Bitcoin & Interest Rates

Hey everyone and thanks for jumping back Into the cryptoverse today we're going To talk about Bitcoin and interest rates If you guys like the content make sure You subscribe to the channel give the Video a thumbs up and check out into the Cryptoverse premium at intothe Cryptoverse decom we are going to have a Sale here again uh we normally have one In November so if you do want to sign up For into the cryptoverse premium make Sure you do so now um while the sale is Going on and we'll probably run that Through the end of the month so links in The description below let's go ahead and Jump in so Bitcoin has you know seen a Pretty nice move here up to around 35k and you know 35k is is a level sort Of coming into the year we said would be Um you know could be an upside Target For Bitcoin in in 2023 now that we're at That level of course it's not like it's Impossible for it to go higher but what I I want what I do want to do is I just Want to spend some time talking about Bitcoin and and monetary policy and and What influences that monetary policy and Then how it could theoretically affect Bitcoin unfortunately uh we don't really Have a ton of data right for for Bitcoin Um and and you know changes in monetary Policy but we do have some and in order To fill in the gaps we'll we'll take a Look at at perhaps the S&P 500 to see

How it Performs during various phases of of the Business cycle okay so the first thing I Want to do is I I want to overlay Interest rates to this chart now you're Probably thinking you probably already Know what I'm going to say you think you Know what I'm going to say but I will Say like there there there are examples Of of Bitcoin rallying as rates go up Right we've seen it multiple times or When when the FED pauses okay so in 2016 2017 you can see that that the market Was rallying and the Fed was raising Rates now this is what normally happens Okay Normally if you think about it bull Markets Are the market adjusting to higher and Higher interest Rates right now that might seem somewhat Counterintuitive But let's look at the S&P right let's Look at the S&P you can see that when the market When when rates are going up the market Also tends to be going up And why is that it's because normally The FED is RA they're they're they're Making monetary policy tighter as the Market continues to go higher just so we Don't run out of you know run out of Control and and inflation comes in right You know you want to keep a good balance

Between an expanding economy and but not Wanting to make the market too loose Right not wanting to make conditions too Loose so that you basically just have a Runaway Market so with Bitcoin I mean you can Clearly see that I mean it it sort of Looks like that over here right with the S&P going higher as rates were going Higher so to the Bitcoin was going Higher over here as rates were going Higher now what you'll notice last cycle Is that at this bottom here it actually Corresponded to the FED pausing rates Right it corresponded to A's and the top That came in 2019 occurred before the First Rate cut right so the First Rate Cut was in July you can see it right Here so this cut you can see that Bitcoin topped out before the First Rate Cut now this is something that might not Be Intuitive if you know when you first Sort of hear about it right because Normally we would think like okay well If you get a rate cut that means you're Going back to looser monetary policy and Therefore risk ass risk assets should Start to do well but again if you go Look at the S&P 500 where we have a lot More data for right once you start to Get rate Cuts that's usually right I mean usually

That's where the market tends to start Behaving pretty poorly okay you can see Rate Cuts here started basically when The market Topped over here in in in um 2000 the Market had already topped before rate Cuts Began So when rate Cuts start it doesn't tend To translate to an immediately bullish Market because often times the reason The FED is cutting rates is because They're they're trying to compensate for Perhaps keeping rates tight for too long And and now the market is screaming for Help normally the first few rate cuts That the FED does is not enough to turn You know to turn the economy around and And again it the market will tend to Bottom Out close to the last rate cut Once the FED figures out just how much They need to cut rates in order to get The economy back on track but a lot of Times the market will just continue to Fall until you get close to you know to Whatever that last rate cut is going to Be so you can clearly see it how and how It has played out in the past for for The S&P 500 so so what you'll see again Is that the S&P in the financial crisis Right it topped out right around the First Rate cut and in the dot crash it Topped out before the First Rate Cut now with Bitcoin we unfortunately

