Welcome to TBL Weekly #103—the free weekly newsletter that keeps you in the know across bitcoin, rates, risk, and macro. Grab a coffee, and let’s dive in.
Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk. Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys. Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account. Good morning TBL Readers, happy Saturday ☕ Wow. History was made in Nashville this weekend as two of the three leading presidential candidates outlined their tentative bitcoin policies; both of which included a framework for the formal creation of a national Bitcoin reserve at the US Treasury. We repeat: Donald Trump intends to direct the United States Treasury to formally adopt bitcoin as a Treasury reserve asset, using the 207,189 bitcoin accumulated by the US Department of Justice through criminal seizures as a base. This is a monumental development. The former and likely future leader of the world’s largest balance sheet just said that bitcoin has a place in it. The geopolitical implications of this announcement are sprawling. In New Hampshire of 1944, the Bretton Woods Conference declared USD the center of global commerce. Given the explosion of the world economy since then and the sheer need for dollars, other countries follow the lead of the United States’ fiscal and monetary policy. Carefully managed currency strength relative to the dollar is crucial for the health and economic well-being of other nations. In the same way, adopting a formalized framework for holding bitcoin in reserve at our Treasury department would likely cause other countries to do the same. A global Bitcoin accumulation game. The breakdown of Trump’s bitcoin framework is as follows:
Perhaps the most important component that flew under the radar was Trump’s vow to embrace stablecoins to further assert US dollar dominance. A core tenet of our BTC and global macro framework here at TBL posits that bitcoin and the US dollar are not competitors, they’re complementary. US Treasuries and the US dollar are at the center of the monetary universe—bitcoin exists as an asset within that universe that one day will be held alongside US Treasuries as a reserve asset outside of the US. Global base-layer reserve assets serving as pristine collateral, each with their own quirks. Stepping back to the implications of Trump’s Strategic National Bitcoin Stockpile (we think ‘Stackpile’ would sound cooler), it will serve as an internal hedge against the US Treasury’s fiscal irresponsibility. Senator Cynthia Lummis, friend of TBL, said that the plan of accumulating 1 million BTC over five years, outlined in the bill for a strategic bitcoin reserve presented just after Trump’s keynote, would be aimed primarily at reducing the US national debt. The bill requires the purchased bitcoin to be held for a minimum of 20 years, hedging against the increase and acceleration of the national debt with the price appreciation bitcoin will experience over that same period: Bitcoin will complement the US dollar and serve as an internal hedge against the US Treasury’s fiscal irresponsibility and the Fed’s monetary bazooka that seems to inexplicably set off every few years. Bitcoin joining the ranks of US Treasuries and gold on a potential Trump administration’s Treasury balance sheet is the biggest development yet in bitcoin’s gradual correlation shift from risk-on Nasdaq beta to the apex risk-off asset that its properties allow it to be. The US Treasury curve is finally bull steepening at breakneck speed. While we’ve had two or three big fakeouts this cycle, but given the timing of September rate cuts, this finally feels like the one where the curve normalizes. How come? Growth concerns are rising. Where there was once panic about sticky inflation, hesitations over swift disinflation teetering into deflation are taking their place. As such, the long end is finally coming down, and the front end is coming down faster since the Fed will pre-announce cutting rates beginning next week in response to this very same slowdown and accelerating disinflation concerns. The whole curve is normalizing as banks breathe a sigh of relief:
The Nasdaq dropped 8% this week in a typical mid-bull market correction. The size of the move is on par with others this cycle. Given already intact bullish sentiment, Treasury’s drunkard bill issuance schedule, risk-on impulse from upcoming maintenance cuts, and RSI at fully reset, it seems like the Nasdaq has puked all of the sellers out of its system and the party might resume:
With the Fed in full focus next week, it’s important once again to highlight where FOMC members’ heads are at this stage in the cycle. They have shifted their focus from fears of sticky inflation to fears of cracks in the labor market. Remember: full employment is their mandate as much as stable prices are. Now that they have nearly achieved a return to the 2% annual pace of CPI inflation, cuts are coming to mitigate risks of overtightening that could cause disinflation to accelerate too quickly, the labor market slowdown to accelerate too quickly, or both to occur. The Fed feels that it has done enough—now, the balance of risks is skewed towards doing too much. All eyes are on Jerome Powell and his wording. You know we’ll be watching.
