Macro Shifts
New Charts: Recession Indicators
Dear Bitcoiners,
Bitcoin is back above $60,000—an impressive reversal! However, it's important to remember that we’re still trading below key levels, like the Short-Term Holder cost basis. What a week we’ve had, with Bitcoin dropping below $50,000 due to escalating macro conditions. Last weekend, we experienced a >20% drop in Bitcoin, driven by turmoil in the macro landscape. This was catalyzed by disappointing unemployment numbers and Japan's interest rate change, both of which occurred just before the weekend, causing a cascade of capital being pulled out of US markets. Paired with the news of escalating tensions between Iran and Israel, it looked like the world was falling apart, causing widespread panic over the weekend while traditional financial markets were closed. With Bitcoin trading 24/7, it was heavily impacted.
As Bitcoin matures into an institutional and nation-state asset, the macro environment becomes increasingly important. In this week’s newsletter, we’ll focus on the macro environment, examining global liquidity and a series of charts that help track the emerging signs of a recession.
First off, I’m more bullish on Bitcoin than ever, both technically and in terms of adoption. Alongside the maturation of developments like eCash and Fedimint, the recent emergence of presidential candidates discussing a Bitcoin Strategic Reserve, and BlackRock CEO Larry Fink advocating for Bitcoin as part of a portfolio, are incredibly significant. Institutional and nation-state adoption is happening right before our eyes.
That said, macro conditions are deteriorating, and Bitcoin likely won’t go unaffected. While we might not be in a recession just yet, worsening labor data is a concern that we can’t underestimate. The fiat system's fragility was on full display last weekend when a small 0.15% rate change by a Japanese banker caused such a significant unwinding of capital. Meanwhile, Bitcoin’s monetary policy remains unchanged!
Carry Trade
A short summary of what caused last week’s drop: In addition to rising unemployment and escalating conflict, Japan’s decision to increase interest rates by a percentage point and a half led to significant capital being pulled from US markets. Japan, known for its high debt-to-GDP ratio, has maintained negative interest rates for a long time, resulting in a prolonged decline in the yen against the US dollar. The Bank of Japan raised interest rates with the goal of making Japan more economically attractive. Many investors had borrowed yen at near-zero rates and converted it into US dollars to capture the yield from the US stock market. With the dollar rapidly falling against the yen due to the rate hike, investors had to pull capital to cover their loans. Liquid assets like Bitcoin, which trade 24/7, were consequently affected.
During last week's volatility, I provided an update in the Substack Chat. Be sure to always follow my Twitter and the Substack Chat for timely insights. 👊
Global Liquidity
At the recent Federal Open Market Committee (FOMC) meeting, Powell communicated that rates would remain unchanged but also mentioned being open to rate cuts later this year, to be interpreted as likely to occur in September. Rate cuts typically serve as a boost to liquidity. Risk assets generally respond positively to new liquidity, as observed in the chart above.
However, a rate cut is also performed to stimulate an economy in slowdown—and perhaps not just a slowdown, but a recession.
New Macro Charts
We’ve added a new “Recession” page as part of the “Macro” section on the Bitcoin Strategy Platform, available to all paid subscribers! Here, you can track several live charts that highlight emerging signs of a recession. The gray areas represent recessions as determined by the Federal Reserve. Please note, these recession areas are usually added retrospectively, once a recession is “officially” declared.
Federal Funds Rate
The interest rate at which banks lend to each other, influencing all other interest rates that affect people’s economic decisions. Note how typically a recession occurs after rate cuts.
Get access to the best premium live indicators and charts, all in one place, to stay fully prepared for Bitcoin’s cycle. If you sign up now, enjoy a 25% lifetime discount.
Yield Curve
The difference between the 10-year and 2-year Treasury yields is closely watched because an inverted yield curve (when short-term rates are higher than long-term rates) has historically been a reliable predictor of recessions.
Unemployment
The rate of change in unemployment caused concern because of its steep increase.
Bitcoin’s 4-year cycle remains right on track, but a potential recession is one of the few things that could disrupt it. Last week’s escalation showed how quickly things can unwind, and the importance to keep an eye on these indicators. While a recession could certainly cause temporary volatility, Bitcoin’s long-term prospects are stronger than ever.
I hope you find these updates to the Platform useful! Let me know what you think in the comments—I’m always open to your ideas for improvement. 👊
See you in two weeks, 🫡 🧡
-Root
thanks very much root, this is very usefull.
Thank you, would it make sense to plot BTC price on the Recession charts ?, for that is the data correlation we want to do.