Netizen Premium | Bitcoin Deep Dive #17

Using Ray Dalio's Macro Framework On Bitcoin

What Do The Macro Regimes Actually Mean?

Last week a reader asked a great question about what do all the regimes mean: like GOLDILOCKS, the regime we're currently in. What does it mean and where does this framework come from? We stand on the shoulders of giants and use Ray Dalio's wisdom to help guide us through Bitcoin investing. Dalio's framework reduces the entire macro puzzle to just two economic outcomes: 1) whether economic GROWTH comes in hotter or colder than consensus, and 2) whether INFLATION beats or misses expectations. Combining these give you four distinct regimes that repeat across market history: GOLDILOCKS (growth up, inflation down), REFLATION (both up), STAGFLATION (growth down, inflation up), and DEFLATION (both down). The first two are RISK-ON environments where you want to own stocks, high-beta assets, Bitcoin, and crypto, while the latter two are RISK-OFF periods favoring defensive positioning in low-beta assets, USD, Treasury bonds, and gold. Each regime has shown consistent winners and losers, from Bitcoin posting its best performance during reflationary risk-on environments to gold's defensive shine during inflationary busts.

TLDR: Understanding macro regimes provides a roadmap for when Bitcoin thrives versus when it struggles in today's volatile markets.

How Volatility Impacts Bitcoin & Stocks

Historical research shows Bitcoin is POSITIVELY-correlated with volatility, meaning its price rises when implied or realized volatility breaks into the upper quartile. Meanwhile, stocks are well-known to be NEGATIVELY-correlated with volatility, which is why VIX spikes track stock market drawdowns. Mapping this to the four-regime framework clarifies why: during GOLDILOCKS the growth-up/inflation-down backdrop keeps volatility low, so Bitcoin usually rallies but not explosively while equities grind higher. In REFLATION, growth and prices (inflation) accelerate together, volatility lifts into the mid-range, and Bitcoin's positive vol-beta supercharges its outperformance just as equities hit their cyclical peak. During STAGFLATION or DEFLATION, volatility surges further, yet collapsing growth or credit crunches overwhelm Bitcoin's vol tailwind, dragging both Bitcoin and stocks lower even though the vol-return relationship remains positive for Bitcoin and negative for equities. In short, volatility is the throttle, but the macro regime is the traffic light: Bitcoin needs both a green light (Goldilocks/Reflation) and a heavy foot (rising volatility) for its biggest gains, whereas equities prefer a green light and a light foot.

TLDR: Bitcoin's vol-seeking nature means current low volatility environment limits explosive upside despite favorable Goldilocks conditions.

Positioning For Goldilocks & Beyond

Given Bitcoin's positive relationship with volatility, the current environment presents an ideal setup for Bitcoin investors who understand regime dynamics. We're firmly in GOLDILOCKS territory with growth accelerating and inflation decelerating, creating a favorable macro backdrop where Bitcoin and stocks historically perform well. May's jobs report showcased a resilient labor market despite recent tariff actions. Meanwhile, private-sector balance sheets remain robust and a Federal Reserve in “wait and see” mode will keep real rates friendly for risk assets. Like we said last week, we continue to believe Trump's $3 trillion OBBBA, if passed in the Senate by July 4, would be a large fiscal liquidity impulse, which may catalyze a REFLATION regime and provide more liquidity for stocks and Bitcoin to rally. This potential transition from low-vol Goldilocks to higher-vol Reflation could kickstart a Bitcoin a bitcoin bull market, even despite being near all-time highs.

TLDR: OBBBA passage could trigger the volatility increase that transforms Bitcoin's current steady gains into explosive outperformance.

Below, we’ll dive into our Dynamic DCA model that supports our Bitcoin investment strategy, including on-chain risks we see emerging: