GM. This is Milk Road, the crypto newsletter that's the magnifying glass for the fine print of crypto news.
Hereโs what weโve got for you today:
- โ๏ธ Everything's lining up. Nobody cares.
- ๐๏ธ The Milk Road Show: The Bitcoin Setup Nobody Wants to Believe.
- ๐ช Gold rallied despite positive real rates...
Prices as of 2:00 p.m. ET. Powered by CoinGecko.
MONDAY HUDDLE: EVERYTHING'S LINING UP AND NOBODY CARES
Every Monday the team gets on a call to argue about the week ahead. As always, you're getting the written breakdown.
This week the argument had a theme:
The macro setup looks to be turning in crypto's favor, and the market can't be bothered to show up for it.
Letโs start with the jobs report, which John opened by calling "bad, which is good"...
The U.S. shed 23,000 jobs in July, while economists had penciled in a gain of around 80,000.
Headline unemployment still fell, from 4.2% down to 4.1%, but thatโs because 264,000 people stopped looking for work altogether.
Meanwhile, labor force participation slid to 61.4%, the lowest since early 2021.
Traders took all of the above as good news, on the logic that a soft jobs market makes it harder for the Fed to hike rates (which would restrict the flow of fresh cash entering risk assets, like crypto).
I asked John whether we're back to the Fed being pinned between inflation on one side and unemployment on the other.
His response: inflation hasn't blown out, the labor market has softened without breaking, and both are drifting the wrong way at the same pace. So the Fed will likely sit still and wait to see which one goes first.
Right now, rates are standing still at 3.50-3.75%, but the bets behind them have traveled a long way this yearโฆ
- Markets initially expected cuts.
- Then the Iran war pushed energy prices up and folks flipped to expecting three hikes.
- Now it's down to roughly one hike expected for the year.
But John doesn't think that hike will arriveโฆ
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MONDAY HUDDLE: EVERYTHING'S LINING UP AND NOBODY CARES
The new Fed chair, Kevin Warsh, has five task forces reviewing how the Fed reads inflation, jobs, its own data and its balance sheet.
John expects one of those task forces comes back hawkish (arguing for higher rates), while the rest come back dovish (arguing for lower ones), giving Warsh the data-backed coverage he needs to justify a cut.
Which brings us to the part where I got told offโฆ
I suggested the timeline was lining up with the crypto cycle: cuts by early next year, crypto starts turning around, everything rhymes with the good old-fashioned 4-year cycle...
But John didnโt accept the premise.
There's a liquidity cycle and a business cycle that drive markets.
Liquidity (fresh cash) enters the market โ this finds its way into the economy โ businesses grow as a result (pushing the business cycle up).
Crypto rides both, but the two have recently fallen out of step. Liquidity was rising but is now pausing, while the business cycle we should have had a year ago is only turning up now.
His worry is that everyone's confident about a four-year pattern in crypto, while being incurious about what drives it. Crypto has never traded through a cycle this stretched.
Bitcoin is his evidence. Itโs currently stuck in the mid-60s (and has been for weeks).
He thinks we could see a failed run at the $72K resistance level, with the CLARITY Actโs delayed vote being what eventually holds BTC back from breaking through that level.
(Odds of CLARITY passing this year are down to around 27% right now.) ๐
But the case to be made to the upside is contained inside the same argument.
If enough people believe the four-year cycle, they'll want a full position built before October, and there isn't much weak-handed Bitcoin at current levels.
All of which makes the trade more appealing to investors, because it asks nothing of them:
Buy before the turn โ hold three years โ stop thinking.
And if that's the plan everybody runs with, most of the buying will likely happen in the same span of weeks.
Restricted supply + short/sharp/focused increase in demand = number go up.
(Weโll take it!)
BITE-SIZED COOKIES FOR THE ROAD ๐ช
Lyn Alden: Gold rallied despite positive real rates... that's supposed to be impossible. Fiscal dominance broke the old rulebook.
Kyle Reidhead: Hate to see this! Retail is selling stocks at highest rate in years, as the market rips to ATHs. Here's my best advice for retail Investors in these marketsโฆ
Raoul Pal: The AI CapEx boom may be the only thing holding the broader economy together.
MILKY MEMES ๐คฃ
ROADIE REVIEW OF THE DAY ๐ฅ
VITALIK PIC OF THE DAY
