Bitcoin Dropping Below 50,000? Weak Data This Week Rekindles Fears

👇1-14) The week started positively, with three US pension funds expressing interest in acquiring Bitcoin through ETFs. Even though Mt. Gox distributed billions of dollars worth of Bitcoins to creditors, and 40% of these were sent to exchanges, Bitcoin prices continued to rise. The trend line near 70,000 was tested for the sixth time. However, the situation soon took a turn.

👇2-14) In the past 48 hours, it has become apparent that the US economy is weaker than the Federal Reserve initially believed. This week's FOMC statement was moderately hawkish, suggesting various possible scenarios. However, during the QA session, Fed Chair Powell delivered a dovish message, indicating that a rate cut in September is likely if inflation decreases as anticipated.

👇3-14) This dovish tone triggered rallies in stocks and Bitcoin. However, less than a day later, the landscape shifted dramatically when a weak ISM index sent shockwaves through risk assets.

👇4-14) Although our models anticipate a continued decline in inflation, this week has demonstrated that inflation is no longer the primary metric to monitor. A decade ago, we developed extensive US economy models using leading, coincident, and lagging indicators. Since inflation is statistically a lagging indicator, it has historically been relatively straightforward to predict.

👇5-14) GDP and employment data are lagging indicators, each with month-long delays. However, the most reliable indicator, the ISM Manufacturing Index, is typically validated by stock market performance. Over the past 12 months, however, these two data series have been unusually out of sync. While the ISM index signals a weak US economy, the stock market appears to be driven primarily by the AI theme and the performance of the seven largest stocks.

One of those is WRONG? It appears stocks (SP500) are too high

👇6-14) The impression of a strong economy may have stemmed from employment data boosted by a disproportionate rise in temporary and government-related jobs. In reality, this growth was only temporary. The stock market tends to rise in the final year of a presidential term, as the incumbent administration often implements additional fiscal stimulus to appease voters. This stimulus seems to have been a key driver behind last year's +19.4% return for the SP 500.

👇7-14) With the ISM Manufacturing Index significantly weakening over the past two months, the likelihood that both the ISM Index and the SP 500 Year-on-Year (YoY) growth will converge at a higher level—60 for the ISM and +20% for the SP 500 YoY—has been seriously undermined this week.

👇8-14) Instead, the SP 500 might need to align with the 'real' economy, potentially leading to a 20% stock decline. Historically, Bitcoin has experienced sharp corrections when the ISM peaked. What sets this situation apart is the lingering effect of the COVID stimulus and aggressive political support for the economy, such as student loan forgiveness, which may have driven the stock market rally alongside the AI theme despite a weak economy, as indicated by the ISM.

👇9-14) The primary risk is that the SP 500 could rapidly decline, compelling the Federal Reserve to announce that it is monitoring the markets for a potential emergency rate cut. Despite most Fed governors maintaining a hawkish stance this week, interest rate markets had already anticipated a cut several months ago. Market expectations now point to a 50 basis point cut in September, followed by an additional 25 basis point cuts in subsequent months.

👇10-14) However, given that monetary policy operates with a twelve—to eighteen-month lag, cutting rates today might not impact the economy until mid- to end-of-next year. Additionally, the economy has become less sensitive to interest rates due to the relative shrinkage of the capital-intensive sector compared to other sectors.

👇11-14) As noted earlier this week, if the Federal Reserve cuts rates after a prolonged hiking cycle solely due to weaker inflation, stocks (and Bitcoin) should interpret the first cut as bullish. However, if a weak economy drives the cut—as was the case in 2001 and 2007—stocks (and Bitcoin) are likely to decline.

👇12-14) Historically, the likelihood of a recession in 2025 is high, and the stock market typically anticipates such downturns well in advance. Since 1900, 25 U.S. presidents have begun their first term, with 11 experiencing a recession within their first year, resulting in a 44% probability of a recession during their first year in office. As of June 2025, YCharts reports a 55.83% chance of a recession, up from the previous month but down from last year. Rosenberg Research's model indicates an 85% chance of a recession in 2024, the highest since the Great Recession.

👇13-14) Suppose the stock market follows the downward trend of the ISM Manufacturing Index or even starts to anticipate a near-recession. In that case, stocks will likely decline significantly over the next few quarters. This would have substantial negative implications for Bitcoin as well. If this scenario unfolds, Bitcoin prices could revisit the 50,000 level and fall even lower.

👇14-14) Effective risk management is crucial in this scenario.