Transcription
Hey everyone, and thanks for jumping back into the cryptoverse. Today, we're going to talk about the most recent labor market report and how the unemployment rate has now risen to 4.6%.
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Now, right now, the unemployment rate is starting to really move up. And if you think about it, last cycle in 2021, Bitcoin topped on a rising inflation rate, right? If you go look at Bitcoin in 2021, we know that it actually topped out as inflation was starting to spike. And we'll just overlay that right here. And so back then, you can see how Bitcoin topped out in November while the inflation rate was trending higher.
This time, you could argue that Bitcoin has topped out there. Not because the inflation rate is trending higher, but because the other part of the dual mandate for the Federal Reserve is trending higher, and that is the unemployment rate, right? So, when you think about why there is a narrative to justify things, if you need a narrative, that of course would be the narrative is that, look, you are just simply faced with an unemployment rate that's starting to get away from us. And really, since June, the unemployment rate has been steadily going up, right? July, it was 4.1%, then 4.2%, then 4.3%, then 4.4%, and then it jumps to 4.6%.
So, this is a problem, and it kind of suggests that, hey, maybe the Fed again needs to lower rates. And as we said many months ago, the Fed probably needed to go ahead and cut 50 basis points. Again, I'm not going to be an armchair economist because it's easier to look at it in hindsight, but we did say back then that there was some justification for getting away with just going ahead and doing 50 basis points.
One of the reasons why, a couple of reasons why, the sort of the economy seems to be slowing down despite the rate cuts is that you could argue that while there have been rate cuts, if you look at the 2-year yield, well, the Fed funds rate is still above the 2-year yield, right? So, the 2-year yield's currently at 3.5%. But if you look at interest rates, they're currently at 3.75%. And so normally, in order to get back into neutral territory or easing, you would want to, um, you would essentially want to see the Fed funds rate go below the 2-year yield. And that hasn't, that hasn't happened yet.
I'm just going to pin this uh to the to the to the other scale so you can kind of see them overlaid here. So, I think what we want to see is we want to see the 2-year yield get closer, or sorry, the Fed funds rate get closer to that 2-year yield and start to justify easing, right? And again, we are not at that point just yet. You can see that last cycle, as rates started to come down, they were chasing the 2-year yield, but then it wasn't until the Fed really started to chase the 2-year yield that then Bitcoin went on that massive run, right? And again, we're not at that point in the cycle. Um, that's just something to sort of think about.
And so, when you're thinking about like an unemployment rate that is trending higher, right? When you're thinking about this, an unemployment rate that's trending higher, we have to think about why. Like, why is it starting to accelerate beyond what it used to do? And it's just, you know, years of lower hiring. Uh, quits have dropped a lot. There's not a lot of job openings, right? If you look at at job openings, you'll see what I'm talking about. How they've fallen a lot, and we haven't really seen them expand. And in order to, in order to really get things moving again, you could argue that in fact, we do need, um, lower rates, right? Lower rates, printing, that's basically the only thing they know how to do. And so that is likely what they will do.
But I do think that Powell will be somewhat concerned about easing too quickly because I don't really think he wants to reignite the animal spirits. We'll save that for the next Fed chair. I don't really think he wants to reignite the animal spirits just before he leaves his post as chair of the Federal Reserve, which is likely going to occur in May of 2026. So, in the short term, I think there's going to be some some sustained headwinds, macro headwinds for Bitcoin. We've been talking about that for a couple of months going into early 2026.
Um, in terms of actual price action for Bitcoin, one potential outcome here that we've talked a little bit about is a sweep of this prior low. Um, we've seen this pattern a lot where you drop, bounce, and then drop a little lower and then run. Could see the same thing, right? Drop, bounce, drop a little lower, and then run. We've seen the same thing happen in 2021, right? We also saw, uh, something happen here in in 2022 where we we rallied and then a drop and then a larger rally and then a larger drop. That was not a sweep of the prior low.
I just wonder if it's going to play out a little bit different because I mean, every cycle, it seems to play out in a little different way, like not so that everyone's expecting it. And because Bitcoin topped on apathy this cycle rather than euphoria, I wonder if it makes more sense to compare to what happened there in 2019 where you sort of swept that low and then had that rally. So, I kind of think some of these headwinds that we're facing at at the labor market level, it's going to lead to continued weakness for Bitcoin here in the short term, but I could see a bounce coming in early 2026. Uh, potentially back up to the 200-day moving average and or the 50-week moving average. But I still think that that rally is not, like, we're still not in that rally just yet. It's a little premature to call for that.
I think Bitcoin will likely stay weak for this week, and then I could see some type of local low forming, uh, you know, later December, maybe early January, and then we try to build off that. Unfortunately, there is a decent chance it would result in a macro lower high, and then we go into sort of the the summer of 2026. Um, and and then we we see Jerome Powell be replaced, the Federal Reserve, and and interest rates might come down a lot more to try to tackle, uh, this rising unemployment rate.
I mean, I think honestly, I think Powell did a relatively good job, uh, this this business cycle. I mean, I think they should have raised rates sooner, um, when inflation started to spike, but I do think now it it really does continue to justify more rate cuts, right? Because again, we don't want, you know, we really don't want this unemployment rate to get away from us. And it it is starting to do that because, you know, it's already moving up, but layoffs haven't even really picked up yet. And and this is what leads to the nonlinear part of of the labor market of the unemployment rate where it goes parabolic, right? Is like, it it'll slowly go up for a while, and then at some point, it becomes nonlinear and it and it just goes up parabolically because then when the layoffs start, and no one's hiring, and there's very little job openings, and people aren't leaving their jobs, that's what leads to a rising unemployment rate, and then that's what leads to sort of like some some panic.
Okay. So again, the macro reason for a potential top by Bitcoin in October is just look, the labor market's weakening. In 2021 and 2022, it was because inflation was going up. There's always a reason. But in reality, the real reason could just simply be, hey, this is when Bitcoin normally tops out. Like, it normally finds a top in Q4 of the post-halving year, right? That that's Q4 2013, Q4 2017, 2021, and now 2025. And so, I think we could see those macro headwinds become tailwinds, but I think it's going to take until mid to late 2026 for that to happen.
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