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Bitcoin relative to gold, finding its legs. And I do think David Puell's on-chain indicators are looking more positive. We should have paid more attention to them when they turned negative during the flash crash. Um we didn't. We didn't think that was going to propagate the way it did. I take full responsibility for that.
Just listen to Cloudflare's earnings call last night. He didn't use the word stablecoins, but he did use uh agentic commerce, agentic payments uh throughout. And we think stablecoins, which will be dollar positive uh and Bitcoin, are going to be the two biggest beneficiaries of that movement. Something has changed beneath the surface of the global economy, and most investors may not realize just how important it is yet.
While markets have been obsessing over inflation, interest rates, and the next move from the Federal Reserve, Cathie Wood is pointing toward something much bigger. The monetary environment may be quietly shifting in a direction that could become extremely powerful for Bitcoin and other risk assets. And Wood isn't making that case from a position of blind optimism.
In fact, she openly admits that her team underestimated how aggressively Bitcoin's recent weakness would spread after on-chain indicators turned negative. But now, she's seeing those indicators improve, Bitcoin beginning to regain strength relative to gold, and an entirely new digital financial infrastructure emerging around stablecoins, AI, and automated commerce.
What makes her argument especially interesting is that these developments are happening alongside a resurgence in money growth. And Wood believes that doesn't necessarily mean another inflationary shock is coming. Instead, slowing economic activity, weaker labor force participation, and declining monetary velocity could absorb much of that new liquidity.
And if she's right, the result could be a very different environment for Bitcoin, technology stocks, and the companies positioned on the leading edge of this technological revolution. Before we get into Wood's Bitcoin outlook, we're going to break down what's happening with Japan and the yen, why Treasury markets could be entering a critical phase, why money growth is accelerating without necessarily reigniting inflation, and finally, why Wood believes Bitcoin could emerge as one of the biggest beneficiaries of the next technological shift.
So, if you want more deep dives into Bitcoin, macroeconomics, and the forces moving global markets, make sure to hit the like button, , and let us know in the comments whether you think Wood is right about what's coming next. Here, first I'd like to talk about the yen. Something very important happened this week with the yen.
It is clear now that the Japanese government has said, "We are going to support the yen by selling Treasury securities." And year-to-date they have sold 5%, almost 5% of their Treasury securities. This week Treasury Secretary Bessant and it was famous, it's on X. You'll see his to-do list. One is to intervene on behalf of the yen.
But what we didn't know until yesterday is that or maybe even today is that the intervention was selling the euros that we have and buying yen, not selling dollars. So, that that tells us a couple of things. There is some agreement between Japan and and the Treasury perhaps not to sell any more Treasuries.
That has put pressure on our treasury yields. Uh and it also suggests that uh that Japan is getting concerned about its inflation rate. Remember, not too long ago they were worried they'd never get out of deflation. Well, now they're worried about inflation. Uh and they do not want the yen to go down anymore.
On this one, let's go into monetary policy a bit more. Uh here as opposed to the four-year annualized rate of change in M2, this is the year-over-year uh increase in M2 and it's about 5.6. And so, again, just to serve as a guide, you can see in the context of history this is not at an extreme. Uh it's probably at the midpoint of the range here.
Now, will it go higher? It might go higher. Uh but will that cause inflation CPI-based inflation to con- continue moving up? We do not think so. And uh this will take us back into Well, while we're talking about inflation, uh just in the last month there had been a number of surprises on the low side of expectations for inflation.
CPI headline This would have been for June. We'll get the July one uh next week. minus 0.4 Core was zero. This is month-to-month. Uh PPI month-to-month minus 0.3 PCE, so personal consumption deflator, that was minus 0.1 for June and the core was only 0.1. Uh now, on a year-over-year basis, uh the consumer indices are still for the most part in the threes.
Uh the core headline uh headline and core for PCE, headline for CPI. Core for CPI is 2.6% year-over-year. So, we are still wrestling in that 2 to 3% range for that core with the recent increase in oil prices. Uh but why don't we think the CPI here is going to continue following money uh growth on a year-over-year basis up.
First, I've just given you some statistics suggesting we're beginning to see surprises on the low side of expectations. Second has to do with the labor force participation rate that I just uh discussed with you. Uh as you can see, it is falling pretty rapidly uh and I gave you the reasons, the the two ends of the spectrum.
And this brings us back to uh you know, I've marveled at the the correlation, you can't say causation of course, but correlation between the labor force participation rate and the velocity of M2, the rate at which M2 turns over. When people are concerned about their future, they tend uh to pull back a bit on on spending and maybe save a little bit.
Now, they've not been able to save much and I'll get into that in a moment. Uh but I do think this drop in the labor participation rate, the boomers, now they're depending just on their retirement income, so they're they're probably uh little more conservative in their spending. And on the other side, the young people, 16 to 24-year-olds, they're probably a little concerned as well.
And maybe everyone's concerned, but we did say that the participation rate of the prime age did go up. So, that's a little bit of good news on there. They are the biggest income earners. So, even if velocity just rolls over a little bit, does not resume its downtrend, even though the labor participation rate suggests it will.
Um that will diffuse the impact of money growth. So, 5.6% velocity slows down by 1% and so flatlines essentially, that will take one percentage point uh uh out of the power of uh uh of the 5.6% um monetary growth. Wood's discussion of Japan is important because it connects an apparently distant currency story to the broader liquidity picture confronting global markets.
