Is a 30% pullback near? 👀

A macro / crypto market update 🤝

December 07, 2024

GM, this is Milk Road PRO – the newsletter designed to help you get out of your own way.

In early October we showed PRO members this chart comparing global liquidity to Bitcoin.

We said that Global Liquidity tends to lead Bitcoin by 12 weeks and thus we were due for a very strong Q4, likely post election.

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Source: RealVision, LSEG Datastream

Fast forward 6 weeks later and that’s exactly what happened. Bitcoin is tracking the 12-week global liquidity lead almost perfectly.

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Source: RealVision, LSEG Datastream

Now, let’s update this chart and look at what the next 12 weeks could have in store for us according to recent liquidity conditions.

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Source: RealVision, LSEG Datastream

We’ve had a decent pullback in global liquidity as of late, if Bitcoin were to track this it would mean we’re due for a pretty big pullback soon or even worse… 

Is this the end of the liquidity cycle? 😣

Firstly, to be clear, at some point the Bitcoin price and 12-week global liquidity chart will decouple, it’s not a perfect science by any means. 

However, there are once again concerns around high inflation and a strong US dollar, leading some to believe that we can no longer lower rates or print more money to stimulate the economy (aka pullback incoming).

On the other hand, we have Trump becoming president on January 20th, who plans to essentially “legalise” crypto in the USA and potentially create a National Strategic Bitcoin Reserve.

Not to mention we have new crypto ETF applications, stablecoin adoption at all time highs and retail beginning to flood back into the space.

Surely all of this is going to continue to push crypto to much higher prices, regardless of liquidity…right?

There is a LOT going on right now across crypto and macro and this report aims to clear the air and set the story straight on what we can expect for crypto prices in the rest of 2024 and beyond in 2025.

CRYPTO = MACRO

Do not forget the title of this section: Crypto is macro.

What this means is that crypto and macro are becoming one in the same. As financial conditions around the world ease, a larger and larger % of that capital moves into crypto.

As financial conditions tighten, capital moves out of crypto. This is how almost all markets work.

Why this is important to understand is because it doesn’t matter about better regulation or better innovation if the macro environment is not supportive of more liquidity.

Better regulation and innovation = shaking a pop bottle to activate the carbonation.

Supportive macro and more liquidity = opening the lid and dropping in a mentos.

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Source: Tenor

So what does a supportive macro environment look like which allows our beloved crypto tokens to pop off?

• Global Liquidity 📈

• Economic Activity 📈

• Inflation 📉

• Interest Rates 📉

• US Dollar 📉

This was what the world looked like during the 2016-17 crypto bull run and again during the 2020-21 bull run (aka ‘Macro Summer’).

Both of these runs ended when the opposite started to happen in each of these metrics. (aka ‘Macro Winter’).

P.S. If you’re new here and have yet to read our PRO report on the business cycle, its seasons and crypto, please take a second and do this now. This will help you understand much of our content moving forward, including what I’m about to get into.

So let’s take a look at where we stand today in terms of these macro metrics.

CURRENT MACRO CONDITIONS: DEC 2024

Global liquidity has taken a turn to the downside over the last few weeks. ❌

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Source: CrossBorder Capital

The US dollar has shot up from the bottom of its range at $100 all the way to the top of the range to $108, since mid-September and evidently since Trump won the election. ❌

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Source: Tradingview

The United States inflation rate jumped 0.2% in October after 7 months straight of lower inflation prints. ❌

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Source: Tradingeconomics

US Interest Rates, while coming down recently, still sit at levels higher than we’ve seen since the great financial crisis in 2007. 

With inflation potentially moving higher, it makes it more and more difficult for the FED to lower rates any further ❌

[

Source: Tradingeconomics

And finally US economic activity, best measured by the ISM Manufacturing Index, a nationwide survey from purchasing and supply executives, continues to be stuck near cycle lows.

An ISM above 50 generally indicates that the economy is expanding and signals ‘macro summer’, however last month we dropped to 48.4, showing a struggling economy. ❌

[

Source: Tradingeconomics

Over the last 2-3 months it appears that the Macro environment has only gotten worse, yet somehow Bitcoin and the total crypto market cap have almost doubled since September, most of that move of course occurring in November post election.

Some of these metrics seem alarming, and if you’re on Twitter or listening to podcasts, the “macro bears” are certainly sounding the bear alarms loudly. 

But, the key in macro investing is not to look at where things are today, but instead where they will be in 6-9 months from now.

As a Canadian, I must now quote the greatest Hockey player of our time, Wayne Gretzky: “Skate to where the puck is going, not to where it has been”.

