In a new interview, Charles Edwards of Capriole Investments shared his Bitcoin theses for 2023. Looking back on the past months, the famous expert said that these have put the market in a position where Bitcoin offers “a great position for long-term investors.”
Like Edwards noted, almost every sentiment metric imaginable fell in the “biggest or second biggest bearish” range in macro, equities and crypto. “Almost anyone would have said on Twitter last year that we’re in a recession or headed for a recession,” the analyst continued.
While Edwards acknowledged that the risk of a recession is far from gone, many key metrics have rebounded substantially. Among them is the housing market, which is slowing down and often leads the overall economy.
“So there are some metrics that suggest things are slowing down a bit. You’ve got all the big tech names laying off staff and you’re seeing this in crypto as well. 10% to 20% cuts have not been unusual in recent months,” claimed the founder of Capriole Investments.
In addition, he pointed out an interesting fact: every time inflation peaked above 5% and then fell by more than 20%, the US central bank pivoted. This observation has been valid for the last 60 years. “So I think there’s a high probability that the Fed stops raising rates or cuts rates,” Edwards concluded and went on to say:
And then we have this deep value situation in crypto that has been playing out for the last 3 or 4 months. […] And all that sets up a great opportunity for long-term investors in crypto and stocks, as well as risk assets in general.
Fed Pivot Will Propel Bitcoin Up Within 6 Months
In general, it is difficult to predict when regime change will occur 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 founder of Capriole Investments, there will be a liquidity crisis on the sell side after larger amounts of Bitcoin buyers return to the market, leading to pressure to the upside. “And we’ve seen that kind of short squeeze play out in the first few 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 think the base case for me is at least a tax break this year, sometime in the next few months.
Moreover, investors should be cautious when employment remains very high. This is “probably the most important factor leading to recessions.” While this data point is still incredibly strong at the moment, it could change “any month now” due to layoffs in the big tech sector, according to Edwards.
Equalities are also worth considering, he said. If they hit new highs, or if earnings are very strong, if manufacturing is increasing and inflation is still at 5% to 6%, then the Fed might think it can continue because everything is still good. However, Edwards’ 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 was trading at $23,115.
Featured image from iStock, Chart from TradingView.com