Why is the market rebounding when CPI hits a record high?

CPI data hit a record high.

There was news that the probability of the Fed raising interest rates by 100 basis points was raised to 81%, and the probability of 75 basis points was reduced to 19%. Of course, the market was in a panic, with people falling and selling short and selling at a loss.

Unexpectedly, after a small drop overnight, the market immediately started to rebound. Many people asked, why is it that the CPI is so high, inflation is so high, and the interest rate hike is such a big negative, why is it still rising?

I said this a long time ago. Although the interest rate hike is very important to the capital market, it is difficult to judge because it brings about a butterfly effect.

For example, if the interest rate hike is A and the rise/fall of the capital market is F, then the entire impact process is A→B→C→D→E→F. Even if the reasoning accuracy of each link is as high as 80%, after 5 times of probability superposition, the probability of you relying on the interest rate hike to judge the final trend of the currency price is only 30%. Moreover, is your inference accuracy at each level 80%?

It's a very simple problem of probability. Sherlock Holmes only exists in novels, not in reality.

However, the reason for this rebound is very simple, because the interest rate hike affects the traditional capital involved in the currency market.

We should pay attention to two issues. This time, BTC only rebounded slightly, barely standing above the daily MA30. The real big rebounds were ETH and DeFi blue chips, followed by layer 1. At the same time, the projects with relatively large rebounds, such as AAVE and MATIC, are also community projects.

There are not many institutions in the secondary market of the entire cryptocurrency market, because they are only active in the primary market. In the secondary market, the first thing they are willing to build a position in is BTC, and only VCs with a very close relationship with cryptocurrencies, such as 3AC, will bet on Ethereum.

If we divide the cryptocurrency market into two camps, the distribution should be as follows:

Wall Street Institutional Camp: BTC, Primary Market

Retail investor camp: secondary markets for various altcoins

Crypto VC Camp: BTC, ETH, Primary Market

Wall Street capital has slowly withdrawn after the collapse of 3AC, Celsuis and other CeFi projects close to encryption. Nansen counted the tracking data of seven VCs, and five of them were selling. After this year, those VC projects have suffered the most.

VCs that were hesitant on the sidelines began to reduce their investment in Crypto due to the interest rate hike. Christie's NFT auction transaction volume this year was only 5% of last year's, and the market share of the compliance platform Coinbase fell to 3%. Blockchain VC venture capital saw its first decline in two years.

To put it bluntly, the only ones left in the market now are either value investors or people with a lot of money. In other words, the trend of the cryptocurrency market has become controlled by crypto whales again. That’s why the US stock market fell, but the cryptocurrency market rose; BTC didn’t rise much, but altcoins started to rise...

How should I put it? Although joining the Crypto industry means that you are optimistic about the industry in the long run, you should not take your own land too seriously. The total market value of the entire cryptocurrency industry is now over 1 trillion. How will such a large amount of funds be affected by the interest rate hike?

It's more of an emotional impact.

However, when everyone was panicking, they may not have noticed one thing. From the bottom, AAVE doubled, SNX doubled, CRV doubled, UNI doubled, and many tokens doubled.

But did anyone dare to increase their positions at that time? Actually, no one did. There is a huge problem here, that is, many people always use the adverb "all-in" when it comes to increasing and decreasing positions.

What kind of situation will this lead to? You will hesitate to add positions in the bottom area, because in your impression, adding positions means going all in, and you are afraid that the market will continue to fall; and you will also hesitate to reduce positions in the high area, because reducing positions means clearing positions, and you are worried that you will not be able to get the subsequent gains.

One thing I emphasized the most in "DeFi, is it still feasible?", "June Review: Give the Cryptocurrency Circle and Myself Some More Time", and "Three Arrows Don't Kill, Thieves Don't Stop" is not to wait with empty positions.

Just like now, when you haven’t reacted, many tokens have doubled, especially DeFi that I specifically mentioned.

Maybe adding positions in batches may not seem to make much money, but it can better resist risks. Investment itself can help people get rich overnight. What you need to do is to try your best to use lower risks in exchange for longer-term asset appreciation.

If you want to become rich overnight with a very small amount of capital, you can only become a gambler, which is a very realistic thing. But the question is, can you bear the consequences of losing the gamble?

The market will slowly get better, hold on, coin holders.