GB Market Commentary 16/12/2021
by Marcus Sotiriou
Bitcoin rallied over 6% yesterday from the lows after yesterday’s key FOMC meeting, where the Federal Reserve clarified how they will manage monetary policy. The Federal Reserve announced that they will double the pace of tapering, referring to systematically decreasing the amount of assets it is purchasing each month. This increases the monthly reduction to $30 billion instead of the former $15 billion, which will conclude in early 2022. Furthermore, before the meeting, it was anticipated that there would only be one rate hike in 2022. However, the Federal Reserve is anticipating raising rates three times in 2022, three times in 2023, and two times in 2024, with each interest rate hike being 25 basis points. Both new changes in policy are bearish for cryptocurrencies as it is a risk-on asset that thrives in a low interest rate environment. Nonetheless, the crypto market reacted positively to the meeting - as suggested on Tuesday’s commentary, it appears the news was already priced in.
Despite Bitcoin’s recent 39% correction, the number of addresses with a non-zero balance continues to break all-time highs. Also, since the $69k all-time-high, the Canadian Bitcoin Purpose ETF has added 6,341 $BTC in assets under management representing a 26.2% increase in coin holdings. As institutions are more likely to buy ETFs than retail due to compliance reasons, this suggests institutional interest is prevalent at these prices and that whales are buying up Bitcoin supply during this correction. In addition, this shows how effective a spot ETF is for attracting buyers. I expect new institutional players to continue to enter the space as more spot ETFs become approved, hence helping Bitcoin reach figures of $500,000 and more. The results of both metrics are typically seen during bull markets, hence suggesting this phase is a period of accumulation and that we will see new ATHs in 2022.