Why Did Bitcoin Drop Today?

hey everyone and thanks for jumping back into the cryptoverse today we're going to talk about Bitcoin and the long end of the yield curve so we're going to be talking about Bitcoin and yields very exotic concept I'm sure many of you are very excited if you guys like the content make sure you subscribe to the channel give the video a thumbs up and again check out the sale on intothe cryptoverse premium at intothe cryptoverse decom so bitcoin's about down 5% today which all in all uh isn't isn't so bad but I do want to talk about you know what's going on today um is there a narrative to support such a move and take it from there now you should know that my base case with price action is that price action is King and it does not really follow any narrative in fact it's the other way around right narrative follows price so if the price goes up if the price were up today we would all have a narrative for it right um the price goes down we'd all have a narrative for it so I think it's important to remember that no matter what happens um we will always be able to find a narrative to explain anything especially with the benefit of hindsight right so it's important to remember that but if we try to break down you know what is going in the market what could be the cause of of such a move I think one of the things to look at would in fact be be the Yi curve okay now I'm not talking right now about the [Music] uninversity uninverted and it can precede slowdowns in the economy um but sometimes those slowdowns take a couple of months sometimes it takes years for it to play out for instance in 1967 you had an inverted y Cur or sorry 1966 you had an inverted y curve the market didn't really care for quite some time but I'm not really talking about the uninversity old curve for the purposes of this video and the reason reason why the the long and deal curve is important is because when it really starts to move up it can take the wind out of the sales of risk assets right it can it can really take the wind out of the sales if you're not familiar with what I'm talking about if you were to Simply overlay Bitcoin onto the chart of the yield curve what you'll notice is that when the 10year yield was getting this major move up from you know 1% basically all the way up to 4% that was mostly when Bitcoin was going through its typical bare Market in the midterm year right you got a bare Market in 2014 2018 and 2022 there's always a reason right there's always a reason uh you could blame it on on FTX you could blame it on any number of other companies going down right blame it on anything you could blame it on the 10year year the 10year yield going up there's always reason right but that's not really what's important if you look closely though you'll see that once the 10-year yield found this top here even though it wasn't the top it was a majority of this move right the 10year yield went to about 4. 3% by by you know the end of 2022 October of 2022 and it's true that it did ultimately go up to about 5% a year later a majority of the move by the 10year yield was over by this point and ever since then it's been trying to slowly chop a little bit higher but it hasn't really gone that much higher so when the 10-year yield tops Bitcoin finds the bottom and as long as the 10-year yield was going down Bitcoin was going up but what you'll notice is that when the 10year yield started this move here right when it started this move here initially Bitcoin sold off right you see that Bitcoin sold off on this bottom of the 10-year yield the 10year yield started going up Bitcoin actually popped up a little bit right there but as the 10year continued to go up it took the wind out of the sales for Bitcoin right and it and Bitcoin eventually came back down okay and and you can actually see something h something very very similar happened again last year uh not to the same extent though uh but as the 10-year yield was starting to go back up here you can see that Bitcoin started to to sell off a little bit okay so I I think the argument is this right if 10year yield goes up too much then it can take the wind out of the sales temporarily I'll show you you know I'll show you what I'm talking about here as it relates to the S&P 500 as well let's zoom in the initial move by the 10-year yield uh back over here didn't really mean a whole lot okay so if you look at the 10year yield as it sort of bottomed out in March of 2023 and it started to go up into April of 2023 Bitcoin didn't really care right it didn't in fact if you were to Overlay the S&P 500 onto that chart what you'll notice is that the S&P you know essentially had had had no