Don't have a ton of History you know it It'd be nice to have more history but we Just simply do not have it throughout This entire bull market these bull Markets and bare markets over here you Know interest rates were essentially at At zero right I mean there wasn't you Know there wasn't all these rate hiking Cycles that that Bitcoin really had to Had to contend with but we can look at At least one cutting cycle right one Cutting Cycle and remember with the S&P when the FED starts cutting the Market tends to not do that well now There are some exceptions uh if you look At 2019 you can see the FED started to Cut in June of 2019 and the Market still Did okay for a little while but we still Ended up getting hard Landing right we Still ended up getting the the drop into The pandemic so whether you want to Include that one or not is up to you but Generally speaking you know once the FED Starts to cut rates the market tends to See some sort of of a selloff okay and We've seen that we've seen that many Times and I mean you could go back and Look at at at the 70s right and see here That when when the market when the FED Started to cut the S&P still continue to Drop for a while now over here it was a Little bit different than than pre you Know than recent business Cycles because

That was also a period of of high Inflation okay so going back to Bitcoin we've previously talked about How last cycle Bitcoin bottomed out once The terminal rate was reached and then Topped out before the First Rate cut Right so the First Rate cut was here in July right so let's just draw that line Across sorry the First Rate cut was Right here in July Bitcoin topped out Just before the First Rate cut and where Did Bitcoin bottom on the last rate cut Right so kind of similar to what the S&P Does it bottomed out on the last rate Cut now why does the FED cut rates right Why why would why would they cut rates Again it's because they've you know They've they've done enough too much Damage to the economy and the market can Just simply no longer bear it if you go Back and look at the financial crisis I Mean it's not like the market was Screaming for help when they started Cutting rates I mean the FED started to Cut the market was essentially at at at All-time Highs but if you overlay the Unemployment rate you'll start to see Why you can see that the unemployment Rate had Bottomed you know around May at around Uh 4.3% or so 4.3 4.4% something like That 4.4% and it was starting to move up so By the time the FED started to cut it

Had moved up to 4.7% so it's not like the Fed was Looking at the market and said oh crap The market oh it's at an all-time high Let's cut no it was the economy right Maximum employment that they were Worried about because it's a dual Mandate right you need price stability But you also want to see maximum Employment and here clearly they had Raised rates too high for too long and The unemployment rate started to go up And therefore to compensate for the Unemployment rate starting to go higher The FED had to start cutting rates but Once the FED started cutting the market Dropped the market dropped because the Unemployment rate was going higher if People are getting laid off I mean the Last thing they're probably thinking About is what you know what what stock Are they going to go buy right that's Not going to necessarily be on the Forefront of their mind if if they're Worried about getting laid off okay so That's why we we track the labor market Over here right in the dot crash Why did The FED start to cut was it because the Market had come down a little bit no I Mean like you know the market had had Risen a ton over the last several years It was because the unemployment rate was Starting to Trend higher so the FED Started to cut and that was where a

Large portion of the selling EV Eventually Happened so then you know you you can Look at at Bitcoin today and and try to Make sense of what's going on we've put Out various thoughts about about sort of What's going on but you'll see That once we hit the terminal Rate Bitcoin was already well off this Low over here so when the terminal rate Was reached over here in 2018 again that was where Bitcoin Bottomed And then Bitcoin topped before the First Rate cut but the reason why this cycle Looks so much different from this one is Because normally the FED raises rates in In a bull market right when when the Market is trending higher but in this Case they did not do that right they They should have they should have raised Rates I mean hindsight's easy to say Right but they should have raised rates In in 2021 but they didn't and so rather than Raising through this entire bull market Over here they only started to raise in Early 2022 in March is when the in March 2022 that's when the First Rate hike Occurred but that was already once the Bare Market had started you know and and And you know the S&P then dropped Basically off and on for the next nine Months Bitcoin dropped until until

November of of 2022 and so this entire rate hiking Cycle started after the bull market from 2020 and 2021 was Over so in this Case we sort of talked about this idea That Bitcoin bottomed out not at the Terminal rate but at around the point Where the FED shifted from 75 basis Point rate hikes to 50 basis point rate Hikes and 20 and then 25 right so I I've Previously argued that that is what Could have theoretically marked the Bottom for Bitcoin uh back in back in November that low that we had is that Shift from 75 basis points to to 50 Basis Points and then ever since then I mean You know Bitcoin has slowly trended Higher in the face of raising rates of Higher higher and higher rates right so I mean it you know at that point rates Were at around 4% now they're at 52% and Of course Bitcoin as we know has trended Higher where it becomes difficult to Navigate really difficult Is last cycle we know that Bitcoin Stalled out before rate Cuts began now This cycle is unlike the last one in the Sense that again this low here did not Occur at the terminal rate the terminal Rate occurred you know way over here Back in in July and Bitcoin was was of Course well off of of this low and again

