Netizen Premium | Bitcoin Deep Dive #25

Why the Fed Should Cut Rates (and What It Means for Bitcoin)

The Fed Flirts With Another Policy Mistake

Fed Chair Jerome Powell has a consistent pattern of being too late: failing to pivot during the 2018 market crash, refusing to raise interest rates post-COVID when inflation surged in 2021, and now being too stubborn to cut interest rates when the US economy is clearly slowing. President Trump has been publicly berating Powell since coming into office, demanding rate cuts and challenging Fed independence. While we previously disagreed with this political pressure, recent economic data has genuinely changed our assessment. Markets are beginning to sniff out both the weakness in economic data and the Fed's decision to hold rates at last Wednesday's Fed meeting despite mounting evidence that cuts are warranted. This explains why the VIX has pushed into overbought territory while the S&P 500, Bitcoin, and crude oil now sit oversold, though these signals could shift in the coming week as data evolves. Despite these near-term technical headwinds, all three assets remain firmly within a broader risk-on GOLDILOCKS market regime where Bitcoin, gold, and equities maintain BULLISH momentum for now. This setup perfectly aligns with our Everything Rally Thesis: the Fed will ease monetary conditions precisely when we're already witnessing Fiscal Dominance, as evidenced by Trump's proposed $3 trillion "Big Beautiful Bill" stimulus package.

TLDR: An overdue cut would validate the risk-on setup and reinforce Bitcoin's role as a hedge against policy blunders.

Soft Patch Evidence Mounts Across Economy

Private-sector labor income just delivered its worst two-month performance since the first quarter of 2024, signaling genuine weakness beneath the surface headlines. A collapsing labor supply is artificially suppressing the unemployment rate, masking the true extent of labor market slack building across the economy. Job losses are broadening across multiple sectors, pointing to deterioration that extends well beyond isolated industry-specific challenges. These weakening data points will weigh on asset markets in the near term, but the beauty of our current setup is that Fed rate cuts can easily remedy this temporary softness. Real services consumption growth has decelerated to levels not seen since the depths of the COVID crisis. Meanwhile, real GDP excluding government and net exports contracted 3.2% while private final sales growth slumped to just 1.2%, the weakest pace since late 2022.

TLDR: Weakening fundamentals give the Fed cover to ease, and historically signal a green light for Bitcoin accumulation.

Inflation Lag Creates Dangerous Policy Trap

Inflation is historically the most lagging indicator in any business cycle, making it a dangerous foundation for monetary policy decisions that require forward-looking judgment. Core PCE inflation will struggle to fall sustainably toward target without an actual recession doing the heavy lifting of demand destruction. Economic models we respect suggest equilibrium core PCE now sits in the high-2s to low-3s range, well above the Fed's arbitrary 2% target that may prove increasingly unrealistic given the political realities we face. Populism drives Fiscal Dominance regardless of which party holds power: Democrats deliver stimulus through social programs while Republicans channel it toward "economic growth" and corporate support, but both paths lead to the same inflationary endpoint. Politicians will never solve the inflation problem because selling Americans on "saving money and paying off debt" is political suicide. Voters want prosperity, not austerity, and mounting political pressure for rate cuts will likely erode Fed independence over time.

TLDR: Structural inflation above target plus political rate-cut pressure is a long-run recipe for dollar debasement and Bitcoin strength.

With Fed policy mistakes accelerating our Everything Rally thesis, Bitcoin's technical setup shows surprising valuation compression and healthy momentum despite recent weakness: