Something Weird Is Happening With Bitcoin

🤔 Something weird is happening with Bitcoin.

While macro data is showing an unfavorable environment for risk assets — due to the cooling of credit conditions by the Fed and developed economies, together with increasing exogenous inflation coming from the supply side — the most liquidity-sensitive asset is showing strength around $77,000 after the rally of the previous weeks.

The Fed's message

Yesterday was the Fed's interest rate decision, where Kevin Warsh pointed out how the economy remains relatively strong, something that supports the thesis of further rate hikes.

However, as I mentioned a few days ago in a post, this inflation cannot be solved simply through monetary policy. Further rate hikes would have a direct impact on the incentives to accumulate risk assets, as fixed income would become more attractive for large players.

What bond yields are pricing in

Let's not forget nominal bond yields, which are pricing in uncontrolled inflation and demanding higher returns from fixed income. This would put pressure on corporate valuations by increasing the discount rate, where growth companies will suffer the most.

This is also happening alongside the latest news around AI, which is showing some signs of exhaustion in terms of innovation until companies can generate more profits. This puts the supposed AI bubble into question.

But Bitcoin doesn't seem to care

In the middle of this scenario, Bitcoin seems not to care. Not even the possibility of a stronger dollar, or oil trading around $100, seems to be stopping it.

That said, it makes me think that perhaps the storm could be passing in the short term. Oil has found strong resistance around $100, US 10-year yields are around 5%, and the conflicts in the Middle East may already be priced in.

It would not surprise me, especially considering that the volatility index remains relatively low given everything we currently have on the table.

Conclusion

Maybe the market is already pricing in part of the storm.

Or maybe Bitcoin is simply showing us something that the macro data has not yet captured.

Thanks for reading — feel free to reach out: marcaliagaborras@gmail.com