Bitcoin Deep Dive #61
The Fed Is Falling Behind
The Fed Is Falling Behind
The market spent this year assuming inflation would fade without forcing tighter policy. That assumption is breaking. April PPI came in higher, core inflation remains structurally elevated, and both retail sales and industrial production reinforced nominal growth tracking near 10% on a three-month annualized basis. The Fed is now lagging every major peer. The Swiss National Bank is priced for one hike, the Bank of England and Bank of Japan for three, the European Central Bank for three to four, the Fed for barely half. AI productivity is suppressing wage stress but isn’t solving inflation. A catch-up trade would be dollar positive, liquidity negative, and explicitly bearish for risk assets. The real risk isn’t recession. It’s policymakers realizing too late that the economy never cooled.
What This Means For Bitcoin: More Fed hikes are getting repriced into the curve, and that’s historically bearish for liquidity and risk assets. Bitcoin is the exception. It doesn’t always trade Fed policy. It trades when faith in that policy breaks.
Liquidity Is Narrowing
Global liquidity is still expanding, up 3% on a month-over-month annualized basis and 5% on three months, but the breadth is deteriorating. China’s liquidity impulse has collapsed from 27% in February to 12% today as the PBOC’s balance sheet swung from +23% to -6%. Every major central bank is now contracting except the Fed. With the world’s two deepest pools of liquidity now diverging, what’s left is a regime dependent on a narrow set of engines: US fiscal issuance, Treasury reserve management running near $600bn annualized, and the AI capex cycle. Mega-cap tech has issued over $300bn in debt to fund the buildout, with projections approaching $5tn by 2030. Liquidity hasn’t disappeared. It’s becoming concentrated, reflexive, and crowded.
What This Means For Bitcoin: Bitcoin can win twice in this regime. Once directly from liquidity expansion. Again because the AI capex cycle concentrating that liquidity is fundamentally an energy bid, and Bitcoin is monetized energy.
Reflation Is Getting Violent
The reflation regime remains intact at the top-down level, but the bottom-up outlook still points to deflation as growth and core inflation decelerate over the next six to twelve months. The cross-asset tape reflects that tension. The dollar is bearish but pushing the upper boundary of its probable range, gold is neutral at the lower bound of its range, and volatility indices (MOVE, CVIX, VIX) are all bearish yet drifting higher. The S&P 500 and NASDAQ remain bullish. Bitcoin too, still bullish at the lower end of a $77.8K to $84.5K probable range. The cleaner signal sits inside crypto. Ethereum has rolled into bearish momentum as Bitcoin dominance rips higher, the textbook tell of a quality flight within risk assets when liquidity narrows.
What This Means For Bitcoin: The trade is no longer just liquidity. It’s quality. Bitcoin’s rising dominance against a breaking Ethereum is the clearest tell that capital is rotating to the strongest risk asset in the system.
The following section is exclusive to Premium subscribers and includes our Dynamic DCA recommendation based on Bitcoin’s on-chain metrics.
