Bitcoin’s 50-week test… Eric Fry’s portfolio moves for a two-track economy… the Google-Meta chip deal that rattles Nvidia
As I write on Tuesday morning, Bitcoin has retaken $91,000 after falling below $85,000 yesterday.
While it’s up today, even seasoned crypto investors have been shifting nervously in their chairs during the recent drawdown.
So, is this a buyable rebound or a precursor to a steeper fall and a long crypto winter?
Stepping back, since its early-October high of almost $124,000, Bitcoin has been grinding lower as several crosscurrents hit the crypto market at once. But the most significant influence has been deleveraging.
That October high didn’t come from millions of different, excited crypto investors pouring fresh money into the market. Much of it came from traders stacking on more borrowed dollars to chase the rally.
But that leverage buildup also made the market fragile. So, when Bitcoin finally started to slip, those highly leveraged positions were quickly forced to unwind, triggering a wave of automatic selloffs that accelerated the move.
Fresh concerns from yesterday
Macro fears hit hard. Traders worried that Japan might raise rates, threatening the carry trade – a negative development for Bitcoin.
To make sure we’re all on the same page, with the Japanese carry trade, investors borrow money in yen, where the cost of borrowing was virtually zero for decades (until recently, though it’s still low). Then they invest in higher-returning assets elsewhere around the globe – principally, the U.S. stock market, but also in other assets like Bitcoin.
They take their hefty returns, pay back their cheap loan in yen, then pocket the difference.
But when Japanese rates rise, the trade unwinds. And Bitcoin is one of the first assets that traders sell when they need to free up capital.
The last time the Japanese carry trade ran into trouble was in the summer/fall of 2024. During that deleveraging, Bitcoin fell from over $66,000 to around $54,000 in just a few days, almost a 20% drop.
The second drag on Bitcoin from yesterday was a fear that Strategy (formerly MicroStrategy), which has been a huge Bitcoin buyer, may have to sell some of its Bitcoin to cover dividend and interest payments.
Neither concern holds much water. Deleveraging events happen regularly, and markets bounce back. Meanwhile, according to Benchmark research, Bitcoin would have to crash to $12,700 before Strategy faced funding trouble.
So, we view yesterday’s drop below $85,000 as volatility – not structural breakdown.
The bigger issue for Bitcoin today
Our crypto expert Luke Lango flagged Bitcoin’s 50-week moving average as a key line in the sand back in mid-November.
According to Luke, the biggest red flag for investors is how Bitcoin has fallen below its 50-week moving average, “a level that, in past cycles, has often marked the end of the party.”
Excluding the COVID anomaly, every meaningful break-and-close below the 50-week moving average with the slope rolling over has marked the end of a boom cycle.
As you can see below, Bitcoin lost its 50-week average in early November and hasn’t been able to retake it.
So, is this a buyable dip or a “get out before it gets worse” moment?
The answer depends on your goals and holding period.
For traders – especially those using leverage – this is not an “all clear” buy moment.
Momentum is clearly bearish (despite today’s bounce), macro news is negative, and technicals are weak. Bitcoin could drop lower from here.
Here’s Luke’s take from yesterday’s Early Stage Investor Daily Notes:
The tape right now in cryptos is ugly. From that perspective, we urge patience AND caution here.
We do not think this is a time to be plowing new money into the dip. This is a time to stay sidelined.
But for longer-term Bitcoin bulls, scaled accumulation (not an all-at-once cannonball) from here is a smart strategy. After all, this pullback is precisely the type of cooling period that long-horizon investors typically use to their advantage.
Remember – today’s volatility is a short-term story. But the long-term narrative centers on adoption, which continues to strengthen.
On that note, here’s JPMorgan:
Crypto is moving away from resembling a venture capital-style ecosystem to a typical tradable macro asset class supported by institutional liquidity rather than retail speculation…
One speaker noted that it could potentially reach $240k over the long term, thus indicating it as a multi-year growth play.
But Bitcoin as a “typical tradable macro asset class” means those early days of multi-thousand-percent returns are likely behind us. We’re past those early “Wild West” years when a few new whales could push prices up 1,000% in a matter of months.
Now, this doesn’t mean that Bitcoin isn’t attractive. With the world awash in record debt, deficit spending, and fiat debasement, Bitcoin’s role as a storehouse of wealth will only strengthen as big institutional dollars continue to pour in. But recognize that Bitcoin’s role in your portfolio is evolving.
