Market Commentary
Market Commentary: Credibility
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October 18, 2022

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Once known as the smartest people in the room, the Fed is rapidly losing credibility; changing policy expectations and continued miscommunication highlight the attractiveness of bitcoin’s objective, hard-coded monetary policy

Key Takeaways:

  • With stronger than expected nonfarm and CPI data, the market prices in further rate hikes; while many focus on the Fed’s actions, its communication continues to damage credibility
  • The wild swings in the market’s expectations for Fed policy highlights the attractiveness of bitcoin’s known, fixed, and disinflationary monetary policy
  • Bitcoin outperformed US equities in both Q1 and Q3, emphasizing the significance of the idiosyncratic decline experienced in Q2


While the first few days of October started off strong, recent nonfarm payroll data and hotter than expected CPI helped maintain the high level of drama that markets have experienced throughout the 2022 year.

Following September 21st FOMC meeting in which the dot plots illustrated the “higher for longer” expectation of a 4.6% policy rate by next year, this most recent data pushed estimates even higher: now, the market is pricing in a 4.9% policy rate by March or May of 2023, which is about 175 basis points higher than the current 3.25% upper bound.

And so, what a roller coaster it has been in the form of Fed expectations. While inflation on the surface remains hot, the market’s perception of where policy is headed has swung rapidly up and down throughout this year. Let’s consider that expectations:

  • Priced in a year-end policy rate of 0.75% in the beginning of the year, expecting just 2% at year-end by Q1’s finish;
  • Then first peaked in mid-June with a 3.9% rate expected by February or March of 2023;
  • Declined until August 1 to a peak policy rate expectation of 3.2%, when the upper bound was still 2.5%;
  • Have re-risen to a 5% upper bound expectation after dot plots, Fedspeak, and recent economic data

So, in the last two and a half months, the market has priced in ~175 basis points more of tightening than previously expected.

Of course, data changes, and so should the Fed’s opinion on policy. But once known as the smartest people in the room, the Fed continues to lose credibility.

First, inflation was said to be “transitory” and was allowed to run hot given “average inflation targeting.” Ultimately, the Fed waited nine months after the first 5% y/y to move off ZIRP.

The Fed then raised 50bps in the next meeting, as Fed Chair Powell said, “a 75bp increase is not something that the committee is actively considering.” The Fed then hiked 75bps six weeks later, while Powell said, “a 75bp increase is an unusually large one, and I do not expect moves of this size to be common.” The Fed then went back on their words and hiked another 75bps twice more, with a fourth 75bp hike also priced in for the November meeting.

While nobody has a crystal ball, the Fed’s “forward guidance” has misguided participants since inflation began. If inflation were to have slowed by now, the Fed would have looked wise. But hotter than expected data and miscommunication in hindsight portrays quite the opposite. Now, the Fed appears to be on autopilot mode. With continuing Fedspeak related to the “higher for longer” hawkish stance for 2023, we wonder if this will truly be the case or not, with many months of data ahead.

Add on news of excessive trading and a lack of portfolio disclosures by some voting members, and it’s certainly been a tough run for the Fed in 2022.

What’s this mean for bitcoin?

Well, a rising lack of credibility alongside growing bitcoin education highlights the attractiveness of a simple, objective, hard-coded, and non-sovereign monetary policy. In a world of uncertainty, bitcoin provides a known and immutable supply schedule. There is no centralized planning, discretion, or communication errors.

Bitcoin’s policy rate will be 1.7% until the next halving in May of 2024. New issuance will then decline to 0.8%/yr for the next four years. How simple. We compare on page 2.

In other news, the Financial Accounting Standards Board (FASB) determined that US companies using US GAAP should use fair value accounting for cryptocurrency assets like bitcoin and ether, with gains and losses recorded in comprehensive income.

This major milestone should support further institutional adoption as it no longer penalizes corporations for owning digital assets on their balance sheet. Digital assets will be measured and accounted similarly as traditional financial assets.


The Fed’s centralized, subjective, and discretionary policymaking has led to significant uncertainty around the monetary policy of one of the largest economies in the world.

Here, we illustrate the many different policy paths that Fed Funds futures have expected throughout this year, with meaningful changes nearly each and every month.

As we know, uncertainty around the future cost of borrowing sends ripples throughout the economy: this impacts consumers, businesses, and investor risk appetite, to name a few.

But despite the changing Fed policy and tone, bitcoin’s monetary policy has not changed at all.

Every block, a miner receives 6.25 new bitcoin, which will halve around May of 2024. In doing so, supply inflation will decline from approximately 1.7% per year to 0.8% year. It’s that simple.

Bitcoin has no Fedspeak, no miscommunication, and no preferences or biases. New issuance through the block reward changes every 210,000 blocks, no matter the circumstance.

Based on the events of this year, a monetary policy with certainty sounds quite attractive.


While major asset classes sold off in the third quarter, bitcoin gained 3.7% and ether gained 31.8%. This came as equities created new year-to-date lows while bitcoin and ether held their $17,785 and $902 closes from June 18th.

This relative strength for bitcoin parallels the first quarter of this year, in which the asset lost -1.2% versus the S&P 500’s total return loss of -4.6%.

Strong relative performance in both the first and third quarters supports the idiosyncratic and event-driven reasoning for the meaningful crypto underperformance in Q2 (which was driven largely by the fallouts of the Luna smart-contract platform and firms such as Three Arrows, Voyager, and Celsius).

This strong relative performance outside of the specific Q2 events should increase confidence around the resilience of bitcoin and ether, particularly as the two weather an historically tough macro environment.

Click here to download full report. As always, please reach out with any questions or comments.

Stay tuned,

Joseph Orsini, CFA, CMT
Vice President of Research

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