problem going up as the 10year yield was going up because the understanding was that there could there's a chance that it's just rejected by this trend line right and initially it was for about a month but then it broke out and then it came back down tested the 21 we EMA as support and then on that test of support the S&P 00 got this correction right there okay and as the S&P dropped here the 10year yield was going up do you see that right so as the after the longin broke out and back tested support corresponding with the 21 we EMA it boun the 10e yield bounced up the S&P sold off and then the S&P 500 bottom it bottomed after the 10year yield toed do you see it it's pretty clear okay it's pretty clear what happened back then and so what we're faced with today over the last few weeks we saw it start it started in December we saw something very very similar right you can see that kind of like 2023 in fact right it's almost identical 2023 you had these lower highs right the third lower high the 10 year yeld broke through and that's when the S&P sold off now you're probably like well isn't this video about Bitcoin it is but Bitcoin you know if the S&P is going up bitcoin's usually going up if bitcoin's going down the S&P is usually going down at least that's normally what happens there are times when it deviates uh but that's usually what happens um in fact you could actually look at at some sometimes sort of the middle of last year when Bitcoin was putting in lower highs the S&P was not but that was very similar to 2019 as well the same the same year that we got rate or the same part of the cycle we got rate Cuts last last time so here you can see the same structure right one two third times the charm then it broke out right and then after it broke out it then came back down back tested the 21 we EMA as support that's exactly what the 10e yield did right there in July 2023 and when it back tested that and found support the 10-year yield got a big move up just like it did in 2023 you see that and you could argue that the the the the stalling the stalling out on the S&P 500 so far is mostly just due to the 10year yield going up now here's the interesting thing right this is the sort of the fascinating thing about it is that you might assume right you might assume that the 10-year yield going up does does that mean the economy is slowing down right absolutely not right that's not I mean it could lead to that but in fact the longin going up means the exact opposite right it means the opposite it it actually means that the economy has been doing okay because if the economy were not doing okay the long end of the O curve would be falling off a cliff right I mean in fact if you look at at at when recessions occur right if you look at when recessions occur normally they occur as the 10e you know sort you know as they as they come in like the 10year yield is dropping right during recessions not going up so I think the argument here is that you know a lot of people sort of see risk asset selling off and they're like why is it selling off right you know what's going on we had some labor market data today right that came in and and it actually came in it was sort of a mixed bag and we we'll go through it more on Friday after we have all the data but just just to kind of give you a heads up um we had a few things come in today right we had hirers uh which came in uh you know it dropped again so that's not really good to see but job openings actually went up right if you look at job openings job openings actually went a little bit higher so that's a good thing to see and one again I I don't really have a strong conviction on this so don't hold it against me in six months but one thing to consider is that the FED began raising rates I believe in March of 2022 that's when job openings topped the FED began they they they ended or sorry they they they had their first rate cut I believe it was in September of 2024 and you can see that's actually so far when job openings bottomed okay so you could argue well you know if if job openings is bouncing here right why is the market selling off well I I think the issue right I think the issue right now is that the Fed was unwilling to potentially keep rates as high as they should have for as long as they should have and you could argue that the bond market is revolting right and the bond market is essentially trying to accomplish what the FED is unwilling to do okay because the FED does not control the long end of the Y curve right they control the short end if you look at at at the short end of the Y curve you can see that you know the the one month yield is 4. 3% Right which is just below 4.

