What’s driving the recent crypto volatility?
Bitcoin is on another rollercoaster ride. After declining sharply for most of last week, the entire crypto space exploded higher on Friday… with Bitcoin hitting a three-week high on Monday… and then dropping sharply on Tuesday.
Crypto is always volatile. But the recent action is even crazier than usual…
Last week, Bitcoin slipped under $19,000 for the first time since June. But investors stepped in and bought the dip… sparking a huge rally as we headed into the weekend.
There’s a good reason for this up-and-down action…
As most of you know, the Federal Reserve is in the middle of a big fight against rampant inflation. The only way to bring down inflation is by raising interest rates, which the Fed has been doing since March 2022.
Investors are scared of rising rates. If the Fed pushes them too high, it could crash the economy. That’s why you’re seeing all financial assets—stocks, bonds, crypto, etc. acting crazy lately.
This morning, the August CPI (Consumer Price Index) numbers came in above expectations. The data showed inflation declined slightly last month, falling to 8.3% from 8.5% in July. Core inflation—which excludes food and energy prices—rose to 6.3% in August, up from 5.9% the previous month.
The new inflation numbers stopped crypto in its tracks, knocking Bitcoin back below $21,000.
And we’ve got two more big events to watch for over the next week:
- Sept. 10 to Sept. 20 – Ethereum’s PoS upgrade will take place
- Wednesday, Sept. 21 – The Fed will announce the next interest rate hike
Crypto investors are also nervous about Ethereum’s transition to a Proof of Stake protocol, which we detailed here.
And next week’s Fed meeting will probably add to the volatility.
It’s easy to get distracted by the day-to-day price action… but history can give us an idea of what to expect over the next few months…
Should you invest in Bitcoin right now?
To get a better idea of whether Bitcoin is set to rise or fall… we need to look at its history.
September has historically been the worst month for Bitcoin. It finished the month in negative territory in seven of the last nine years.
Keep in mind, the past does not predict the future. But history tells us it’s best to avoid getting too bullish during September. Especially given the uncertainty I mentioned above.
However, if we take a closer look at Bitcoin’s historical returns, October is one of the best months. Check it out…
Using the table above, you can see Bitcoin’s performance for any month over the past nine years. For example, Bitcoin’s price surged an incredible 52.71% during May of 2017.
February is the only month with a better performance than October. And historically the end of the year has been profitable for Bitcoin investors, too.
Here’s my game plan…
This morning’s CPI numbers showed that inflation is still a big problem… which means we need to be careful about getting too bullish about crypto, stocks, or any riskier assets.
Right now, everyone expects the Fed to raise rates by another 0.75% next week… but investors are hoping the next few rate hikes will be smaller.
As a long term investor, I plan on adding to my Ethereum and Bitcoin positions… But I need to see how Ethereum’s transition plays out… as its blockchain is receiving a huge boost in scalability and capability.
And I won’t be purchasing either until after the Fed’s meeting on September 21 (at the earliest). I need to see signs that the Fed’s policies are working… and whether Fed Chair Jerome Powell gives some hint of easing up on the inflation fight.
Aside from the two biggest names in crypto, I’m watching layer 2 cryptocurrencies (projects that function on top of the Ethereum blockchain), like Polygon (MATIC) and Loopring (LRC). I expect these types of projects will be the biggest winners from Ethereum’s switch to a PoS model… and are worth putting on your radar…
The bottom line
We’re in a tough market… mainly due to investors’ fears about additional interest rate hikes by the Fed.
But we’ll have an opportunity to profit eventually…
If inflation slows down, it will give the Fed confidence its plans are working… which means it can scale back on its interest rate hikes.
Put simply, we want to see the Fed take a break soon. The less it hikes interest rates, the better the economy’s outlook becomes… and we’ll see a surge in cryptocurrency prices.
On the other hand, if inflation stays high, the Fed will have to get even more aggressive. Given this uncertainty, it’s best to wait to see how the situation plays out.
If you’re a long term Bitcoin investor, high inflation (and an aggressive Fed) will be an opportunity to buy more Bitcoin under $20,000… and lower your cost basis.
GameStop announces an important new partnership with FTX
GameStop, the popular meme stock and video game store is one of the great underdog stories in stock market history.
And its story looks a little brighter after its recent earnings announcement…
The breakdown
Last week, GameStop reported weaker-than-expected earnings. It’s a typical report from the company—its quarterly results have been ugly ever since it started shutting down stores and pivoting its business to reignite growth.
The good news is that the company upgraded its leadership over the past year by hiring Ryan Cohen, founder of successful pet goods retailer Chewy… as well as Matt Furlong, who helped grow Amazon’s business in Australia.
As part of its earnings announcement, GameStop said it’s partnering with FTX (a major crypto exchange) to build out its NFT marketplace.
Why this new partnership matters
GameStop’s NFT marketplace is still in “beta mode,” which means only approved users have access to it. The company is still working to improve the interface and fix any bugs.
Long term, the NFT marketplace is a key component of GameStop’s growth plans. By partnering with FTX, it will gain access to a much bigger pool of customers—FTX has over 1.2 million users and $21 billion in trading volume in 2021.
GameStop didn’t provide the finer details of the partnership. But it will be working with FTX on marketing strategies and focusing on generating sales from the two companies’ big customer bases.
A huge avenue for profits…
GameStop now has the opportunity to establish itself as one of the leading marketplaces for NFTs, as it became for the video game space.
The new deal with FTX gives the company a solid partner for its marketing campaigns… along with access to more customers.
I don’t own GameStop, but I’m rooting for it. This new avenue gives it another potentially huge stream of revenue. Its NFT platform will take some time to build out, but its software and hardware sales could surge during the holiday months. With the Reddit crowd involved, there’s no telling where this stock could go.
Ford races into the metaverse
Big news in the auto industry last week… Ford announced plans to enter the NFT/metaverse market.
The company has filed 19 trademark applications covering all of its major brands and car/truck models, including the Ford Lightning (the new, electric version of its classic F-150) and its Mustang series.
These trademarks are a starting point for Ford to enter the NFT market… by creating digital assets that give users access to virtual vehicles inside the metaverse.
What’s the deal with Ford’s trademarks?
Ford plans to create downloadable artwork, text, audio and video featuring its most popular vehicles. This content can then be turned into NFTs, which can be used in the metaverse.
Like most metaverse-related news, the details are a bit hazy. But the company said it plans to create virtual goods and other metaverse-related content. For example, Ford will eventually host virtual car trading shows inside the metaverse.
It hasn’t committed to a particular metaverse (like Sandbox or Decentraland)… but it’s clear the company is serious about building its presence in these virtual worlds.
The takeaway
Ford’s announcement is the latest proof of the long-term growth profile for the metaverse. Big companies are spending millions of dollars to get a foothold in this space.
When Ford is finished developing its NFT and metaverse technology, it’ll be entering a market that’s also attracting plenty of other car manufacturers, including Toyota, Nissan, and Hyundai.
As I pointed out last week, big investors are pouring millions of dollars into NFT- and metaverse-related projects. Ford is just the latest entrant into the space.
Soon… users will be able to choose and customize their vehicle… and own an original Ford NFT.
Got a question about digital assets? Let me know here.
P.S. Massive companies like JP Morgan, Samsung, and PwC are quietly scooping up this little-known virtual asset… and Frank wants to give you some for free.
