Netizen Weekly | Bitcoin Market Update #8
LIBERATION DAY FALLOUT: How Trump's Economic Bombshell Is Reshaping Bitcoin, Gold & the Dollar's Future
America First, Dollar Last: How Tariffs Are Reshaping The Global Economy
Markets were "liberated" by President Trump's new tariffs yesterday as S&P futures dropped 3.5% overnight, the USD dropped 2%, and Bitcoin pulled back from $88.5K to as low as $82K—a stark reminder that policy uncertainty creates volatility in asset markets. Bitcoin continues to trade like a high beta risk asset, as evidenced by its 1.7 beta to the S&P 500 over the past six months—meaning it moves 1.7% for every 1% move in the stock market. This elevated correlation confirms what we've been warning since mid-February: we're STILL in a risk-off INFLATION market regime where stocks, Bitcoin, and crypto underperform while inflation-protected and defensive assets typically outperform. Despite being a neutral reserve asset like gold and potentially an antidote to unchecked government spending, Bitcoin still trades like a high beta risk asset...for now.
Looking deeper, we can identify three major economic forces driving this market volatility. First, the tariffs announced on Liberation Day could shave 1.5-2% from GDP growth while simultaneously adding 1-1.5% to inflation—creating the classic stagflationary scenario that markets fear most. Second, the Department of Government Efficiency's (DOGE) plan to cut $500B-$1T in federal spending would likely increase unemployment by 0.4-0.5%, directly impacting consumer spending at a vulnerable time. Third, we're seeing early signs that foreign Treasury buyers—who purchase approximately 30% of US debt—may reduce their holdings in response to trade tensions, potentially steepening the yield curve significantly. Adding to these pressures is the looming $2.8 trillion in low-rate corporate debt maturing in the next 24 months that must be refinanced at substantially higher rates. Against this backdrop, it's no surprise that the U.S. established a strategic Bitcoin reserve back in March—Trump's administration clearly recognizes that Bitcoin will be a crucial neutral reserve asset in this new monetary landscape.
In our premium note this past Monday, we discussed how Trump's Liberation Day could accelerate de-dollarization and presented a bullish case for Gold as a defensive asset that has traded with a minimal 0.1 beta to the S&P 500 over the past 6 months. This de-dollarization strategy appears deliberate—President Trump recently established the U.S. Bitcoin Strategic Reserve through Executive Order, continuing with Eric Trump partnering with Hut8 to launch American Bitcoin mining, and culminating in the new tariffs that will likely push foreign nations further from dollar dependence. When we tracked capital flows during previous tariff announcements (2018-2019), foreign central banks increased gold reserves by an average of ~11% in the following quarters. While Bitcoin may face temporary headwinds as liquidity tightens, its long-term fundamentals as an alternative neutral reserve asset remain intact. Once the Fed resumes quantitative easing as inflation stabilizes in the high 2% to low 3% range, we expect Bitcoin to benefit substantially—creating a clear two-stage opportunity: defensive positioning now, followed by strategic Bitcoin accumulation at lower levels.
TLDR: Bitcoin currently trades like a risk-on asset for now but will likely join gold in strength as the global economy de-dollarizes due to Trump's tariffs.
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Drowning in Debt: America's $36 Trillion Problem Accelerates De-Dollarization
Much like President Trump's tariffs triggering de-dollarization in global trade, America's $36 trillion debt burden (now exceeding 120% of GDP) makes the dollar increasingly vulnerable as nations question its long-term viability as the world's reserve currency. This currency debasement follows the same pattern seen throughout history—from Roman emperors like Nero who reduced silver content in coins from 100% to 90%, to Trajan further debasing to 85%, all to expand money supply and their spending power at citizens' expense. As the purchasing power of the dollar continues its inevitable decline under the weight of expanding debt, Bitcoin's mathematically-limited supply of 21 million coins offers precisely the protection against debasement that made gold valuable for millennia.
TLDR: As the U.S. debt burden becomes increasingly unsustainable, Bitcoin offers a mathematically-limited alternative to endlessly debased fiat currencies.