Keeping the wise words from King Gretzky in mind, let’s revisit the 5 metrics I shared above but this time from a different perspective.

MACRO METRICS FUTURE OUTLOOK

Global Liquidity:

It’s best during these moments to zoom out and remember that the economy works in a very cyclical nature, but it is never up or down in a straight line. 

In fact, for the last 3 cycles every time global liquidity has finally started to break out to the upside, it pulled back and then took off afterwards.

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Source: RealVision, LSEG Datastream

When governments move from quantitative tightening (QT) to quantitative easing (QE), they can’t do it all in one go. 

They need to transition with caution, which is what has taken place recently.

I won't get into the details today, but governments around the world hold trillions of dollars in debt and next year they need to refinance much of it (this happens every 4 years or so). 

No major governments can actually afford their interest payments on the debt so they resort to printing money to manage their debt instead. 

This 4-year refinancing of the debt is one of the main reasons the business cycle is so cyclical, especially during times when debt is such a big part of the overall economy.

You can learn more about liquidity cycles here.

I think 2025 will be a big year for global liquidity and we will see a continuation of the trend we see in the chart above.

United States Dollar:

If we look at the US Dollar in 2016, the last time Trump won the election, the DXY sky rocketed from $95 in November up to $103. 

It topped out late December after the hype of a “business-savvy” president died down and made its way down to $88 just 1 year later.

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Source: Tradingview

Take another look at the liquidity chart above (end of 2016) to see why the dollar went down so much once Trump took office (money printer go brrrrrr 👀).

Also there’s this, so that should help too…

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Source: @RaoulGMI

United States Inflation:

Zooming out on US inflation and I have no idea why anyone is concerned…what spike in inflation? 

[

Source: Tradingeconomics

There are only 2 times in the last 65 years that inflation has really gotten out of control, which was at the end of 2021-2022 and back in the late 70s and early 80s.

The boomer bears continue to think that because back in the 70s we had a “double spike” in inflation, we will do the same this time around.

[

Source: Tradingeconomics

What the inflation doomsday scenario people continue to miss is that the structural reasons that caused both of these inflation spikes are completely different.

In the 70s and 80s we had sustained inflation for almost a decade because we had the largest demographic in history (The Baby Boomers) enter the workforce, buy homes and have children at the exact same time. 

Think about what that means for a second…

Almost 100 million people in the US alone (closer to 1 billion globally) all started working and making money for the first time. 

Once you start making money you move out, buy a home, furnish your home and have kids. 

Remember, back then we didn’t have factories run by robots which could ramp up production whenever we needed.

The supply chain architects took a decade to figure out how to produce enough goods for this much demand, causing a prolonged supply shock on goods and services and thus sustained inflation.

The story today couldn’t be more different in terms of demographics. 

But more importantly, in 2021 we had severe inflation because we shut down the economy and production globally for almost a year due to COVID, while simultaneously handing out stimmy checks to people all around the world.

What did you think was going to happen when you stop the supply of goods being produced yet ramp up demand by locking people in their homes and handing them free money to spend? 

Of course inflation was going to go through the roof!

We’ve since fixed those supply issues which makes little reason for any meaningful inflation to pick back up. 

Of course, inflation will have its ups and downs, but when you start to think about how deflationary technologies like AI and robotics are working in combination with a declining population, I see no reason why we have another sustained high inflation run (outside of another Black swan event of course).

United States Interest Rates:

If we zoom out and look at US interest rates for the last 20 years we notice that raised rates never last too long. 

We live in a time dominated by near 0 rates due to high debt and sustained lower inflation as a result of the proliferation of deflationary technologies (i.e. Internet, Robotics, AI) and population growth decline.

These deflationary pressures are only escalating, as is our debt, so I see no reason why this trend would change anytime soon. 

Where do I think these rates will head next?

[

Source: Tradingeconomics

The answer is lower. Much lower.

Does it go back to 0% interest rates? 

Probably not, but remember, these high interest rates don’t just hurt home owners. 

The government is more in debt than ALL of us put together, they need rates to be lowered more than we do!

I seriously don’t think it’s possible for governments to keep rates this high for a sustained period of time, regardless of inflation numbers!

Economic Activity:

The final piece of the puzzle to get our proper ‘macro summer’ bull market is we need to see the ISM (which helps to measure US economic activity) move above 50. 

While it has been lagging so far, there are many external surveys and other data compilations that tend to correlate with the ISM overtime which are pointing to a higher ISM from here.

