Bitcoin Holds $86K While The Dollar Hits An 18-Month High | Michael Howell

Bitcoin held near $86,000 as the U.S. dollar reached an 18-month high, defying the inverse relationship Dave expected. Bitcoin had risen for five or six weeks and was above and moving higher relative to its 50-week moving average, while gold was below and falling relative to its own. After weak consumer-confidence data, Bitcoin gained about $500 and moved back above $86,000. Dave described it as a high-beta asset that responds directionally to perceived changes in monetary inflows and liquidity. Howell attributed the dollar’s strength to scarce dollars and a strong economy, in which cash need not flow into financial markets; another speaker said the usual dollar relationships with gold and Bitcoin may be coincidental.

Soft PCE and jobs figures gave the Fed room to pause rate hikes, but Matt questioned the data because of a change in the PCE calculation and downward revisions to earlier job numbers. Dave also pointed to diverging payroll and household-survey results, including higher labor-force participation in the household survey, and said he distrusts BLS figures because they are revised. Prediction markets put the chance of the Fed holding rates at its October decision at 82%. Howell said rising Treasury yields reflected a red-hot economy and rate expectations, not mounting concern about U.S. debt or declining confidence in the dollar. Dave saw fiscal dominance: he argued that debt monetization was unavoidable and that each 25-basis-point rate increase adds more than $100 billion in annual interest expense, leaving the Fed to follow the bond market.

Howell said banks’ purchases of government bills already amount to increasing monetization, but distinguished this from larger-scale “real monetization” in the West, which he said has not begun. Another speaker cited U.S. deficits above $2 trillion and ongoing Chinese monetization as reasons global liquidity had remained stronger than expected, with no near-term reversal in sight. Howell expects China eventually to devalue the yuan, print money, and buy government bonds. He attributed gold’s marginal gains mainly to PBOC and Chinese retail buying, rather than G7 monetization, and described China as facing debt deflation, falling prices, and reliance on fiscal spending or exports for growth.

Dave said gold had climbed from roughly $3,000 to $5,500 before retracing more than half to around $4,100. He viewed leveraged CFD inflows near the peak as a warning, but thought gold remained below trend and favored holding it unless central-bank buying stopped. Howell said both gold and Bitcoin can hedge monetary inflation, but Bitcoin is more sensitive to liquidity impulses; he favors both, with substantially more gold because of its 3,000–4,000-year history compared with Bitcoin’s roughly 15. He rejected the idea that Bitcoin buyers are necessarily smart money, noting its performance against the Nasdaq was at levels seen in 2017 and 2021 despite roughly three times the volatility. Mike warned that gold’s 260-day volatility relative to the S&P 500 was 2.2 times, its highest since 2007, leaving gold, Bitcoin, and other volatile assets vulnerable if equities fell.

Howell said dollar strength and tighter collateral markets were contributing to progressive financial tightening. He considers bond volatility, measured by the MOVE index, more consequential than the fed funds rate because it affects the collateral multiplier and credit system. Repo markets were quiet, though liquidity problems had appeared there several times in the prior two years. He sees higher yields weighing on the economy and bonds as more attractive than stocks over the next 12 months, with yields potentially near a peak and term premia flat or edging lower. TIPS yielding around 3% real looked tactically attractive to him, not a long-term holding. Treasury buybacks under Scott Bessent, Howell said, aim to dampen volatility rather than directly suppress yields.

The speakers disagreed about how Bitcoin would respond to a stock-market decline. Dave expected slowing growth to trigger a bond rally that Bitcoin could join; another view was that Bitcoin now trades more like a volatile stock. A sudden selloff could pull stocks, gold, and Bitcoin down together, though a later debasement-trade narrative might support Bitcoin. One speaker expected cryptocurrencies to fall 20% and wanted a severe correction before changing their view, noting that Bitcoin had bounced from oversold levels but lagged gold and the S&P 500 over one- to two-year periods. Howell argued that a major risk-asset selloff would prompt more fiscal spending and liquidity because policymakers could not afford a recession; a bond rally and lower bond volatility could then expand the collateral multiplier and support Bitcoin. He expects medium-term monetary inflation of roughly 7%–8% annually across China, Europe, and the U.S., while estimating U.S. underlying inflation at 4%–5%, a level he described as manageable.