2023-1-27 17:30 |
In a new interview, Charles Edwards of Capriole Investments shared his Bitcoin theses for 2023. Looking back at the past few months, the renowned expert said those have put the market in a position where Bitcoin offers “a great position for long-term investors.”
As Edwards noted, almost every sentiment metric imaginable fell into the “biggest or second-biggest bearish” range in macro, equities, and crypto. “Pretty much anyone would have said on Twitter last year that we are in a recession or it’s coming to a recession,” the analyst continued.
While Edwards acknowledged that the risk of a recession is far from gone, many key metrics have come back quite a bit. Among them is the housing market, which is slowing and often leads the overall economy.
“So there are a number of metrics which suggest things are slowing down a bit. You got all the big tech names laying off employees and you see this in crypto as well. 10% to 20% cuts have not been unusual in the last months,” the founder of Capriole Investments asserted.
Furthermore, he pointed out an interesting fact: every time inflation peaked above 5% and then fell by more than 20%, the U.S. central bank pivoted. This observation holds true for the last 60 years. “So I think there is a high probability the Fed stops raising rates or reducing rates,” Edwards concluded and further said:
And then we have this deep value situation in crypto which has been playing out the last 3 or 4 months. […] And all that sets up a great opportunity for long-term investors in crypto and equities, as well, risk assets in general.
Fed Pivot Will Propel Bitcoin Upwards Within 6 MonthsIn general, it is difficult to predict when there will be a regime change at the Fed. However, Edwards believes it will happen within the next 3-6 months. After the forced liquidations in the Bitcoin market over the past 12 months, there is currently no longer any significant selling pressure.
Therefore, according to the Capriole Investments founder, there will be a liquidity crisis on the sell side once larger amounts of Bitcoin buyers return to the market, leading to a squeeze to the upside. “And we saw that kind of short-squeeze play out in the first weeks of January.”
As for the Fed pivot, investors should keep an eye on specific data. While the consensus now seems to be that the Fed will change monetary policy, there are still some risks. Edwards pointed to history in this regard, warning that inflation could rise again.
In the 1970s inflation went through a roller coaster ride and that could be the case for the next 5 to 10 years as well. But I do think the base case for me is at least a rate pause this year, at some point in the coming months.
Moreover, investors should be cautious when employment remains very high. This is “probably the single most important factor leading to recessions.” While this data point is still incredibly strong currently, it could change “any month now” given the layoffs in the big tech sector, according to Edwards.
Equities are also worth considering, he said. If they hit new highs, or if earnings are very strong, if manufacturing picks up and inflation is still at 5% to 6%, then the Fed might think it can keep going because everything is still fine. However, Edwards’s base case looks different:
I think 2023 will generally be a positive year because the Bitcoin price will probably be higher at the end of the year […], but there will be a lot of volatility.
At press time, Bitcoin traded at $23.115.
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