5% % right that's the the the current uh Fed fundes rate so the FED controls the short end not the long end and you can see that because ever since the FED cut rates right even the two-year yield has gone up right the FED cut rates right here in September and ever since they cut the two-year yield went up now we talked about this you see this Arrow we drew this arrow in September and I said guys you know until initial claims are printed 300K there's no reason to assume that the 2-year yield is going to be breaking down so if initial claims are still so low then what the hell is the 10 year or the two-year yield doing it 3 and a half% doesn't make any sense so the only direction for the two-year yield to go was up and the FED controls less and less of the yield curve as you get further out onto it and and let me explain what I mean so at at any given point the market is sort of weighing you know a couple of different outcomes a few different outcomes but the two most prevalent narratives in this cycle are is the labor market still doing okay and is inflation going to come back those are the two things that the market is concerned about arguably the most right now as I've said initial claims are low right I mean I look guys I get it job openings are are back to pre-pandemic levels job quits are as low as they've been you know since since 2015 so it seems like the labor market is struggling but here's the thing looks can be deceiving in some ways if you look at layoffs they're still relatively low right they're only just now getting back to where they were pre pandemic if you look at initial claims they're still relatively low right I mean they're 211,000 right that's relatively it's a relatively small number for initial claims you know that that's a really small number for initial claims in fact you'd be hard pressed to find that many times in history where it was lower than that okay that doesn't mean it can't change but the point is that if initial claims are low and and the unemployment rate is low then the market is going to sort of dismiss the labor market weakness that is perceived because while it's true that highers are down and it's true that quits are down it's that's all true but until companies actually start laying people off then the market will climb the wall of worry right and so when you look at at something like the unemployment rate right when you look at the unemployment rate it has been going up right it has been going up but the reason it's been the main reason it's been going up is not because of layoffs right the main reason it's going up is because of an expanding labor force and you know that because you can you can actually go over to the um to the unemployment level by reason for unemployment right and you can see that yeah like people are losing their jobs you can see they've been losing their jobs but this is not a parabolic rally by job losers right look at the dot recession look at the financial crisis those are parabolic rallies by job L that's that's recession right that is when you get a recession when it when it goes up in an uncontrolled way this here is mostly controlled right this is what the FED wanted to happen they wanted to loosen up the labor market and the reason is because of wage inflation right wage inflation contributes a significant amount to just the overall inflationary pressures so what is causing the unemployment rate to go up mostly it's because I'm glad you asked right new entrance to the labor force look at that that has been going up a lot and why is it going up because a lot of people aren't hiring anyone so it's a hard Market to get a job but it's not as hard of a market to keep a job right if you have a job it's a lot easier to keep it than it has been in a long time or at least I mean it's it's about the same as it has been the last few years but to compareed to say like 15 years ago it's so much easier to keep the job and it has been over the last couple years than you know 15 years ago so people aren't really getting laid off as quickly it's that new people coming into the market are having a TR are having a hard time finding a job and you could argue that the people that really you know have the most the biggest effect on where the stock market goes are not the new people into the labor market that are just starting off and and are looking to build their wealth it's the people that have been in the stock market for years and decades that have wealth and they've accumulated it and those are the people that are they still have their jobs right and they're still doing okay so I think that is kind of the thing here so when you think about like why is Bitcoin going down you know is it because the economy is is slowing down is it because of something else if you look at like the 10-year yield and you're watching the 10-year yield go up the fact that it's going up means the economy is still doing okay today because if the economy were not doing okay the 10-year yield will be going down the reason it's going up is because we might see or it's the the market is worried about the potential re acceleration of inflation so the headlines today were job openings and whatnot but I'll tell you what I actually don't really think the job openings had a strong impact on on the yield curve today I think what really it was again it's a narrative for everything so exactly what I'm about to say just completely ignore it but if I had to get yes I would say that the reason the 10e yield is going up is not so much because of job openings right I mean who really cares if job openings is at 8 million versus 7. 8 right it's not really that big of a deal and any you know regardless the difference is probably going to get revised away in a couple of months anyways I think the reason it's going up is because of this the ism Services prices paid had a big move up in December of 2024 you see that the the actual value that came in and this is you know this is going to contribute to inflation obviously this is prices paid 64. 4 last month it was only 58.

