Bitcoin: The Upside Down transcript

Hey everyone, thanks for jumping back into the cryptoverse. Today, we're going to talk about Bitcoin, the upside down. If you guys like the content, make sure you subscribe to the channel, give the video a thumbs up, and also check out the sale on Into the Cryptoverse Premium at intothecryptoverse.com. And as a reminder, we are hosting the first Investing Through the Cycles conference on November 21st. And as I mentioned yesterday two of the speakers that uh just confirmed they're coming are both Michael Saylor and Greg Cardano.

So, I'm honored to to have them at the conference and to have uh voices that hopefully, you know, sort of encompass a a well-rounded view of of the markets and from uh two people that have, you know, frankly a lot more experience in markets than than I do. So, I want to talk a little bit about Bitcoin. And, you know, what what I've sort of talked about the last few days is this like this weird feeling of like, you know, like I I came up with a thesis and um it felt like it was being validated every single day with yields go or with energy prices going up and and therefore yields going up.

And one of the interesting things is if you look at at the price of oil, right, the price of oil is sort of stair-stepping higher right now. So, I'm not getting into politics, frankly. Like, I don't I don't like to. But, obviously, geopolitical conflicts affect energy prices, right? And they're they're they're not the only thing that affect energy prices, but it's one of the things. And with the rising with rising energy prices, um and Trump President Trump saying that they're really not looking to get this solved until after the midterms, then I feel like I have to be in the camp that energy prices are simply going to continue to go higher.

Now, the reason why that is an theoretically, right? I mean cuz I I was I've been wrong, right? But theoretically, the reason why that's an issue for for risk assets is because um rising energy prices will cause the long end of the yield curve to go up. And now you can see that the 10-year yield is now at 5.1%. So, what's what's happening right now is the Fed is not raising rates fast enough to deal with what's going on with the long end.

Now, that might sound kind of weird because you're like, well, they just raised rates 25 basis points. Isn't that enough? Unfortunately, the answer as it stands right now is no. And let me explain why. Okay, I want to explain why. If you go we have this workbench on the website, right? And what you can do is, you know, you can obviously add add a lot of different metrics and and we'll add the the interest rates by the Fed and we'll also add on here uh yields, treasury yields, and we'll sort of change this one to be um the two-year.

Now, if you look I I like how I can just make videos about Bitcoin and then end up not talking about Bitcoin hardly at all. Uh but you guys will hopefully understand why. When you when you look at at it like this, and let's assume for a moment that the two-year yield is roughly equivalent to the neutral rate. Okay? So, if the neutral rate is this abstract concept for when the Fed funds rate is above the neutral rate, the economy slows down.

And if the Fed funds rate is below the neutral rate, then the economy starts to heat back up. Now, the Fed follows the two-year yield. If you're an economist, you might argue that it's more of a reflexive relationship and perhaps the Fed is not following the two-year yield, but the two-year yield is just pricing in Fed expectations before they happen before they happen and they were going to do it anyways. But, if you look at the chart, generally speaking, the Fed follows the two-year yield, right?

That's what generally happens. What's been different this time is that they've been very slow to respond, right? Really slow. And it's not entirely different, like they have been slow in the past. Like if you look at at 2021, you can see that the two-year yield was really starting to go up in like late September or sorry, late 2021, but the Fed didn't start following it until about 6 months later. And you could argue that the kind of the same thing started happening again, but the reason it's different is because once they started the rate hiking cycle, they generally were following the two-year yield.

And when Powell was chair of the Federal Reserve, they actually got the Fed funds rate above the two-year yield for a number of years, right? I mean, from like 2023 from from mostly like late 20 or early 2023 until um until January 2026, for the most part, the Fed funds rate was above the two-year yield. So, when you think about like why did Bitcoin not have a parabolic rally last cycle? Why was there no altcoin season?

Why was there no speculative rotation? It was because monetary policy was restrictive. And in order to have those rotations that you want, you need looser monetary policy. But then, starting in March of 2026, the two-year yield started to go back up. But, the Fed didn't follow. And other central banks did, by the way. The the you know, Bank of um the central bank in New Zealand, where I just was. They raised rates before the Fed.

The Bank of in Australia raised rates. The ECB raised rates. Uh the Bank of Japan, they've been raising rates. The Fed kind of were were were late to the party in in the rate hiking cycle. And so, they waited from March until September, about 6 months, before they were willing to raise rates. Now, the problem is that as it stands right now, the Fed funds rate is is only 4%. Now, that might sound high, but if the neutral rate is equivalent to the two-year yield, and the two-year yield is now at 4.9%.

When I made the video yesterday, this was at like 4.7. Now, it's at 4.9. The two-year yield went up 20 basis points basically overnight. Think about how long that would take to get a rate hike by the Fed. I mean, I can't imagine they're going to do this. But, at some point, if they truly wanted to get inflation under control, do you consider a 50 basis point rate hike? I don't think they're going to do that. I think they're just going to slowly raise rates because, you know, it doesn't raising rates into a supply shock could cause labor market issues, right?

