The Breakdown - Macro Roils After Surprising Jobs Report (and Bitcoin Follows)

Episode Date: January 15, 2025

NLW covers the latest moves in Bitcoin's price, exploring what they say about the larger macro environment for risk assets and the likelihood of changes in Fed policy. Sponsored by: Ledn Need liquidity without selling your Bitcoin? For 6+ years, Ledn has been the trusted choice for Bitcoin-backed lending. With transparency, security, and trust at our core, we help you access your BTC’s wealth while HODLing. Discover what your Bitcoin can do at ledn.io/borrowing. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Tuesday, January 14th, and today we are talking about Bitcoin and how it's faring as macro unravels. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello, friends.

Well, as ever with this show, between the time I started preparing it and when I'm actually recording it, Bitcoin recovered mightily. At the time of recording, we are back up over 96,000, up nearly 5% on the day. And this is, of course,

the risk of doing any sort of show about price action. However, why I think it's still relevant is that really the story isn't price action here, at least not really. We're just using that as a lens through which to discuss

the larger macro environment which does, I think, have an impact on how things are going to shake out for Bitcoin and other risk assets in the coming period. So let's go back to Monday morning where Bitcoin collapsed, frankly, in the face of tough macro conditions. After seeing a peak of $95,000 late on Sunday night, Bitcoin drew all the way down to below $90,000 for the first time in almost two months. The violent move saw a series of liquidation cascades as leveraged traders were forced out of their positions. And as intimated, while the price action was stark, it definitely appears to have less to do with Bitcoin than with the overarching macro conditions. So what is going on?

Monday morning saw the dollar index spike up to 110, a fresh two-year high during this period of abnormal dollar strength. The U.S. 10-year treasury bond yield reached a new multi-year high of 4.8 percent, and the S&P 500 has now lost 2.3% in the past week in the latest leg of a month-long drawdown. Conditions have tightened significantly since the Fed signal to pause in their cutting cycle at the December meeting. The latest catalyst, though, was a series of employment reports released last week. Early in the week, the data seemed indeterminate. Some prints showed a bounce back, in labor market strength, although there were still signs of weakness in other data. That question was settled on Friday with the BLS non-farm payroll report. Two hundred and fifty-six thousand jobs were

added to the economy, 65 percent higher than forecast, and up significantly compared to November. Such a high number in the jobs print coupled with early signs of rising inflation mean that the Fed will be in no rush to continue cutting rates. Markets saw a dramatic repricing of FedEx on Friday. They are now pricing the pause to continue until June at the earliest and expect only one cut for the year. There's also currently a 27% chance of zero cuts for 2025. Bloomberg researcher Steve Howe tweeted, working on something unrelated made me realize that we may be coming up to the point of flipping risk off again. I've been ignoring macro for the past year and change whilst we were in the disinflationary zone, other than talking about it for fun. But macro matters again.

Now, coming up, the December inflation print will be released on Wednesday morning. If that's shows another uptick in inflation, the Fed's cutting cycle could come to an abrupt halt, and rate hikes might be back on the table. Bank of America has already adjusted their rate expectations, stating in a Monday note, we think the cutting cycle is over. Our base case has the Fed on an extended hold, but we think the risks for the next move are skewed toward a hike. Macroheadwinds are clearly weighing on Bitcoin. Piquet-troth, the drawdown has been 17% since last month's high. That's not too bad in the realm of historic bull market pullbacks, assuming the bottom is already in. But that is a massive assumption and one that few analysts are willing to make. Crypto-Machana commented,

I believe the market is more uncertain than macro-barish here. Uncertainty is where some of the froth begins to subside, but equally trend mean reversions are something you want to continue to bid. I think it's a mistake to be overly bearish calling for cycle tops when the second Trump administration is just set to begin. Plenty of levers to be pulled to ensure the music continues. The question from here will be to figure out when the bottom is in. Bitcoin ETF flows when abruptly negative last Wednesday, and have continued that trend into this week. Outflows slowed down on Friday, but appear to have accelerated again during Monday's session. In his weekly report, CoinShare's head of research, James Butterfield, said the reversal, quote, suggests that the post-U.S.

election honeymoon is over, and macroeconomic data is once again a key driver of asset prices. Heading into Monday afternoon, prices seem to stabilize slightly. Bitcoin recovered to 95,000, while both the dollar and long maturity bond yields came off the highs. The risk is that a huge amount of uncertainty could drive a massive move in either direction over the next few months. Veteran trader Peter Brant sketched out a chart of what he's thinking. He showed a downside level at 74,000 and an upside at 116,000, commenting, knife fight at the OK corral. Will team green or team red win the battle of the gashes? On-chain analyst check made his similar analysis based on his data. He flagged a significant cluster of demand at 90,000, but a huge air pocket below that level.