2 and the the forecast was only 57 a half so it completely blew the expectations out of the water right I mean it it was a lot higher I think the Counterpoint is that there was also a kind of a a move up last year around this time right so maybe it's just repeating that but this print by the ism services prices paid it hasn't been that high since February of 2023 February of 2023 so I think what's going on is you know the Market's obviously looking at the labor market and seeing that you know it's loosened up a lot and it's probably going to continue to loosen up over the next 6 to 12 months but the reason the long end of the old curve is going up potentially is because the Market's like well what if inflation comes back and it's not like right now my base case is not a second wave of inflation and not at least not immediately and then not to the same extent that we had here in 2022 that doesn't mean you can eventually get one right you could get one maybe in 2026 you know if you look at the 1970s the first Peak was in February of 70 1970 the second Peak was you know almost 5 years later I mean it was December of 1974 but that's only 3 months away from being 5 years later to give you an idea 5 years after that Peak would put you out in say you know 2027 okay and then from this peak to the next one it was from 74 the end of 74 to 1980 right so that was like six years okay so but I but here's the thing I I think the market is wondering if you look here in 1972 the the the infl headline inflation actually bottomed out in the summer and then it started going up and then once you got into the postelection year inflation surged and you ended up getting a left translated cycle normally you get right translated Cycles where the market goes up for three years and drops for one right here's a good example of one 1962 right but you can see the market went up for a long time 1962 to 1965 and then in 1966 it dropped so you had a a three-year bull market and then a one-year bear but then the next cycle you had a 2-year bull market and then a 2-year bear and then the cycle after that you had a two-year bull market and then a 2-year bear so you had a right translated cycle and then you had two left translated Cycles with crypto we've only ever known right translated Cycles right that's all we've ever known right if you go look at at Bitcoin every single bull market that it's had in history has been a right translated cycle right I mean every single one and hopefully that's what we get again right hope for the best plan for the worst right but hope that it plays out like it usually does where you get a sort of a three-year bull market and then a one-year bear and then a three-year bull and a one-year bear three-year bull one-ear bear hopefully we get another three-year bull but that doesn't mean even if you do get a three-year bull market that doesn't mean you won't have people questioning it and you could always have a left translated cycle right I mean if you look at at you know back over here the S&P topped out in you know in December November December of the election year and then the following cycle after that it topped out in January of the post election year so right around this time so again I'm not saying it's going to play out like that what I'm saying is that whether it plays out like that or not you're going to have some people questioning whether it's going to play out like that so that could be where some of the the the worry is coming from is is inflation actually reaccelerating because that's when it started to re accelerate in 1972 was going into the post election year and if inflation re accelerates then the market sells off right the market sells off but I'll tell you what I I'll tell you the reason why I don't think we're going to see inflation accelerate the exact same way it did in the 1970s I'll tell you why the reason is because if we go over to the workbench right and we look at at say like the unemployment rate and let's just remove everything else um there's the unemployment rate if you overlay onto this chart if you overlay um in inflation headline inflation you'll notice that in the 1970s when the unemployment rate or sorry when inflation was going when inflation was going um up right this purple line as it was going up the unemployment rate was going down right you see that the unemployment rate was going down as the as inflation was going up but this cycle we're not seeing that right we're seeing inflation come down but the unemployment rate is already going out right the unemployment rate is not going down if the unemployment rate were going down right now I'd be a little bit more concerned about inflation reaccelerating because of wage inflation if people are getting paid more they're going to go then you know spend more on on goods and services right but if they're you know if if if the unemployment rate is is going up then it's going to reduce wage inflation Powell even said that if you do see inflation accelerate it's probably not going to really come from the labor market at this point because the labor market has loosened up so much so I'm not as concerned about an exact rep to the 1970s right now because in the 1970s when inflation started to go back up it was when the unemployment rate was going down but we're not seeing that right we're seeing the unemployment rate go up while inflation goes down so my point is that this this increase in prices paid it could just be a fluke like last year it could be more than that but the problem is that the market at this point in time cannot know if it's a fluke or not and so when you have job openings coming in a little bit hot and you have you know some worrying inflation signals especially at the same time they got in the 1970s it'd makees sense for the market to at least make the question or ask the question did the FED cut too soon and it's possible they did but you could also argue that that we're only going to know in a few years right it's certainly possible that the FED is cutting exactly when they needed to cut I think there's this sort of this this idea that a lot of people have that like the FED can't cut if the markets at an alltime high but you know the FED isn't trying necessarily to crash the market to then start cutting right ideally they would cut before the market crashes let me give you an example if you go look at the S&P in 1990 very similar cycle by with rates actually if you go look at at interest rates what's interesting is the Fed also raised rates you know back over here to five and a half or sorry here they they initially raised to six but then they dropped them down here they were five and a half and then they dropped them right and the reason I'm saying five and a half is because that's exactly where they've been for a little while right here you see that rates here were at the same as rates here and then they lowered rates to 4. 