Market Lab Report - Sweet spots in the market; BTC miners

by Dr. Chris Kacher

Inflation trends

The New York Fed's measure of underlying inflation (the "multivariate core trend" rate) ticked down to 2.6% in October from 2.9% in September. This was the lowest reading since January 2021.


The Fed's preferred measure of inflation (Core PCE) moved down to 3.5% in October, the lowest since April 2021. The Fed Funds Rate is now 1.8% above Core PCE, the most restrictive monetary policy we've seen since 2007.



After Powell spoke on Friday, the CME FedWatch now predicts the first rate reduction in March 2024 instead of May 2024. His words were dovish, pointing out how the Fed's past tightening moves will continue to have an impact on the economy while the full impact hasn't been felt yet. He said he was surprised on the upside this year with inflation coming down "meaningfully" even though still "well above" target but moving in the right direction. He said the Fed does not need to be in a rush now as "we are getting what we wanted to get". He said wage growth is still high but moderating to a more sustainable level, unemployment is up but still historically low, and the job market has cooled but still strong. Essentially, he implied we are in the Fed's version of a Goldilocks scenario. Of course, Goldilocks was a fable but markets are no stranger to being irrational at times where valuations can go from lofty to absurd.

Bitcoin >$40k

Bitcoin has crossed the $40k hurdle. Real estate actually increased in price from 2022-2023, a period when most thought it would have to fall or even crash due to skyrocketing mortgage rates. The recent meaningful movements in price say more about the state of fiat currencies than it does about hard assets as QE-driven liquidity continues to rise.

Indeed, macro rules the day. Just as in prior years such as 2018 and 2022, the talking heads on YouTube and other platforms used Bitcoin metrics to make predictions so kept calling false bottoms guiding their followers to deep losses when it was macro that ruled the day. Liquidity correlates nicely with stocks and cryptocurrencies. QE in its various forms has been the fuel that drives markets since the great financial collapse of 2008.

 
Bitcoin miners

Bitcoin miners correlate well with the price of Bitcoin. Hash rate continues to hit new highs.

As hash rate increases, competition for the block subsidy rises. $40.4 million was paid out in the last 24 hours to miners which comes to $14.7 billion annualized. 

Most Bitcoin mining stocks have more than doubled the performance of bitcoin year-to-date.

• Marathon Digital: +359%

• Iris Energy: +356%

• Cleanspark: +356%

• Riot Platforms: +349%

• Hive Digital: +159%

• Terawulf: +128%

• Hut 8 Corporation: +1,228% (note: they just completed an equal merger)

MARA (Marathon Digital) remains the OG. It had a strong earnings report and tends to lead in terms of size and price performance. Other notable names include RIOT, CLSK, and BITF. They tend to trend sharply higher when on the move so I find it best to use moving averages to time entry and exit points. When a bitcoin mining stock is trending, one can use a short moving average such as the 5- or 10-dma as a guide. When the price approaches this moving average, one can initiate or add to their position. Moving averages can also be used to provide exit points for profit taking or risk management. Of course, each person's risk tolerance is unique so a shorter moving average may work well for shorter term investors but not so well for those who want to have longer holding times and are willing to hold through greater swings in the price chart.

 
Overall, bitcoin mining is in a sweet spot. Hash rate is at all-time high levels. Miners are pulling in $14+ billion in annualized revenue. Mining stocks are outperforming bitcoin’s price performance. And the Bitcoin ETF and halving slated for early Q2 2024 is yet to come.

It's very likely we are on the eve of a Bitcoin spot ETF. The first commodity ETF was SPDR Gold Trust. It provided a simple way for investors to access gold in their portfolio. When it launched gold went on to an 8 year rally with no single down year between 2005 - 2012.