DID THE FED JUST SUCK THE WIND OUT OF CRYPTO'S SAILS?

Hello, fellow crypto enthusiasts!

There have been some choppy seas in the cryptocurrency market this week - and that's probably understating it.

But amidst the noise, there is still a treasure trove of signals to uncover.

So, grab your coffee, because it's time to batten down the hatches and ride this week's crypto wave - and it's a BIG one.

• Recognise - Navigating the Noise: US CPI and the Fed's Next Move
• Respond - The Power of the Relative Strength Index (RSI)
• Research - Should I Buy Polkadot (DOT) in 2023?: A Deep-Dive

RECOGNISE - NAVIGATING THE NOISE: US CPI AND THE FED'S NEXT MOVE

This week was an exceptionally busy one - which means there was A LOT of noise.

But this is the 80/20 crypto newsletter, and with 5 years under the belt, we know exactly where to look to find the signal.

US CPI Results

The US released its May YoY CPI figures on Tuesday and it showed that inflation had dropped to 4%! Which is the first positive to take from the week.

The Fed is still targeting 2%, so we're still not quite there, but it's way better than the 9% YoY inflation we were seeing last year!

Interestingly... truflation is showing that US inflation is already down at 2.54% - which always makes me question what these experts are using to measure inflation - but still.

US Interest Rates (Hawkish Pause)

Let's be honest, increasing interest rates have put the crypto market in the toilet over the last 24 months. But it was more good news on Wednesday.

Because the Fed decided to pause interest rates for the first time since the start of 2022!

HOWEVER, it wasn't all sunshine and roses because there was a big caveat.

That we are likely going to see more rate hikes throughout the remainder of the year.

This was unanimously reiterated by members of the Federal Reserve so although the US Fed Funds Rate was held at 5% this time around, it might be going higher through the remainder of 2023.

So, with these positives why did crypto move lower?

Although Bitcoin is back above $26,000 as I'm writing this - which is great - we did see Bitcoin drop lower and retest $25,000 during the week and it was for 2 prominent reasons:

• Charges against Coinbase and Binance from the SEC continue to drag sentiment down
• Tether (USDT) de-pegged for the 1000th time on Thursday

However, there is still a lot of bullish promise to take from Bitcoin's price charts.

Bitcoin technicals

Starting on the weekly chart, Bitcoin is still below the 200-week MA...but only just!

When Bitcoin has dipped below the 200-week MA previously in the year, this has led to a 20-30% retracement. Could it be the same this time? You bet. But here are a few things that are different this time around.

• The 50-week MA has begun to curve upwards. It now has a positive trajectory and this, in the past, has been a pre-bull market signal.
• We have a weekly higher-high, higher-low structure that offers strong support at both the $24,000 and $22,500 levels.
• The 200-DAY moving average is sitting just below the current price and forms a confluence with the zone of support surrounding $24,000 - this might be the reason why we saw Bitcoin rally during the latter half of the week.

The other aspect to consider is that this week, the S&P 500 posted fresh 2-year highs!

Many were expecting the S&P 500 to turn and retrace from the zone of resistance at 4300, but it ended up climbing well above 4400! The resistance at 4500 is now the next target.

What can we take from this?

1. That there is currently a low correlation between crypto and stocks
2. And that investors are willing to put money in to some risk-on assets

Ultimately, this leads me to believe that there is liquidity out there waiting to be put into the crypto market.

Large investors are just waiting to see how things play out regarding the SEC.

Without the SEC FUD hanging around Bitcoin's neck, I think the price per BTC would be a lot higher.

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RESPOND - THE POWER OF THE RELATIVE STRENGTH INDEX (RSI)

If you are into cryptocurrency investing, you need to be able to read technical analysis indicators.

Don't worry, not all of them! We don't want charts that end up looking like this...

But, you do need to be able to look at a price chart and understand what is going on.

And I think the Relative Strength Index (RSI) is an indicator that can help you do that.

Here are 3 ways that the indicator can be used (many only use the first one):

1. RSI overbought or oversold can highlight periods where the price of a crypto asset is overstretched
2. RSI divergence can highlight when the momentum of a trend is fading
3. Daily and weekly RSI numbers can indicate if the overall trend is bullish or bearish

I'll be honest - the RSI wasn't an indicator that I used very often when I first started out. I was warned away from it because of its age and its inability to handle modern-day market movements.

