The Powell Pivot Has Arrived
The Fed is done hiking. Market euphoria. An "Avalanche" of bliss awaits!
This is going to be a bit of a blended article this evening. It’s also going to be chart-heavy and somewhat brief from a text standpoint. If something doesn’t make sense or if you have a question, jump into the comments and we’ll try to get to the bottom of it. Obviously the big news today is FOMC. Absolute market euphoria has commenced.
TLDR: Rates are staying unchanged and the central bank is now projecting 75 bps of cuts next year. It was about as dovish as Powell has sounded in a long time. For all intents and purposes, it appears as though the Federal Reserve is officially pivoting. Market response? Pure jubilation.
We’re currently working on seven consecutive weeks of gains in the S&P - I could be wrong, but I went back through my chart and I don’t think this has happened since 2013. Measuring from the low on October 27th, the S&P is up 14.8%. Again… this has been in just 7 weeks and we still have two more sessions this week. This has been an absolute face-ripper.
In response to the Fed’s apparant pivot, equities and bonds are justifiably getting all the coverage on Bloomberg right now, but I’m watching the response in the specific markets that have demanded most of my focus lately: namely, crypto and metals.
Gold was up 2% today and now comfortably back over $2,000
Bitcoin is up 4% and has retaken $43k after briefly going below $41k earlier this week.
Listen, I’m sure I’ll do a deeper commentary of what just happened today when I’ve digested it. But for now, the bulls appear to be in total control of everything and the dollar appears to have a date with 102.
Turning to crypto, while Bitcoin continues its march higher, the altcoins are more mixed. One that is still seeing some serious momentum to the upside is Avalanche ($AVAX-USD).
Here’s what’s interesting though, unlike some of the rallies we’ve seen in crypto elsewhere, what we’re seeing in AVAX may actually have some basis in reality if the on-chain data in the broad crypto ecosystem is to be considered. Here’s what I’m seeing and how I’m generally interpreting it:
First off, there is no question that average transaction fees are moving higher again on the top two blockchain networks by market cap, Bitcoin and Ethereum. There’s a larger story here that I’ll likely write about soon but we have to remember what happened the last time Ethereum’s base layer fees spiked in this way. We saw secondary layers and competing L1 smart contract ecosystems emerge. The competing L1s that had some element of success have generally been optimized for low transaction costs at the user end. Avalanche is one such L1.
Perhaps it should be unsurprising then that we’ve seen daily transactions and daily active users spiking on Avalanche in recent weeks in tandem with fees on Ethereum rising.
However, even when considering that Avalanche is theoretically a low-fee blockchain, the magnitude of the change in activity in such a short amount of time has driven Avalanche fees much higher in recent weeks. I dove into valuation ratios for Avalanche and I was incredibly surprised by what I saw:
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