommend thorough caution and prepare for the worst these coming months.
The Euro area is seing about a 10% inflation across all items and a 40% inflation in Energy (Fig. 3).
The UK is nearing a 10% inflation rate (9.9%) (Fig. 4).
The US peakes at 9.09% and is currently sitting at 8.26% inflation.
Third world countries, such as Argentina, are seeing such high inflation rates you would think there is a literal apocalypse. Argentina hiked their rates by 550 basis points (5,5%) this week and currently has a whopping 75% inflation.
It just doesn’t look good overall yet we’re seeing little pain in the average western consumer, the pain is bound to be felt at some point, and it is likely to be sooner rather than later.
This is no financial advice, but turning risk off seems to be the consensus in this shaky period. Ofcourse with immensely positive catalysts we may see a upturn, but often pessimism beats optimism in the unpredictable financial markets.
Finally, after eight years of work and delays, Ethereum has transitioned to Proof of Stake. The transition upgrade, called ‘The Merge’, was completed in the early hours of Thursday the 15th of September.
According to experts on blockchain and environmentalism the merge significantly reduces the amount of energy used by the network, therefore growing it’s userbase all the while lowering gas fees.
As many know Proof of Work (Ethereum’s old consensus method, which Bitcoin also uses) is very energy consumptive due to the required mining operation to run the network. Proof of Stake does not require mining, which is a very energy consuming endeavor.
The Ethereum Foundation noted that the merge will reduce Ethereum's energy consumption by nearly 99.95%.
The merge also decreased Ethereum carbon-dioxide emissions by 99.992% according to a new report from the Crypto Carbon Ratings Institute (CCRI).
The Ethereum Merge lowered the world’s energy consumption by 0.2%, according to the blockchain’s co-founder Vitalik Buterin. This makes the merge likely to be one of the single biggest decarbonization efforts in history.
"We're delighted to have commissioned this report from CCRI, which substantiates the Ethereum Merge's impact as likely the biggest decarbonization effort of any industry in history," said ConsenSys founder Joseph Lubin, and co-founder of Ethereum.
That’s a lot of benefits, with so far little downside. Well, here is the downside if there is to be one. Proof of stake is a much more centralized form of consensus, which benefits primarily the rich, enriching them further, this was well said in a statement by Twitter user @BitcoinIsaiah (See here) in which he stated:
Every time you use Ethereum, you are giving ETH to those that hold the most ETH.
Every time you use Bitcoin, you are giving BTC to those that put in the most work.
This must be understood.
Robinhood’s CEO and Co-Founder Vlad Tenev came out with a statement on the 13th of September that Bitcoin is the most commonly recurring investment on their trading platform.
This refers to different forms of investing including holding, purchasing and dollar cost avaraging by users who already held bitcoin,
According to Tenev Robinhood users are "really seeing [bitcoin] as a part of their portfolio that they think they should hold over the long run," not only do they see it was something to hold on to, but purchase more of.
This purchasing is occurring despite the more than 60% downturn Bitcoin price has seen.
On top of this Robinhood is not quite to be regarded as the most hyper-bitcoinized exchange in the industry, and is widely regarded to be only what beginners in the crypto industry tend to use. But even they are holding and expanding their bitcoin holdings.
Bitcoin has seen a heavy drop since its short-term recovery rally on the 7th of September which lasted until the 13th of September.
On the 13th of September, we saw broader market weakness due to the CPI news.
Currently, bitcoin is close to testing the 19k support level, which is turning weaker and weaker each time it gets retested.
A small flag pattern is forming which could break up to the upside, but a retest of the 19k level also seems immensely likely in light of the weakness we have been seeing.
All in all, not too bullish. Scouting shorts would be more advisable than attempting to trade long in these conditions.
Although, if the QQQ sees a rally, and the DXY sees a dump, there certainly could be a bullish pump in the Bitcoin price chart.
The QQQ has seen quite some weakness over the past week.
It has fallen through the 295 support zone after putting up a short term battle forming multiple doji candles.
Nonetheless, it broke down and is currently attempting to hold on to its next support level at 285.
The DXY has been seeing immense strength yet is likely to come down and retest the gray box which is indicated with "Retest" in Fig. 7.
A short-term rebalancing is likely to take place over the coming week, but the DXY will remain strong under the market conditions in which we currently live.
In these financially unstable times, people flock to the US Dollar and the Index spikes beautifully in contrast to the immense pain consumers are feeling across broader markets.