However, I think it still has a place in our technical analysis arsenal. And I'll give you examples of why shortly.

So, what is the RSI? Well, it's a technical indicator that is focused on momentum. It measures the speed and strength of price movements.

• If the price of an asset moves quickly and strongly to the upside, the RSI will move higher.
• If the price of an asset moves quickly and strongly to the downside, the RSI will move lower.

Overbought and oversold

Now, if the price of an asset moves quickly in one direction for a sustained period, the market gets overstretched. This is the first thing the RSI can help to show.

If the indicator sits above 70, the asset price is considered overbought. Too many have been buying and there is a need for a pullback.

Meanwhile, if the indicator sits below 30, the asset price is considered oversold. Too many have been selling and there's a need for a pullback to the upside.

Now, it's important to remember, this isn't a hard and fast rule! Like any indicator, it is not 100% accurate.

So, there are a couple of extra tips with overbought and oversold that I want everyone to take away:

1. Times of overbought and oversold carry more weight on the daily.
2. The market can be overbought and oversold and the price can still continue in the same direction - the indicator is not perfect (no indicator is).

Momentum of a trend

Alongside showing when the price of a crypto asset could be slightly overstretched, the RSI can also be used to highlight when the momentum of a trend could be fading - I actually use this aspect of the indicator the most.

Spotting periods when the momentum of a trend is fading involves something called RSI divergence.

RSI divergence happens when the price of a cryptocurrency starts to move in the opposite direction to the RSI.

Let's take a quick look at this example.

The above image shows a bearish RSI divergence on Bitcoin's daily timeframe and shows that the uptrend from October to November was losing momentum.

During the first local price high, the RSI moved into overbought territory (above 70), so we already know the market is starting to become stretched.

However, the price continued higher for another two weeks at which point a new local price high was formed. But, importantly, this second local high coincided with a lower RSI value (below 70).

After the bearish RSI divergence pattern was complete, the price fell away rapidly.

Now, this is an example of a bearish RSI divergence, but the same thing can happen if the price of an asset is oversold.

In a bullish RSI divergence example, the price would make new lows while the RSI makes higher lows.

It's a simple concept but it's one that many overlook when looking at the RSI.

Direction of a trend

The final way that the RSI can be used is to identify the overall direction of a trend.

We know at the ends of the spectrum (above 70 and below 30) the RSI can help us to spot changes in the trend, however, when the RSI indicator is in between it can still tell us what the overall direction of a trend is.

If the value of the RSI is above 50, it would indicate that momentum is bullish.

If the value of the RSI is below 50, it would indicate that momentum is bearish.

The Power of the RSI

So, with just a quick glance at either the RSI on the daily or weekly time frame, you can see whether the price of a crypto asset is overstretched, whether the momentum of the current trend is fading, and what the overall direction of the trend is - not bad for one indicator.

So, don't sleep on the power of the RSI indicator. It is favoured by many for a reason.

RESEARCH - SHOULD I BUY POLKADOT (DOT) IN 2023?: A DEEP-DIVE

So, before we get into this week's deep dive, I want to thank @brettnorrisco for suggesting Polkadot (DOT) - look out for the chance to put forward your altcoin next week on Instagram!

Now, many of you have likely heard of Polkadot. It's a large crypto project sitting at a $5 billion market cap - but with the price of DOT down 92% from all-time highs, could we see a lot of upside when the next bull cycle comes around?

A lot of 'older' projects that were around during the last bull run will still produce amazing returns during the next bull run. It's just a matter of deciphering which horse to back.

So, let's saddle up.

For this deep-dive I'm going to break down Polkdot into two sections: 1) the Polkadot network and 2) the DOT coin.

The Polkadot Network

What does Polkadot do?

• Focused on blockchain interoperability and building out Web3.0 - a huge task!
• It wants to be the project that allows blockchains to seamlessly communicate with one another and, therefore, drive the development of the Web3.0 ecosystem.

How does Polkadot work?

• At the very heart of the project is Polkdot's Relay Chain. The Relay Chain acts as the base infrastructure layer that other blockchains can then be built on - these are known as Parachains.
• The advantage to this? Well, all Parachains that are built into Polkadot's ecosystem can work by their own rules and can communicate with one another seamlessly.