Let’s return to Luke for his bottom line:
The fundamentals are quite positive. That is why we are holding the line with our crypto picks at the current moment.
We think this is just a very painful correction before a strong rebound…
Wait for Bitcoin to retake its 50-week moving average. Then strike. Until then, no need to try and catch falling knives.
We’ll continue bringing you Luke’s analysis.
Now for the economy: America’s widening two-track reality
America’s two-track economy is widening, and portfolios that don’t adapt will suffer.
So says our macro investment expert Eric Fry, of Fry’s Investment Report.
He has been tracking this for years through his “Technochasm” framework – the expanding wealth gap driven by technology, which is now exploding thanks to AI.
Recent data confirms the split is accelerating.
Back to Eric:
The Boston Federal Reserve finds that America’s wealthiest 10% now account for about half of all consumer spending – the highest on record. That means the economy increasingly depends on the shopping habits of a small, asset-rich cohort…
Rising stock prices are just one example of the “fun” kind of inflation that delights affluent households. On the other hand, middle- and lower-income households rarely enjoy the fun kind of inflation, only the un-fun kind…
According to official figures, nationwide food costs are about 35% higher than they were four years ago, which means a shopping cart full of groceries that cost about $130 in 2021 now costs about $200.
Beyond grocery bills, many Americans face growing job insecurity. But Eric points out that this isn’t like prior periods of labor market weakness:
What makes this round of job losses feel different, and somewhat ominous, is the sense that many of these jobs aren’t “coming back later.”
They’re stepping into an incinerator.
A chart I found recently illustrates this. It’s a great encapsulation of both the Technochasm and the jobs “incinerator” that Eric just highlighted.
Below, notice how U.S. Jobs Openings (in red) and the S&P 500 (in green) largely track one another until 2022, when something happened…
The launch of ChatGPT.
The divergence is unmistakable…
Eric’s portfolio advice?
Don’t panic-sell, but reassess allocations:
The cautious investor might want to lighten up on the companies with heavy exposure to stretched households. That group would include industries like mass-market restaurants, discretionary retail, subprime credit, and auto finance.
Trimming positions in high-flying AI stocks might also be a prudent course of action. Because many of these stocks are “priced for perfection,” even small doses of bad news can cause outsized selloffs.
Overall, Eric recommends a shift toward the sectors and companies that possess defensive qualities or underappreciated growth potential, even if the consumer fails to appear.
Eric has three ideas for you in a special presentation he recently released, which you can access here. He calls them “under-the-radar, early opportunities that could multiply your money in the coming months thanks to their ability to adapt.”
Finally, as the smoke clears, what’s the takeaway from GOOGL’s new TPU chips?
Last week, I highlighted a significant development: Meta (META) is now in talks with Alphabet (GOOGL) to potentially buy billions of dollars’ worth of Alphabet’s TPU chips rather than the industry standard GPU chips produced by firms such as Nvidia (NVDA) (disclaimer: I own GOOGL).
In short, Google’s TPUs (Tensor Processing Units) could be significantly cheaper to operate than GPUs. And if that proves true at scale, the effects are profound for NVDA – and the wider AI ecosystem.
Meanwhile, this morning, Nvidia saw a new shot across the bow when Amazon unleashed its own AI chip – the Trainium series. It directly challenges Nvidia’s hold on AI hardware.
I’m going to dig into all this more tomorrow thanks to detailed analysis from Luke (who, beyond crypto, is our technology expert). But for now, here are some highlights.
Back to Luke’s Early Stage Investor Daily Notes:
Let’s get something clear: Nvidia is still selling the best AI training chips on Earth.
Full stop.
Its growth story isn’t broken … just the market’s assumption of monopoly-level domination…
These chips don’t kill Nvidia. They simply take slices of the market Nvidia was never going to own forever.
Luke goes on to write that Nvidia will still grow revenue >20% and EBITDA >25% for years. So, while its monopoly might be ending, its era of super-growth remains strong and steady.
But this does rattle the AI sector as two distinct camps are beginning to emerge. More on that tomorrow.
By the way, Luke just released his latest AI pick – free – in a recent research briefing. You’ll discover the company’s name, ticker symbol, why it’s essential to the new U.S. AI industrial strategy, and why it could soar 10X-20X.
We’re likely to take down the briefing in the next day or so; this is your last call. Just click here for the details.
We’ll keep you updated on all these stories here in the Digest.
Have a good evening,
Jeff Remsburg