The next level of support seems to be at 76,000, putting Bitcoin at risk. risk of a gnarly drawdown. Trading firm QCP capital suggests that the narrative story could be on the line over the coming months. Bitcoin has been aspirationally sold as a diversification and a risk-off asset during this cycle. Gapping down alongside stocks could threaten that story. However, QCP believes there is a narrative opportunity for Bitcoin as well. They wrote that any further macro shock, quote, could be a real test for crypto to step up as an inflation hedge. Of course, longer-term Bitcoiners are no stranger to major drawdowns. We're even in the part of the year where seasonal drawdowns have happened in the past. Axel Bipblaze wrote,

Bitcoin dumping in January has historically been a common occurrence in post-having years. In January 2017, Bitcoin dumped from 1100 to 800. In January 2021, Bitcoin dumped from 42,000 to 28,000. We all know what happened after the 2017 and 2021 dumps. Don Crypto Trades pointed out that we even got a nearly identical drawdown in January of last year. Bitcoin lost 22% following the launch of the ETFs, bottoming out in the fourth week of January. Sonder Crypto recognized that, first cyclers are bullish, third cyclers are bullish, and second cyclers are bearish. Seeming to validate this point, wicked smart Bitcoin noted that he's weathered much fiercer drawdowns

posting. I was told that Bitcoin would have multiple 25 to 35% drawdowns during this bull run. Instead, we get this weak pathetic dip for ants. I want a refund. If you've been around Bitcoin for long enough, you've heard the term Hoddle and the name Lennon. Lennon has been the go-to leader in Bitcoin lending for over six years. They help clients unlock the liquidity of their Bitcoin, allowing them to hoddle while still accessing the wealth of their BTC. They've been battle-tested with their focus on transparency, security, and trust, allowing them to build a proven track record of client's success and security. Letin has helped tens of thousands of clients harness the value of their digital assets, issuing more than $6.5 billion in loans over the years.

But as the crypto industry says, don't trust verify. Check out Ledin's trust pilot or their reviews on social media. And to learn more about what your Bitcoin can do for you, check out ledin.com. slash borrowing. That's LEDN.I.O. slash borrowing. Please visit leaden.com slash legal for product terms and disclosures. Product availability varies by jurisdiction. The next catalyst on the horizon is, of course, the inauguration of Donald Trump, which is now less than a week away. Traders have been debating whether the inauguration will be a sell-the-news event all month. The heavy sell-off has caused many to switch positions. With Daniel Chung of Synchrecy Capital writing, Trump inauguration no longer a sell-the-news, but rather a buy-the-dip event at this point.

are electing to play the event a little more directly. Polymarket currently has markets on whether Trump will say crypto or Bitcoin, which are currently trading at 22%. The odds of Trump saying Doge or Dogecoin are at 11%. While those markets are relatively small, they highlight an important point for traders during the early days of the administration. Analyst Will Clemente wrote, For the next two months, there is material headline risk for Bitcoin bears coming from Trump. In other words, it's going to be very difficult to get comfortable shorting Bitcoin when Trump could send the asset ripping higher with a single tweet. Chief Among expected headlines are a series of executive orders on day one. The Washington Post reported that

the Trump team has been, quote, working closely with crypto leaders to finalize a legislative strategy, and Trump is expected to issue executive orders on the first day of his presidency. They listed two major issues to be addressed, debanking, and the repeal of SAB 121. The SEC's accounting policy that prevents banks from custodying or holding crypto. A source said, quote, the Trump team has made it very clear that this is a priority. While there's no news suggesting a day-one Bitcoin strategic reserve is in the works, repeal of SAB-121 could be a more meaningful catalyst than some expect. During our coverage of Operation Chokepoint 2.0 over recent weeks, it has become clear that banks were clamoring to offer Bitcoin products. Clearing the way for them to get active

could change the industry in ways we haven't fully recognized. Julian Farrer, the CEO of Apollo Stats pointed out, repealing SAB 121 was one of three catalysts Michael Saylor said would send Bitcoin to $5 million. The other two have already happened, spot ETA. F's in Fair Value Accounting. The intern account posted, Trump has tied the price of Bitcoin to his ego. He's giving executive orders on crypto on day one, and he's hosting a crypto ball honoring him as the first crypto president on inauguration day. I would not recommend betting against the power of Trump's ego. Still, while crypto Twitter expects big changes from day one, Nideag are offering some words of caution. In a research note published on Monday, they discussed the crypto campaign