I heard a great analogy for Polkdot's setup that I thought would be useful to share: Imagine that there are 100 people sitting in an office doing individual tasks - these are the Parachains in Polkadot's ecosystem. Then, at a set time period, all 100 people in the office get up and have a meeting to sync up - which is the purpose of Polkadot's Relay Chain.

Thanks to this parallel-focused architecture, it's claimed the Polkadot network can handle over 166,666 transactions per second! Not a bad figure (Visa is 65,000 tps).

What is developer activity like on the Polkadot network?

• Pretty popular. Throughout its life, Polkadot has been consistently high when it comes to developer activity - which is great. More developers = greater innovation = more users.
• Although it is starting to have competition from the likes of Solana and Cosmos, in January 2023, it was still only second to Ethereum.

Is Polkadot's ecosystem growing?

• In 2023, there are now 42 parachains that exist within Polkadot's ecosystem - with more set to onboard.
• Projects that are already based on Polkadot are targeting finance, personal identity, prediction markets, robotics, social networks, and the tokenisation of real-world assets.

Is it being adopted by end users?

• Unfortunately, not yet.
• The tech on Polkadot is great and the opportunity for growth looks strong, but the network has so far struggled to adopt end users - people like you and me!

Is the Polkdot Network decentralised?

• In short, yes!
• Thanks to Polkdot's clever Nominated-Proof-of-Stake mechanism the network boasts a Nakamoto coefficient of 70 - which is well above the industry average. And that's exactly what we want to see.

The DOT Coin

When was DOT launched?

• The DOT token was launched in 2020 for an ICO price of $0.39.
• So, it has now been around for nearly 3 years which means we have some track record to evaluate. During the peak of 2021, it reached an all-time high of $56!

What drives demand for DOT?

• The DOT coin is used to stake for operations, governance on the network, and to facilitate a bonding mechanism that is required by those who want to set up a parachain. And, IMO, it's the last one that could end up driving the most demand for DOT.
• The DOT token is seen to have value because it grants access to Polkadot's secure blockspace. Want to establish a blockchain? All you need are a certain number of DOT coins. So, if more want access to Polkadot's network, demand for DOT will come.

What is DOT's supply?

• The circulating supply currently stands at 1.19 billion.
• It is an inflationary coin, which means that more can be infinitely produced. There is no maximum supply for DOT. The average inflation sits at approx. 10%. Remember, if something can be infinitely printed that can put pressure on price.

Can the infinite supply of DOT be contained?

• DOT has incorporated a clever economic model to ensure that the price of DOT doesn't get too badly damaged by ongoing inflation (theoretically).
• It is Polkadot's aim to have 50% of all DOT tokens staked in the network at all times. This removes DOT from the circulating supply. And this is achieved by increasing and decreasing the inflation rate. If there is less than 50% of all tokens staked, the inflation rate will increase to encourage more staking - and vice versa.
• So, the infinite supply may somewhat be offset by the economic model they have in place - but it's not a guarantee.

Now, that was a lot to take in...so let's quickly summarise.

Positives for Polkadot

• Impressive technology
• Opportunity for growth
• High developer activity
• Highly decentralised (SEC protected?)
• Clever economic model to offset inflation
• Price down at 2020 levels - return to ATH would yield a return of 1154%

Negatives for Polkadot

• Not yet being adopted by end users
• Inflationary tokenomics could weigh on the price
• With extra coins in circulation, it will require a higher market cap than Nov 21 (> $50B) to move back to ATH

And that's Polkadot in a nutshell. So if you've ever been considering DOT as an investment option, I hope this walkthrough helps to aid your decision.

For a recent look at Polkadot's vision, I would also recommend checking out this super-detailed podcast with Polkadot's Lead Developer, Shawn Tabrizi.

AND if you want to learn how to review a crypto project like this, I would encourage you to check out my brand new Crypto Investing Mastery course which has 1 sole aim - to take you from crypto-curious to crypto-fluent in the shortest time possible.

And with that small plug, that wraps up this week's 80/20 newsletter.

As always, thank you so much for subscribing, and if you ever have any thoughts, or suggestions or would like a particular topic covered, ping me an email or a message on socials any time 🙌.

Have a great weekend and I'll see you for the next one.

James

Founder of Access All Crypto

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