A large part of that I think is just due To how late the FED has been in this in This hiking cycle so then will it play Out in a similar manner for rake Cuts as It did last time I don't know but what I Do know is when you look at at the S&P 500 you know there's all sorts of ways That it has has has played out in the Past but the most common way is that There's a selloff sometime during rate Cuts assuming the unemployment rate is Starting to go higher you might wonder Well why in 2019 why in 2019 what did the market continue to go Higher even though we got rate Cuts because the unemployment rate Wasn't going higher right the Unemployment rate was still trending Down so we got these rate Cuts but the Unemployment rate wasn't really showing Any any weakness at the time so the Market trended higher these other two Business Cycles the market sold off off but it Was because again the unemployment rate Was going higher so then that brings you To today right what's going on is the Unemployment rate trending down no right I mean it's potentially formed a base Down here and it looks like it's Starting to potentially Trend higher Here now again the unemployment rate Moves very slowly I mean you know there There's a chance that it could just

Slowly go up right I mean maybe in December it prints around the same level That it printed you know this this this Month and and then sometime in 2024 it Starts to pick up the pace but it moves Very slowly and and we have to remember That right I mean we only get one data Point each month and you know if it Comes in at 3.9% again that's not a That's not going to necessarily be a Huge move in the labor market um over That month but it doesn't mean that it's Not going to go 4% or even 5% sometime In 2024 so my sort of Baseline assumption Is that Bitcoin will likely do what the SNP Normally does under rate Cuts assuming That the unemployment rate is going Higher which is what it's starting to do Right that's exactly what it's starting To do so you know looking at it over Here I told you know I said over a year Ago that the terminal rate was likely Going to be 5 a half% and I mean it Seems like that's where the terminal Rate is so then how do we know where you Know when the fed's going to start Cutting well you can go look at the bond Market the bond market changes their Mind fairly frequently as to what's Going to happen in the outlook on the Economy so I would not encourage you to Take this to the bank the bond market

Thinks the First Rate cut comes in May Okay it could actually come before that If the unemployment rate continues to go Higher in his last in in the last Meeting at the fomc poell said that They're not even talking about rate Cuts Right now they're not even talking about Them but when asked if they're going to Stick with their forecast in the prior Summer of economic projections the SCP pal kind Of made it seem like that I mean he Basically did not seem that confident That they were going to hike again and I Think the market thinks that they're Done and I think the FED I think the Fed's done I I don't think they need to Raise again now it's possible I could be Wrong about that I could be wrong about You know 5 a half% as the terminal rate It's possible that they would have to Rate go higher the the way that it could Happen is if 5 a half% is not Sufficiently restrictive right so like If if 5 and a Half% ends up being a level that the Economy can handle and if the economy Starts to expand even at at 5 and a Half% then it's possible that you know Sometime in 2024 the FED will have to Raise start raising rates again to Actually get them you know actually get It to to a sufficiently restricted Territory but right now the bond market

Thinks that the fed's done I think that The fed's likely done and when you look At at at this Chart the unemployment Rate I mean it certainly seems like it's Starting to go higher so if the FED has A dual mandate which they do of price Stability and maximum employment how can They be justified in continuing to raise Rates especially going into an election Year where there's going to be political Pressure right right how can they be Justified in raising rates Further when they have a dual mandate Price stability and maximum employment And you can see that the the Unemployment rate is starting to go up Right it is starting to go up it was at 3.4% earlier this year now it's at 3.9% That is a fairly substantial move in the Unemployment Rate so if this continues this move Right if it continues this move then That's where it could become a problem Now remember like look at this cycle Over here you can see that a base was Formed a base was formed kind of like a Base was formed over here and then it Started to move up but the market did Not immediately react right it it it Wasn't until you know it was clear right That the unemployment rate was was going To continue trending higher right it's Not just because it it finds a low