75 which we just saw the FED lower rates to 4. 5 so the FED actually lowered them do you know what actually caused the FED to lower rates right here you see that cut you see that aggressive cut by the FED what was that well I think I know what it was because if you look at the S&P divided M2 you can see exactly what it was and you can see it on the S&P chart too but I like this chart a little bit better look at this you see where the S&P divided M2 is right now it's the same level it was at in 1998 you see that that was not the top of the market right but it did precede a sort of a flash sort of a flash crash down but again back then the FED cut after the market dropped Now The fed's Cutting to hopefully prevent something like that from happening now who knows if they'll be successful or not but that's what I'm talking about right that's what I'm talking about the FED they're not they're trying to learn from their mistakes and not make all the same mistakes that they previously did but there's always a chance that the market just goes through this whole process again right it you know it it sort of went up it came back down and it just did this and then eventually you know you got a recession after years and years and years but again I think you have to at least consider that the reason Bitcoin is dropping today is is because the market is potentially worried about inflation and and other and you know and the labor market data now there's a lot more labor market data to come out this week so you know the moves you see by Bitcoin today could completely change by the the end of the week right completely they could completely change by the end of the week but my point is if you're trying to assign a narrative to something and you're like what's going on like why is the market doing this I think those are the things that you have to consider right now it is true that when the tenure yield goes up it's a reflection of a strong economy because if if because again if it's going up it means it's starting to worry about inflation more than the labor market if it worried about the labor market the 10year Y will be going down but because it's going up it's not concerned about Labor right now it's more concerned about inflation but again on Friday if the unemployment rate comes in hot at like 4.

3 or 4. 4 then the market might be concerned about the labor market again it can flip-flop right we're chasing narratives but there is some truth to the idea that the 10-year yield going up can cause can eventually cause the labor market to really slow down right it can lead to to layoffs um like imagine the housing market right so people have been waiting forever to buy a house because they want to see rates come down they thought that when the FED would cut rates would come down the FED cut rates went up right so that slows down parts of the economy as long as rates stay high so the 10e yeld going up actually means the economy is doing okay but the longer it goes up it could change that risk right you know if the 10 year y old were to keep on rallying it could eventually lead to something else now I've talked a lot about the 10-year yield potentially topping in q1 of 2025 that's been my base case right and one of the things to consider is that it actually topped out the the 10e yield uh found a a um a short-term top anyways in in sort of early 2017 right you can see that the 10e yield here rallied into 2017 then it topped after sweeping that high and then it came back down for about a year before then going up even higher you see that so you could get a scenario like that where you basically see the same thing happen where it potentially sweeps this high right like that high right there just kind of like that's what it did over here you see this high this high was put in in June of 2015 that high right there April 2024 there's also this High October 2023 so maybe it even goes up and sleeps that High um but I wouldn't be surprised if like the market plays out in a way that you know it it kind of sweeps either this high or the high up here right one of those two highs it then goes down for a little while during that period you get some type of scare growth scare that makes the 10e yeld go down right because again the way to make the 10e go down is for the market to get more concerned about growth than inflation and if the market if something Spooks the market let's say you get a bad labor market print sometime you know in the next few months that could cause the 10-year yield to go down but that would actually likely introduce reintroduce quantitative easing and that could be one of the final levers that they pull to try to keep the party going as long as they can um because again back over here in the 2016 2017 cycle right the 10- year yield went up it then went down for you know about a year that is when Bitcoin dominance went down when the 10-year yield finally started to go down but then after you know three or four quarters uh um you know we kind of had to accept that the 10e Y was actually going to go higher and then crypto entered into a bare Market in 2018 so you know if it were to play out like the last cycle then you know you could get a growth Scare at some or two cycles ago you could get a growth scare somewhere that makes the 10-year yield go down and I think the 10e yield would likely put in a top in q1 that's my guess and that something will happen to