Bitcoin: The Upside Down
Benjamin Cowen examines why Bitcoin has rallied despite rising energy prices, Treasury yields, and the dollar—macro conditions that have stalled stocks and pressured gold and silver. He concludes that Bitcoin's price action is unusually difficult to interpret, acknowledges that his short-term view was wrong, and says the market's next signal depends heavily on whether Bitcoin sustains its weekly close above key technical levels.
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Cowen argues that rising energy prices are pushing the long end of the yield curve higher, with the 10-year Treasury yield reaching 5.1%.
He says the Federal Reserve is responding too slowly because the federal funds rate is 4% while the two-year Treasury yield, which he treats as roughly equivalent to the neutral rate, is 4.9%.
Cowen attributes the lack of a parabolic Bitcoin rally, altcoin season, and speculative rotation in the prior cycle to restrictive monetary policy.
He says rising energy prices, Treasury yields, and the dollar have stalled the S&P 500, which remains about 1.5% below its high.
Cowen notes that gold is struggling during the mid-September to mid-October period he expected to be difficult, but he says gold could form either a higher low or a lower low before its bull market resumes.
He acknowledges that Bitcoin broke out despite his macro expectations and says he was wrong to expect it not to break out.
Bitcoin Upside Down
Cowen introduces Bitcoin's unusual price action and previews a macro thesis centered on energy prices, Treasury yields, the dollar, and risk-asset behavior.
Fed And Two-Year Yields
Cowen explains how the two-year Treasury yield approximates the neutral rate and argues that the Federal Reserve has been unusually slow to respond to rising yields.
Inflation Versus Risk Assets
He says the Fed funds rate is well below the level implied by two-year yields, while rising energy prices and the dollar threaten stocks and other risk assets.
Bitcoin Defies Macro Signals
Despite stalled stocks and struggling gold, Bitcoin breaks higher, contradicting Cowen's expectations and resembling historical golden-cross recoveries.
Weekly Close Confirmation
Cowen acknowledges his short-term Bitcoin view was wrong and focuses on whether the weekly close above the 50-week moving average and May high will hold.
Bullish Odds Improve
He says Bitcoin's move above the May high shifts the odds toward the low being established, while warning that a failed weekly close could still produce a Q4 pullback.
Bitcoin Market Uncertainty
Cowen concludes that Bitcoin remains unusually difficult to interpret, advises breakout traders to watch key levels, and says volatility is being driven by conflicting macro forces.
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