Doesn't mean the market has to Immediately drop right it can take a While I mean like from this level here April 202000 until the market really started To drop I mean you're talking about half A year right I mean it again when you Look at it like this it seems like oh Well that has to happen tomorrow or that Has to happen next week when in reality These these Trends take place over over Years okay so you know when you when you Look at Bitcoin and when I when we try To think about what is the most likely Outcome if if the unemployment rate goes Up my expectation is that it would Likely play out somewhat similar to what It did last time where it it sort of Tops out around the time of of rate cuts It might top out even earlier this time You know last time it topped out about a Month before rate cut started this time It could top out you know maybe two or Three months before rate cut start and The reason is because in 2019 the unemployment rate wasn't even Going up at the time now the Unemployment rate is going Up so in normal business cycle Where inflation is not an issue the FED Would have already started to cut more Than likely especially with the Unemployment rate going higher but the Reason that they're not I guess is and I

Said this before right but my assumption The reason I I think they're not and I Think they won't they will continue to Not cut at least for at least for the Rest of this year is because of of Inflation and they don't want to deal With inflation for the next 5 to 10 Years um so they'd rather just go higher For longer so the the The Narrative of 2024 will be of course how long can they Hold out my Expectation okay and again we we we got The uh 5 and a half% right at least for The time being for the terminal rate my Expectation is that the FED will cut in 2024 um and and that they'll be Basically they they'll be forced to Essentially do so just because of of the Labor market starting to show weakness And and with elections coming up you Know you're not going to be able to Justify keeping rates at 5 and a half Percent forever if if the unemployment Rate is is starting to go north of four You know four five% right I there's Going to have to be some type of of cut In that type of scenario I don't think That they would let the unemployment Rate just go to 5% or something without Providing a single rate cut I just don't Think that's going to happen now it Could happen of course if you had Something like the pandemic where the Unemployment rate just shoots up like

Immediately and there's really no time To react but if it assuming it plays out Like a normal business cycle I would Expect that as the unemployment rate Goes higher and let's say it gets into The mid fours or something next year I Would expect that the FED would cut and The issue with the FED cutting is that Often times risk assets sell off into That cut just like Bitcoin did last Cycle so going into this year you know I I said that that Bitcoin would likely Trend up for about half the year and Then Trend down for the rest of the half You know the other half of the here at This point I mean you know there hasn't Really been much of a of a downtrend yet Right and I think the key thing to Recognize is that last Cycle the highs again came just Before the Cuts and the bond market is still not Not necessarily Forecasting um you know any Cuts now I Said something that you might be Wondering about and that is well you Know Bitcoin could top out several Months before the First Rate cut now is There any is there any history that Shows that that could be the case well There is I mean if you were to look at The S&P and I mean here's here's the Unemployment rate and and here's um

Interest rates right but thought I Clicked on interest rates Um See okay so here are interest rates What you'll see over here in 2000 is That the market topped Out right the market topped Out if I can Um In in March but then rate Cuts did not occur Until November right again I mean it it Sort of got close to the Highs but even this high occurred in August and the first cut did not really Come until the following year early the Following year so there are examples Where the market can top out you know Potentially half a year or something Before before the First Rate cut even Arrives if the unemployment rate is Going higher so for me what I'm you know What I'm watching with with crypto Is where does the unemployment rate go What happens when we start to see rate Cuts come in and I mean that's my those Are my sort of my macro views now if you Followed me one of the things I've said For the last two two and a half years Maybe about two years now is that in Crypto if you want exposure to the Upside potential of crypto especially This late in tightening Cycles Bitcoin Often gives you the best risk adjusted

Returns so having exposure in crypto This late limited to bitcoin can give You that exposure to the UPS side while Helping minimize your downside risk now Of course when you get rallies like this In the altcoin market um you know I I Get that that that would induce a lot of F up I mean I I completely get that I Mean a lot of these are up significantly Um in in a very very short period of Time so I I mean I completely get that And I'm not trying to say that there's No money to be made especially in Shorter term trades I'm not trying to Say that what I am trying to say is that My Expectation which has been proven Val For the last two years is that Bitcoin Dominance should go higher and the Reason that I keep saying that and I I Know it sounds like you know why does he Keep talking about Bitcoin dominance Like it's just so annoying right but the Reason why I keep saying that is because Last cycle dominance did not top out Until we got back to looser monetary Policy right until we got back to rate Cuts right that's not it didn't top out Until then so I look at the dominance And I think like you know I know it's Had a pretty big pullback from 54 to 52 A half% and yes people are dunking on me For the 10th time on bitcoin dominance But I still look at this and I'm like