If we take the average of 3 of the top data points which correlate with the ISM (Empire Manufacturing Survey, Philadelphia Fed Composite Expectations Index and Dallas Fed) they indicate that the ISM should actually be closer to 55 currently. 

This is a clear sign the ISM is likely to head much higher moving into 2025.

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Source: RealVision, LSEG Datastream

By the way, the ISM is an excellent indicator for the $ETH/$BTC ratio and altcoin season too. 

When the ISM starts moving higher, you can bet that Bitcoin dominance will head lower and $ETH and alts will start to outperform.

[

Source: RealVision, LSEG Datastream

MY EXPECTATIONS FOR CRYPTO MARKETS

It’s very clear to me that 2025 is going to be another 2021, 2017 like year for crypto assets. 

The ingredients for ‘macro summer' should be falling into place if the above analysis goes the way I think it will.

This means good things for Bitcoin and even better things for $ETH, $SOL and the many alt tokens across the crypto ecosystem. 

This is the recipe for us to reach our $10 Trillion crypto market cap prediction we suggested earlier this year.

That said, as I mentioned at the start of this report, the macro data looks a bit dicey at the current moment. 

Most investors struggle to zoom out and look at the bigger, forward-looking picture as we just did in this report.

With that in mind, my best guess is that we have a pretty significant pullback coming in the near future, before the macro data becomes more clear and we push forward into ‘macro summer’ and a wild alt season.

I have no idea when this pullback will happen, but if I had to guess it will be at some point in January. 

I say this for a few reasons:

• As shown above, global liquidity tends to lead Bitcoin by 12 weeks, which shows a top at the end of December, after a rise upwards of $110k-$120k Bitcoin.

• December tends to be a very bullish month for crypto and markets at large, so it would be a bit unusual to see a significant pullback during this month.

• It will likely take 2-3 more data points in the above metrics for investors to feel confident in the direction macro is heading, which leads me to believe there will be some fear in the interim.

Once again, this is simply a guess, I do not hold strong conviction in terms of when a pullback will occur. 

However, after running up almost 100% in the last 2 months, even without the expected macro scare, a significant pullback is likely due.

Remember, nothing ever goes up in a straight line. 

I say we are heading to $10 Trillion in 2025 and I firmly believe that, however, we will definitely have big pullbacks along the way.

After reading this I know the 2 most common questions I will get in Discord from all of you will be:

Q1: “If there is a pullback coming, should I take profits now and buy back in after the pullback?”

My answer: No, you will f*** this up if you try to time the market in the short-term.

Q2: “I have some money to allocate, should I wait for the pullback or buy now?”

My answer: I HAVE NO IDEA!

I don’t have a crystal ball and I have no idea how to time the short-term movements in markets (no one does!).

Just think about this for a second…

Yes, I believe a 20%+ pullback is coming in the next 1-2 months (that’s 20% for $BTC, likely much more for alts). 

If it happened today, that would put $BTC around $80k, sounds like a nice buy right?

However, if it didn’t happen today, in the next 20 days Bitcoin could first run up to $125k before doing a 20% pullback. Now that 20% pullback is to $100k, and you’re right back to where you started.

Or maybe, while you’re trying to outsmart the market and wait for a 20%+ pullback it only actually pulls back 19% or 18% and then rips, leaving you on the sidelines.

Or maybe I’m wrong and a pullback doesn’t happen for months later and you completely miss Bitcoin running up to $200k-$250k.

Does buying $BTC at $80k, $90k or $100k really matter if it goes to $250k? Of course not. 

Trying to get cute with the market is only going to increase the chances that you f*** this up.

So stop thinking about the short-term and lock into the bigger picture here before you miss out!

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Source: Tradingview

Crypto is heading to $10 Trillion in the next year and it doesn't care what price you “want” to buy it at.

So, buckle up and enjoy the ride 📈

AI-GENERATED PODCAST 🤖

We’ve turned this PRO report into an AI-generated podcast to make it even easier to digest. Head over to our website and give it a listen! 🎧️ 

You’ll find this episode, along with all our other AI-generated podcasts, waiting for you there.

Disclaimer: This podcast was created using AI and is based on the research report above. While we've done our best to ensure accuracy, the audio may contain minor errors, technical glitches, or mispronunciations. Please note that this podcast provides an overview of the report and is not a comprehensive or definitive take on the topic.

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Kyle Reidhead, the Milk Man’s best friend, and m0xt, lead researcher, will be sitting down this coming Wednesday at 11 AM EST in our PRO Discord server for a live check-up on each token.

Wen? December 11th**.**

Where? In the Milk Road PRO Discord (meetup channel).

Here’s what we’ll cover:

• Current Prices 💸

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