Capital Rotation: Smart Money Flows from Ethereum into Bitcoin
Despite Bitcoin still trading like a high beta risk-on asset, this crypto cycle has been markedly different as capital inflows into Bitcoin reached historic highs of +$100 billion in December 2024. Meanwhile, during the market weakness since mid-February, Bitcoin and stablecoin capital inflows remain positive while Ethereum has experienced massive capital outflows of nearly $40 billion just last week. This striking divergence between Bitcoin and Ethereum, even within a risk-off market regime, provides clear evidence that institutional investors have chosen Bitcoin as the definitive winner in the crypto space. The ETH/BTC ratio continues to bleed to the lowest levels seen since the COVID crisis of 2020, reinforcing Bitcoin's dominance as both a trading vehicle and potential future reserve asset.
TLDR: Bitcoin is capturing significant institutional capital at Ethereum's expense, suggesting growing recognition of Bitcoin's unique position even during broad market uncertainty.
Difficulty Regression: Mining Economics Set Bitcoin's Floor Price
Just as the U.S. debt burden highlights the need for hard money, Bitcoin's difficulty regression model offers one approach to approximate its intrinsic value—backed by real physical hardware and energy rather than government promises. The difficulty adjustment mechanism creates a fascinating economic balancing act: when Bitcoin's price rises, more miners join the network, increasing difficulty and thus production costs; when prices fall, less efficient miners shut down, eventually decreasing difficulty and lowering the cost of production. Currently, this regression model estimates the cost to mine one Bitcoin at approximately $70K, which aligns remarkably with the bottom of the $70K-$82K supply gap we've been consistently calling out. Historically, periods when Bitcoin trades below its production cost have offered exceptional buying opportunities for long-term investors, and with prices in the low $80K range, we could see further downside before establishing a solid base for the next move higher.
TLDR: Bitcoin's mining production cost of ~$70K provides a potential price floor and buying opportunity if markets continue to experience weakness.
AVIV Ratio (Z-Score): Finding Bitcoin's Gravitational Center
While mining economics gives us one valuation floor, the AVIV Ratio (Z-Score) provides another lens to determine Bitcoin's fair value by measuring how far price deviates from its True Market Mean Price—a weighted equilibrium based on CoinTime economics and on-chain velocity. Currently, with the AVIV Ratio at approximately 0.5 standard deviations above the True Market Mean, Bitcoin appears fairly valued rather than exhibiting the extreme readings typically associated with market tops or bottoms. The True Market Mean Price currently sits around $65K, creating a powerful multi-confluence support zone that aligns perfectly with the 2021 local highs—a classic case of "resistance becoming support" in technical analysis. We view this $65K level as a massive support zone that could contain any major sell-off, offering both a mathematical and psychological floor that coincides with our other valuation metrics.
TLDR: Bitcoin's AVIV Z-Score suggests we're near fair value with the True Market Mean of $65K serving as critical support that aligns with the 2021 highs.
Supply Heatmap: Visualizing Bitcoin's Air Gaps and Support Zones
As we have been monitoring closely over the past several weeks, Bitcoin's Supply Distribution Heatmap gives us a three-dimensional view of where Bitcoin supply is concentrated, revealing levels of resistance, support, and potential air gaps. By far the biggest downside risk we currently see is the $70K-$82K air gap where very little Bitcoin is owned. If markets continue to trade in a risk-off regime, we would expect Bitcoin to easily break through this level given the lack of concentrated ownership to provide support. Right now, we view the risk as skewed to the downside, with likely support coming in the $60K-$70K range where significant long-term supply has accumulated. Beyond that, for Bitcoin to break below $60K, we would need to see massive capitulation from long-term holders—a scenario we view as improbable given the accelerating secular move away from fiat currencies toward neutral reserve assets.
TLDR: The Supply Heatmap reveals a concerning $70K-$82K air gap with minimal supply, suggesting Bitcoin could fall to the strong $60K-$70K support zone if selling pressure continues.
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Thanks for reading this week's note! See you next week – and as always, hit reply if you have any questions, comments, or suggestions!
Take care -Brian
Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Always conduct your own research and consult with a qualified financial advisor before making investment decisions.