promises warning that many can happen quickly, but some may take time. In particular, the note pointed out that, quote, key officials still need to be named, those that have been named need to go through the confirmation process, and then once confirmed they need to assemble their staff. Nidig analysts suggested that more permanent policies like crypto legislation and the accumulation of Bitcoin in a strategic reserve would take some time to pass. The note also highlighted that while, quote, execution of these initiatives may be a matter of priority, with items like geopolitical conflict, the budget and debt ceiling, global trades and tariff and immigration perhaps more pressing matters. One of the oldest crypto funds, is clear about the direction they see the market heading over the coming year. In their year ahead in

crypto report, Pantara argued that the Trump inauguration would not be a buy-the-room or sell-the-news event. One year ago, Pantara applied the same logic, writing that they, quote, believed the old Wall Street adage would not apply to the launch of the spot Bitcoin ETFs, despite it working perfectly for the days the ME Bitcoin Futures went live and Coinbase publicly listed. That call played out in spectacular fashion, with Bitcoin gaining more than 50% in the following two months. Thus, Pantara argued that the U.S. election is another what they call by the rumor by the news event. Looking out beyond inauguration day, there are further catalyst to keep an eye on. The first is the post-having supply shock that usually takes several months to show up. Some question whether the having is truly the

cause of Bitcoin's parabolic runs, especially now that mining supply is much smaller. But if you do believe that supply shocks are a part of the Bitcoin market dynamic, it seems as though one is rapidly approaching. Bitcoin held on exchanges has been on a year-long downtrend. It has now reached a seven-year low of 2.35 million Bitcoin dating all the way back to 2018. This is now the longest and largest downtrend of exchange supply in Bitcoin's history. The only period that came close was the second half of 2020. What's really noticeable is that the exchange supply hasn't meaningfully increased during the recent run-up. Once the 2020 bull run was in full swing, Bitcoin owners began cashing out their holdings, causing a six-month increase in exchange supply. Exchange volumes suggest that traders

are simply sitting on their hands and waiting for the next major move. Daily volume is currently at a two-month low dating back to before the election. Market intelligence firm Santiment referred to this as a sign of quote, trading paralysis. They wrote that the lack of excitement is a sign of fud, which increases the probability of rebounds. Historically, it wouldn't be that strange for the market to top on low volume. During 2021, peak volume was reached in January two months before the first top. But this would be the first Bitcoin top without a massive wave of sellers depositing to the exchanges. And finally today, two updates on Wall Streeter attitudes towards Bitcoin. The first is incoming Treasury Secretary Scott Besson. During the election campaign, Besson had been positive but fairly brief

about his opinion of Bitcoin. He largely said that it was interesting as an emerging asset class that can encourage young people to start investing. In preparation to be appointed to the role, Besson has now signed an ethics agreement ahead of next Thursday's Senate confirmation hearing. His financial disclosure showed a net worth of more than 700 million. The former hedge fund manager plans to divest dozens of funds, trusts, and investments to avoid conflicts of interest. buried deep in the disclosure was an allocation to the BlackRock Bitcoin ETF worth between 250,000 and 500,000, which was among the assets to be divested. And yet, Jamie Diamond still sees no value in Bitcoin. Despite Wall Street adoption, the JP Morgan CEO still hasn't changed his tune. In an interview with CBS on Sunday, he said, Bitcoin itself has no intrinsic value. It's used heavily by sex traffickers, by money launderers, and ransomware.

So I just don't feel great about Bitcoin. And yet, while Diamond doesn't feel good about Bitcoin, some of sections of his business are taking full advantage of this cycle. G.P. Morgan has been an authorized participant for many of the Bitcoin ETFs, allowing them to profit from creating and redeeming shares in the products. The bank has also recently rebranded their proprietary blockchain settlement system, formerly known as Onyx, the Kinexas blockchain, weird name, aims to double down on asset tokenization in the new year. The bank also plans to introduce on-chain foreign exchange capabilities as soon as this quarter, so ultimately I'll leave it in your hands to decide whether you want to listen to the man or whether you want to follow the money.

For now, that is going to do it for today's breakdown. Appreciate you listening, as always. And until next time, peace.