Next Week with NikIn the week ahead, the most important moment will be delivered when the FOMC statement indicates that the following meeting should bring the first rate cut of the cycle. We’re not sure exactly how they’ll phrase it—perhaps something around the “balance of risks” that sets the tone for the September cut. Remember that because the Fed is doing nothing on policy rates, the statement can’t directly indicate any large slowdown yet. It can, however, show the markets that it has started to feel more confident on the path of inflation, or that it’s time to relieve some of the restriction in place. We remind readers that the Fed won’t claim it is “easing” policy, only that it is making policy “less restrictive.” Powell’s presser will be fun—we’ll play our usual drinking game (sparkling water or iced tea, these things happen at 11:30am on the West Coast) while listening for the buzzwords that will ring the bell for every TBL narrative:
We understand that FOMC press conferences are not everybody’s favorite moment of the macroeconomic calendar, but our job is to read between the lines so that we can comfortably predict the Fed’s actions over the next three-ish months. So that you’re never surprised by CNBC headlines. Powell’s extravaganza on Wednesday is far from the only main event next week—it should be an exciting one. We also will receive the latest US Treasury funding plans, from which we expect the Treasury to somewhat keep a lid on long-term issuance, which should bring back T-bill issuance growth. Over the past few years, T-bill supply has heavily impacted money markets: as T-bills come into the market, yields rise and have the potential to pull funds away from other places that need them. For example, when T-bills get funded, the Treasury receives money from money market funds. These MMFs pull funds from repo with dealers, leaving dealers in a fight with the government for money. On the other side of the equation, T-bills lead to new money in the system, giving a boost to liquidity and therefore asset prices. We’ll watch for any material changes with the Treasury’s plans as well as the price action. Of late, Treasuries have been experiencing a very strong bull wave—let’s see if the QRA keeps it going by limiting the new supply of long-term bonds. Finally, the unemployment rate refreshes on Friday. With last month’s rate at 4.1% and this month’s also expected to land there, I want to bring something to your attention. With the FOMC meeting on Wednesday, we have understood in the past that when the unemployment rate release is right after the Fed meets (as it is next week), the FOMC learns about the number early which possibly can affect the language of the statement. If we hear something very dovish from the Fed on the path of rate cuts on Wednesday, it might mean that they saw something to be released on Friday, such as an unemployment rate of 4.2%. We have noted how labor market data has caught up with headlines of mass layoffs across the country—it is our expectation for the unemployment rate to reach several tenths of a percent higher, causing the Fed to bring policy rates back to less than 4% by the end of next year. At least. If that wasn’t enough, Thursday will also bring us ISM manufacturing and updated unemployment claims—setting up for an eventful Global Macro Update across YouTube and our podcast platforms on Friday.
If you’re enjoying today’s analysis, consider supporting us by joining TBL Pro. As a TBL Pro member, you get full access to all research as it drops, access to the comment section, and access to Nik & Joe for a live Q&A every month. Four days left to lock in your lifetime price before we raise prices to $499/year! Here are some quick links to all the TBL content you may have missed this week: MondayBitcoin continues to charge ahead after its first near-30% correction this cycle. Understand our risk outlook in today’s Mean, Median, Mode—a weekly quantitative report summarizing bitcoin price analysis and global macro narratives to position investors and bitcoin watchers with the data that matters. Don’t forget to register for our next Virtual Q&A, scheduled for this Thursday, July 25th—link for July’s Zoom is included. TuesdayIn this episode, Joe brings us a bitcoin update. We discuss bitcoin's resilience after the most eventful 2-week period in modern history, a remarkable $500-million inflow to BlackRock's bitcoin ETF on Monday, and more. He also discusses BlackRock and Fidelity taking 4th and 8th place in YTD inflows across all ETFs in US markets. With unprecedented demand from Wall Street and credit spreads still at cycle lows, all signals suggest that the bulk of bitcoin's bull run still has yet to begin. Check out—Bitcoin Update: $500 Million from BlackRock, 27% SPIKE in 2 Weeks, Credit Spread Analysis  WednesdayIn this episode, Nik is joined again by on-chain and bitcoin analyst Checkmate for a markets overview. The pair discuss bitcoin's 28% correction and recovery, ETF inflows, the basis trade across CME, Binance, spot exchanges, and ETFs, as well as the maturation of bitcoin's market structure. Checkmate concludes that bitcoin exhibits textbook demand through established limit orders. Check out—Bitcoin Price: "This Is EXACTLY What You Want To See" with Checkmate  ThursdayIt’s Thinking time! This week we cover the little glitch that caused big problems, slowing growth in luxury goods, and China’s secretive supercomputing prowess. TBL Thinks is our way to summarize the most important paywalled, longer reads relevant to global macroeconomics, helping you cut through the noise. With that in mind, please enjoy.
FridayThis week, Canada cut rates in an expected move, while China cut rates by more than the usual amount on a day that wasn’t scheduled. It might be safe to conclude that easy financial conditions within US markets isn’t applicable abroad. Conditions that cause central banks overseas to start cutting rates aggressively might be creeping into corners of the repo market as well, but I don’t want to make any unsupported claims. We present data from around the world of markets, discuss bitcoin’s trading range, and think about some extreme downside scenarios for the economy while contemplating what it might mean for stocks and bitcoin. Our videos are on major podcast platforms—take us with you on the go! Keep up with The Bitcoin Layer by following our social media! That’s all for our markets recap—have a great weekend, everyone!
Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk. Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys. Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account. Thanks for reading The Bitcoin Layer — for access to all content, upgrade to paid!
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Sunday, July 28, 2024
Donald Trump Pledges To Make Bitcoin A US Treasury Reserve Asset: TBL Weekly #103
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