Like, you could end up making a bigger problem if you raise rates too quickly. But, what the market is telling you is that inflation is the far larger concern right now. And that the Fed funds rate is arguably a full percentage point below where it should be to get inflation back down to target. So, if it's a full percentage point below where it needs to be, how long is it going to take for for them to get inflation under control?

How long? Right? I don't know how long, but it doesn't seem like they're going to get it under control anytime soon if they're letting yields get away from them. So, the reason why this is why I called the video the upside down is because the the macro thesis has been right, right? Energy prices up, the long end is going up because the Fed's not raising rates fast enough, which is called By the way, it's causing the dollar to go up.

And the dollar is printing higher lows, and it already has been doing higher highs. So, if the dollar is going to continue to rally here, which I think it will, then do risk assets care? Now, the reason why the video is called the upside down is because the stock market does seem to care, right? I mean, the stock market is down. Uh you know, it has been actually the S&P topped back in mid-August. Right? I mean, it has not put in a a new all-time high.

And I'm not saying it can't, but what it shows you is that rising energy prices and and and rising yields and a rising dollar have really stalled out the S&P. You see? It it's completely stalled it out, and until yields get under control, why can't this continue? Now, remember when you think about what the S&P did in prior midterm years, the S&P topped in 2014 and 2018 around now. Right? Like it was around September.

So, if you look at if we we should probably look at it on the daily just to get the actual day, but in 2018 the S&P the drop started on um well, the the first the top was on uh September 21st, but then there was a slightly lower high on October 3rd. And in 2014, the the high before the drop was um September 19th. So, it's now September 23rd, so like we're right in that window where the S&P normally starts to correct in the midterm year.

Now, the narrative is there. I I'm not saying that it has to go down. Normally, you would need some type of a of a catalyst to really get it going, and to me hiking into a supply shock would be the catalyst that would take the S&P down. But as it stands right now, I mean the S&P's only barely down, right? Like this is not This is only a one This is we're down 1 and 1/2% from the high. This is nothing, right? This is nothing.

So, the reason it's the upside down is because commodities, like gold and silver, we talked about that they were sniffing out this strength in yields and the strength in the dollar, and because they were sniffing it out, they were going to struggle into mid-September to mid-October. And look, it's now mid-September We're in that We're in that window of mid-September to mid-October, and gold is struggling. And I I don't think that gold necessarily has to go to a new low.

I I I could I I could see gold finding a low higher than the prior low. It could go lower. Like I I don't really have a strong opinion on it. If If you made me guess, I would say probably a higher low. But, even if it's a lower low, I I think that the bull market could still come back for gold. So, gold seems to be responding to these macro movements. And the S&P, while it's not really dropping that much, it has at least stalled out for the last couple of months or so.

So, what's interesting is that with all of that in mind, you would assume, maybe you wouldn't, maybe you were on the right side of it, but I would have assumed that Bitcoin would not have broken out. And I was wrong, right? Like I I clearly missed the mark there. And if you're the If you're just sort of differing to say like golden crosses and whatnot, like this looks like a textbook golden cross into the bear market.

All right, like that's what it looks like. You have, you know, you have your golden cross in 2023 and in 2019. And when it happens, you get a dump right after it, and then the market rallies, right? Dump and then rally. Same thing here, dump and then rally. Same thing again, golden cross. Dump and then rally. And it corresponds to the weekly close above the 50-week moving average. So, you know, it's hard to look at the You couldn't blame anyone, right?

And this is why I had to say I was wrong, because if you look at this, when this has happened historically, we've been back in business, right? So, that's why it it just feels like the upside down to me. Things just aren't making sense. But, guess what? Markets don't have to make sense. And that's what makes markets so complicated. And it's the reason why we all get things wrong, because whatever you think makes sense or whatever I think makes sense will eventually not be reflected on the chart.

And then you have to scramble to figure out like what's going on and like what you missed. So, for me, I have to defer to the market. What I'm looking at now is the weekly close. Because as it stands right now, even though Bitcoin has pulled back, this is still above that level from from May. We're still above it. And regardless of whether we close back down below it, the fact that it is a higher high, in my opinion, should change, you know, some of the expectations if there is a pullback into Q4.

And like what that pullback would look like. So, what I'm thinking is where does Bitcoin close this week? Because it it looks like there's follow-through here. But I also don't want to, you know, claim that it's going to do something before it actually happens. Okay? It looks like there's an element of follow-through on this move above the range high. But I don't know where the week's going to close. If yields continue to go up for the rest of the week, and if if if oil starts to move up, and if the dollar continues to move up, then is it possible that it it reaches a point where Bitcoin starts to care a little bit?

Now, throughout Bitcoin's history in bear markets, we have never had um a false breakout to this extent, right? Are there times where you set a slightly higher high? Yeah. But, those are in bull markets where you've had sort of false breaks. This is in a bear market, right? I don't think we've ever had a time where Bitcoin set a slightly higher high and then went on to put in a new low with the exception of 2015. And the reason why I don't bring 2015 up that frequently is because technically on some exchanges, uh it was not a lower low, right?