You know uh people dunked on me when the Dominance dropped from 44 to 43% uh they did the same thing when it Dropped from 49 to to 47 same thing from 52 to 49 same thing from 54 to wherever It bottoms out Right so I don't see that anything has Changed I mean Bitcoin dominance just Keeps in put keeps on putting in higher Highs and higher lows and so is Bitcoin USD but a lot of altcoins have not been Putting in higher highs and higher lows This year right they a lot of them went On to go put in new Lows So you know that's sort of how I think About these markets is Bitcoin gives you The Exposure to the potential upside of Crypto while minimizing your downside Risk in case a recession occurs if a Recession does occur Occur then the market you know crypto Tends to sell off now again it's hard to Say you know with with certainty because We don't really have a ton of examples I Me we have this example here where Bitcoin essentially you know it it it Dropped 62% but it was a you know was a pandemic It was a Black Swamp right who's to say You know how it would have behaved under Under say like a more normal type of Recession we had a recession scare in

You know in 2015 2016 and in that case Bitcoin still Dropped 48% right now during this time I mean That was when the S&P had a had a pretty Big drop Too but for me I I I I think that and I've said this before to me it seems Like Bitcoin really moves Discreetly right it climbs the wall of Worry until the labor market shows Weakness or there's you know there's Enough evidence to suggest that a Recession has arrived Now for throughout the last year I've Said that the earliest I could see a Recession really arriving would be late 2023 um and now we're in late 2023 and You know when I think about if that that Statement is still valid I I can't help But think it Is look at the unemployment rate right I Mean like look at what the unemployment Rate is Doing if next year if we're looking at The unemployment rate and it's sitting At like 42% they're likely going to Backdate that a recession to late 2023 Once this move got underway if on the Other hand in 2024 we're looking at the Unemployment rate and it's back down to 3 and a half% then clearly they're not Going to say that we had a recession in Late 2023 it all depends on on how it

Continues to play out over the next Several months right and I I mean There's no one that knows the answer to That question we all think we know a lot Of people think it'll the unemployment Rate will go high High a lot of people Think that the labor market is is Extremely resilient and and the Unemployment rate will start to go back Down but you know it's it's all about Probabilities right I mean there are Times where it sort of pops up for a Little bit and then comes back down it's Not completely unheard of to see Something like that happen but you know Looking at it like on a on a on like a Three-week moving average right it seems Like it's starting to gain some Momentum so this sort of this discuss About you know will we have a recession And and again we've talked about it for Not not super frequently but we've Talked about it for like the last year Or so that late 2023 could be where it starts I still I Still think there's a chance that that's That's what's playing out late 2023 is Could be where it starts and it would be Kind of interesting because you know we Sort of came into this year and and it Seemed like everyone thought we were About to have a Recession now it sort of seems like Everyone's saying we're not going to

Have a recession And wouldn't it be kind of funny if we Went from everyone thinking we're going To have a recession to then everyone not Thinking it and then we still had a Recession that started in 2023 right Like I mean it would be kind of Interesting if if we sort of made that Complete round trip where everyone Thought it was going to happen then Everyone thought it wasn't going to Happen or thought it was going to start Sometime next year when in Reality what if it's starting right now And I mean you can see the unemployment Rate is starting to go up Right We talked about the Som rule recession Indicator if you get another print at a At a high level you know like if you get Another print 3.9 4% then I mean if you Get another print at 4 point at 4% then The S rule recession indicator will Trigger because you know you're you're At 3.9% and you're comparing it to to The low of 3month moving average which Is at 3. 5% so um or sorry if you take the Average of of 38 39 and and four then That that gets you to an average of of 3.9% So that I think is is something to Consider is like well these recession Indicators could trigger if the

Unemployment rate continues to go up Okay So sort of sort of summarized right sort Of summarized last cycle Bitcoin Bottomed out at the terminal Rate it topped out Before the First Rate cut it bottomed Out in the secondary scare we talked About the secondary scare before right It bottomed out in the secondary Scare At the last rate Cut my contention is that this time Won't be different and that we will get Rate Cuts because the unemployment rate Is starting to go higher and when we get Rate Cuts that's where risk assas sets Sell off that is where I think the Secondary scare comes in for Bitcoin Just like it always does everyone always Thinks it won't happen and then it Happens where could I be wrong right you Know what would lead me to being wrong About that you know some people ask me What if there's no secondary scare I Think the way that that would happen the Way that would have to happen is if the Unemployment rate doesn't keep going Higher and and If the Fed truly just Stays at 5 and a half% for the next like Two years and and inflation just sort of Slowly goes away and you get quote Unquote you know a soft Landing that is The way in which um this sort of view Could be wrong so but again my