make the 10-year yield drop something will happen we'll get a bad data Point somewhere and then the market will then become more concerned about the labor market than inflation but I don't know exactly when and I don't know what it's going to be but I'm going to guess it's either going to sweep this high and drop or sweep that high and drop and then drop for maybe the rest of the year and then in 2026 maybe it it actually goes up again or if you get a recession it could drop a lot right so but again that that larger drop or that larger move up might not actually occur until 2026 right sort of another leg higher and and you can kind of see what I'm talking about because the structure is somewhat similar right you have this High over here but then you have sort of some shorter highs some lower highs um so if it were to play out like 2016 you know maybe it sweeps these highs comes down for a little while and then in 2026 maybe it sweeps those Highs but again that would be against the idea of a recession if you get a recession the 10year yield has no business being at 5% if you get a recession the 10 you would likely be down here but I think that's what's happening right so it's kind of a weird position to be in because like you know you don't really want to see a bad labor market print like you don't want the unemployment rate to go up you want things to look okay so that Bitcoin can go up but we're kind of at that weird period where like good news is bad news in a way like you know it's a good thing to see job openings go up right it's a good thing to see that stuff but you know it also could be the bond Market's way of revolting and saying yeah like it's good but why is the Fed cut 100 basis points when you know inflation necessarily isn't back at their target yet and you know it's not clear that it's going to get back there in the short term again it's no one actually knows who's right right I mean the mark you know Market participants are doing the best they can no one knows sort of the exactly the right answer exactly the right thing to do but the point is that any given point in time the market will weigh you know the things that it's sure of and then that's what determines the price and right now the market seems a little worried about growth uh re accelerating which again isn't a bad thing in and of itself but I think the question the bond market is asking is if growth is doing so well which it has been right and if layoffs and if initial claims are so low then why is the Fed cutting so much again I don't blame the flat I don't I don't blame the FED at all they're probably doing the right thing right they probably are and again I I think a lot of a lot of people need to get out of the mindset that you know better than than than they they do okay a lot of people on crypto Twitter like we're all armchair economists including myself and we said here all high and mighty and try to pretend like you know we could do things better but the reality is is is it's a lot more complicated than that it really is and and a lot of people think they're experts in things that they're not and the more you study something the more you realize you don't know about it right um you know when I went to grad school you know you go into it you feel like you know a lot you go to grad school you study one very specific topic for five years and then you realize you don't actually know anything right because you you spend all this time studying one tiny tiny topic and like well you could study that about anything in the world but yet so many people are so convinced that they're an expert on it but they're not right the only thing the only thing I would consider myself an expert at is not even really crypto I would say I I I'm an expert um on on molecular Dynamic simulations of radiation damage in Ceramics and Inu transmission electr microscopy and the reason is because that's what my dissertation was on right but this other stuff right it's I mean it's dubious speculation no one actually knows what's going to happen we're all just doing the best we can so those are my views on the market um again expect a lot of volatility over the next few days as more that labor market data comes in if you go over here to the website we have a macro dashboard you can see what came in today right job openings job quits highers layoffs and discharges and High house price prices increase reduce count whatever the hell that is um Wednesday not a whole lot coming in we do have non-farm private payroll I believe that's the ADP uh coming in tomorrow yeah the automatic data processing research in so that's going to be coming in tomorrow um so look for that headline Thursday you don't really have a whole lot other than initial claims and continued claims Friday is the big day right Friday is the big day you got average hourly earnings you got um the unemployment rate um the Su Ru recession indicator which is just an you know derivative Bas or an artifact of the unemployment rate Help Services um you know etc etc etc so that's where we are that's what I think is going on the market that's why I think the market is currently weighing and trying to figure out you know what's actually going on if you see sort of like a a labor market print that allows the tenure to drop it could be a good thing or a bad thing depending on how bad it is right if it's if it's just like a little worrying and it's enough to kind of stall out the rally of the 10-year yield then risk assets can probably do okay because again remember in 2023 and and even in 2022 when the 10year topped that's when risk ass bottomed you could reach a point where the 10e tops for the wrong reason but hopefully whenever the tenure does top it comes back down for a slightly worrying thing but not overly worrying it bounces again and then maybe then we finally accept all right it's time to deal with the consequences of all these of all these rate hikes but again it's a long process the business cycle takes years to play out we're all just doing the best we can thank you guys for tuning in make sure you subscribe give a thumbs up again check out the sale on ITC premium I into the.