It was It was basically a a double bottom. And in this case, it was, you know, if you look at at this weekly close here, you can see we got above it and then we came back down. And the other reason why I don't put a lot of faith into it is because Bitcoin was still below the 50-week moving average. Whereas this time, Bitcoin is above the 50-week moving average. So, I feel like it makes sense to to acknowledge that and be like, "Well, it's not it's really exactly 2015, but you know, to sort of see what could that look like." And so, from here, I don't like I I I don't really know like what to what else to say because in in in the short term, I feel like my credibility has been uh damaged a lot because, you know, obviously like I had this view that we wouldn't take out the May high and we did, right?

So, I I feel like my credibility on on what Bitcoin is doing in the short term isn't that great, right? Like, if we're being honest. And I I I feel like I shouldn't like, you shouldn't listen to as much to me on this as maybe the people that that got that right. Right? Um So, then I'm not like I'm not sure really where this like leaves it. Like I I look at the chart and I'm like, well, we're above the 50 week. We have the golden cross.

We have the dump. We're now rallying and it seems like things are you know, are breaking out. But does it follow through like through the end of the week? Like do you see the continuation of it or does it come right back down and you know, I mentioned this yesterday with the silver trade from 2012 kind of offers us some insight into it. But the reason why this one also isn't the best example is because on the breakout trade it was rejected at the 50 week moving average.

Like we were above the 50 week, but then the weekly close was still below it. And if you look at this, I'm sure you can imagine that at one point in time it would have had a massive green candle here where it looked like there was a breakout. And therefore, anyone who is trading this breakout would have gotten wrecked because they traded the breakout and then the market went back down to the lows for a third time. You see that?

So that is is an example of a of a breakout trade where breakout traders sort of pile in on the breakout and then the weekly close was right back down to to below those prior highs. So in this case, I don't really know what to think, right? On one hand, we've got the market telling us a lot of market participants are saying, look, that's the low. And there's a better chance that they're right at this point than I was willing to admit a couple of weeks ago.

I mean, a couple of weeks ago I said the odds of low being in were only 35% and there was a 65% chance that the low was in the future. But with us trading above the May high, like the odds have tilted in their favor and away from the views that I was expressing. So then I don't like, you know, I'm like, where do I go from here? Because the macro trade seems to be panning out. Yields up, energy up, dollar up. The S&P is you know, it's not really dropping, but it also hasn't really gone anywhere in a few weeks, few months, kind of suggesting that these macro forces are having some effect and if you look at things like gold and silver, they're struggling like we thought they would in the mid-September to mid-October.

So, it it all like that'll make sense to me. Like I can like I can rest easily at night thinking like, okay, this makes sense. But then you show me the Bitcoin chart and I'm like, what? You know, like it just feels like the upside down, right? Like it feels like something is is different and I, you know, I don't want to, you know, to try to rationalize in my mind too much like what I you know, like what's going on and like why was I wrong and and all that stuff.

I just have to defer to the market and I will say, if, you know, close the the more closes you get up here, the more validation it gives the bulls that the low is in. Every weekly close higher gives you more and more validation. If we give it back, then it sets up the typical Q4 low. But in that case, it doesn't have to be a lower low, right? Like it could just be a macro higher low for all we know. So, I don't really know um what's going to happen.

Um not that I ever do, if we're being honest. But what I will say is that it like something feels off to me with you know, with with all this with the markets and the macro stuff and it it feels like everything makes sense with the exception of of of Bitcoin. And yeah, like it's probably just the fact that I got it wrong and I'm I'm trying to like rationalize it. Um and and certainly like I don't want people, you know, I've always said that the DCA strategy is the best approach.

If you're a breakout trader, this is just something to be aware of. If you're a DCA'er, it doesn't matter if it goes back down, right? Like you just DCA either way and you hope for the best. Um if you're a breakout trader, that would be the danger of being a breakout trader is that sometimes things like that can happen. So, I would just say, "Look, if you are a breakout trader, watch for that, right? Because if if we close back below um 83K, then that would be like a a almost a perfect setup to then get the get the drop into Q4 anyways.

Not necessarily to a lower low, but just to get it anyways just when, you know, it looks like it it can't happen. So, those are my thoughts. Um again, I feel like we're living in the upside down for Bitcoin because it's not making sense to me, but this is not the first time it's not made sense and there have been times in the past where it didn't make sense and it continued to not make sense for a really, really, really long period of time.

Okay? So, uh just keep that in mind. Markets don't have to make sense. They don't have to, you know, the dollar could theoretically go up to 104, and I don't know like if it would have necessarily any impact on Bitcoin. I would have assumed it would, but I also would have assumed that the dollar going back to 101 would have had an effect, and it hasn't. In fact, Bitcoin went up despite it. So, I just wanted to provide some of those views and to say these are really tough markets.

Volatility is is incredibly high right now, and um and there's certainly some macro forces at play that are are causing some risk assets to falter, especially in in the stock market, even though Bitcoin's held up surprisingly well. But, if you guys like the content, make sure you subscribe, give the video a thumbs up, and again, check out the sale on ITC premium at intothecryptoverse.com. I will see you guys next time.

Bye.