A Very Macro Christmas
Disclaimer: Your capital is at risk. This is not investment advice.
ByteFolio Issue 139;
The US dollar is surging, driven by a hawkish Fed.
US Dollar Index
Behind that move is a message from the Fed that while they cut interest rates by 0.25% to 4.5%, future rate cuts would slow. Expectations were for 3.5% in two years’ time and falling. That gave financial markets something to look forward to, but it has instead risen to 4%. Monetary policy will remain tighter for longer, which is good for the US dollar but less so for Bitcoin.
US Two-Year Interest Rate Expectations
Consider 2024 for US equities, where the love didn’t spread far beyond Big Tech. In crypto, Bitcoin led the market, with dominance growing from 49.9% on 1 January to 57.5% today. 2024 has been Bitcoin’s year, with alts left behind. There’s also the global M2 money supply, which has remained weak since 2021. It sits at odds with buoyant asset markets but does help to explain the weak breadth in crypto tokens.
G20 M2 Money Supply
Some people believe the money supply drives inflation, and that would indicate that Fed policy is way too tight. Inflation indicators are soft these days, with only wages holding out. Perhaps the Fed is overstating the inflation risk.
US Inflation Expectations – 10-year
Bitcoin clearly responds to the money supply, as I show it overlaid. The price may be just under $100k (again), but that isn’t a substantial gain over four years by historical standards. In 2025, Bitcoiners will be wishing the central banks to create more money.
Bitcoin and the Money Supply
The Bitcoin price has eased back below $100k. This level has become a nuisance, and it may keep on coming. The 30-day moving average has turned negative, and the price is below it, making Bitcoin a 3-star trend for the first time since the summer.
Bitcoin 3-star Trend Score
This is despite continued strong fund flows into the ETFs, which have seen 429,527 BTC added this year. That’s nearly twice as much as Saylor’s MicroStrategy (MSTR), which managed to accumulate 249,850 BTC.
Global Bitcoin ETF Inflows
With the block reward at 450 BTC per day, or 162,250 BTC per year, you might think the price would have seen an almighty squeeze, but it hasn’t. Bitcoin has doubled this year, which is great, but considering the billions of dollars of inflows, plus halving in May, it might have done more.
Still, it has been a good year, and Bitcoin is a proper asset these days, with an established and highly liquid market. For a Happy Macro Christmas thought for 2025, the Fed will be kicked where it hurts by the impending Trump administration, post-inauguration on 20 January. That may see the dollar ease, and lower rates follow. One thing to remember about Trump is that he’s a property tycoon, and they like nothing more than cheap money.
There’s also a happy thought from the blockchain. The numbers of dollars flowing through it are big, and although this model lags, the numbers are on the right side of the price. That’s bullish.
Bitcoin Network Value in 2024
From the Team at ByteTree, we wish you a very Happy Christmas and New Year. See you again on Monday, 6 January.