Expectation is that it will likely play Out how it always does the FED will Raise uh you know they'll hold they'll Hold rates too high for too long because Of of inflation and and it'll lead to The unemployment rate going up very Quickly like you can start to see us Happening and then that'll lead to rate Cuts and and the market will start to Scream for help as as the unemployment Rate starts to go higher especially as We get out into 2024 so that's my Bas Case and I I do think risk assets will Likely sell off into that who knows you Know who who really it's hard hard to Say what Bitcoin is going to do between Now and then but that is my that is my General Expectation so um I don't really know if There's anything else sort of add uh but That is sort of where I see the market Going over the next few months in the Meantime you know Bitcoin is I it's Still at around 35k which was sort of The Upside Target for the year that we Had now that we're here I don't know if I want to uh say that it can't go higher It certainly could I mean hell it Already went to 36k practically so you Could almost say that that was um Already invalidated So I'm just going to uh you know I'll Continue to focus most of my attention On on how the labor market continues to

Unfold and what happens now again with Altcoins I know everyone wants to know About altcoins you know we also had a Nice rally before you know before the Recession of 2020 and again like it's a Hard thing to say because everyone's Just going to say well yeah that was a Black Swan but the the problem is that If we get a recession now or let's say In 2024 people are going to say it's Because of a Black Swan like it's it Will be blamed on something right people Aren't going to just say oh well the Unemployment rate was slowly going up Anyways no if we do get a recession They'll say it's a Black Swan right they You know that that'll be the the the Thing that I I imagine gets said is It'll it'll be blamed on some specific Event right and and that way they can Sort of you know explain why it's Happening it'll be blamed on something That you know couldn't have have Possibly been Controlled but you know I look back at At at last cycle and we had a a huge Rally in the market and and we still Sold off into the recession right I mean You know Bitcoin sold off 60% into the Recession so it depends on on on how Much weight you put into either the Recession of 2020 or the recession scare Back in 2015 2016 where where Bitcoin Sold off 50% or so my sort of view is

That it it moves discreetly that's my View for Bitcoin and that if we're not In a recession then then it's holding up And if we are in a recession then it's Basically minus 50% right that's my view Right I I think if we go into a Recession the crypto Market sells off Aggressively just like it did last cycle And just like it did the cycle before That as long as we're not in one it Loves climbing the wall of worry but Again and last cycle we had a very Aggressive rally Bitcoin in fact rallied About 60% and then after rallying 60% it Then Dropped 62% you know from this low right here Bitcoin Rallied so Far 40% right 40% Rally so we'll see not exactly the same Setup because this was you know know This was really sort of like a lower High and and this is a higher high so It's certainly not the the exact same Setup and I I don't mean to pretend that It is it's not but that is um that is Something you know something to consider And if you go look at at at you know This the altcoin market specifically you Know it's currently coming in at at Around 390 billion and you know that had An had an even more impressive run up Right it ran

126% and then it and then it crashed Into the recession A 66% drop right so far total three from You know just from this low right here Has rallied about 24% right over here it rallied 126% and Still went on to put in a new low so you Know I'm just going to keep going with The uh you know with the data as it Comes in and and look try to follow the Sort of the business cycle as it stands And and see if the unemployment rate Shows weakness if it if it does show Weakness then I'm guessing we'll get Rate Cuts next year and I'm guessing the Market will sell off if it doesn't show Weakness then then that's where you get Sort of your soft Landing that I know a Lot of people are hoping for I mean Given the market I know a lot of people Are hoping for that so uh if you do have Altcoins congratulations on on the on This move right I mean there's nothing Else to say right congratulations on the Move and uh we'll see we'll see how Things continue to unfold as the Business cycle progresses again if you Guys like the content make sure you Subscribe to the channel video a thumbs Up and we do have that sale on intothe Cryptoverse premium at intothe Cryptoverse dcom we'll see you guys next Time bye