Japan is now trying to defend the yen while managing its own inflation problem, and the choices it makes could have consequences for treasury demand, global yields, and ultimately financial conditions around the world. In other words, this isn't simply a story about the yen. It is another piece of the much larger global liquidity puzzle.
This brings us to Wood's Bitcoin thesis. She's not simply saying Bitcoin is going higher because liquidity is improving. She's pointing toward a much broader convergence. Bitcoin, stablecoins, AI, automated commerce, and a rapidly digitizing financial system. If those technologies continue reinforcing one another, Bitcoin's role in the emerging financial architecture could become considerably larger than it is today.
Bitcoin relative to gold finding its legs. Um and I do think uh David Puell's on-chain indicators are looking more positive. We should have paid more attention to them when they turned negative uh during the flash crash. Um, we didn't. We didn't think that was going to propagate the way it did. I take full responsibility for that.
Uh, in fact, I also uh caused a problem by saying stablecoins were taking were usurping one of the roles Bitcoin was going to play. And what's so interesting about this period in time, just listen to Cloudflare's uh earnings call last night. He didn't use the word stablecoins, but he did use uh agentic commerce, agentic payments uh throughout.
And we think stablecoins, which will be dollar positive, uh and Bitcoin are going to be the two biggest beneficiaries of that movement. And the other thing to listen to is it just came out this week, was the latest Bitcoin brainstorm that we did with uh Bitcoin Park and Rod Rudy. Um, that was all about the convergence between Bitcoin and AI.
I always learn so much when we do those Bitcoin brainstorms. Uh, here also, uh for those wondering about Michael Saylor, uh you can see that stretch uh is recovering. Uh, it had a near-death experience because because and it wasn't near-death by any stretch of the imagination, but hedge funds were pushing, pushing, pushing.
This is what they do when they see a weak link. And uh Michael Saylor was the weak link. Um, this notion that Bitcoin would continue to unwind, and he would be he would be forced to sell Bitcoin uh to pay dividends, 10 to 11%. Uh, and uh so he's been testing the market by selling some Bitcoin just to give those hedge funds a sense of hey, stop it.
It's not going to happen and I'm selling Bitcoin and what are you going to do about it now? So, we shall see. And here, more broadly, uh we don't see any problems in the banking system. Uh so, no private credit problems, certainly no crypto problems. Uh they're they're they're not touching crypto very much yet.
And same with junk bonds relative to 10-year Treasury yields. No problems. Uh so, no problems. Uh and so, I will leave you now. Uh lots of opportunities. Uh no problems, lots of opportunities. We are so excited about um what's going to unfold in both the equity markets and the crypto markets uh during during the next few years.
Uh this technology revolution is real. I think the inflation scare that has that had unnerved the markets is going to disappear. And believe me, consider the source. I know I've been saying this for a number of years. Uh we think we're going to see deflation before we see any kind of super inflation to concern the markets.
Uh and we think that will occur in the next year or so. And it's going to be fantastic for investors and companies that are on the right side of change and really are harnessing all of these technology tools. And it will be very difficult for those who who do not do so. Uh so, it'll seem at times quite confusing because some of the most tried and true companies are not going to get this right.
Uh and it is up to those of us in the equity markets, especially active equity management, with the help of prediction markets, which I think is going to bring more active equity management back. It is up to those of us who are watching this uh technology revolution unfold from our vantage point uh to pick the right stocks.
And no, we're not always going to get it right. You know, in our business, the saying is if you're right 60% of the time, uh you're going to have a golden record. And now that we've gotten through a very difficult time for innovation within interest rate scares, inflation scares, wars, and so forth.
And we've climbed the wall of worry. I think the wall of worry is going to be a lot more fun for those of us who are dedicated uh to um helping our clients discover and invest in the companies who are going to lead us during this revolution. Put all of the pieces together, and Wood's argument becomes much more than a simple Bitcoin price prediction.
Japan is attempting to stabilize the yen. Money growth is returning. Labor market dynamics are changing. Monetary velocity may be weakening. At the same time, the digital economy is rapidly expanding through AI, stablecoins, automated commerce, and Bitcoin. These forces may look unrelated when viewed individually, but Wood sees them converging into one enormous technological and financial transformation.
And perhaps the most important part of her thesis is what she doesn't expect. Wood believes the current inflation scare could eventually fade, and that the bigger surprise may actually be deflation. If technological productivity begins accelerating rapidly enough, AI and automation could increase the supply of goods and services while transforming how businesses operate.
In that environment, simply looking at today's inflation data may not tell investors much about where the economy is ultimately heading. That could create an extraordinary divide between the companies that successfully harness these technologies and those that fail to adapt. Wood believes active investors will increasingly have to identify the businesses capable of leading this transformation rather than simply relying on yesterday's market leaders.
And if Bitcoin, stablecoins, AI, and automated commerce really are converging as rapidly as she believes, the implications could extend far beyond the crypto market. For Bitcoin specifically, Wood's message is striking. After acknowledging that the recent downturn was more severe than she expected, she now sees on-chain conditions improving, Bitcoin regaining strength relative to gold, and the digital asset ecosystem becoming increasingly intertwined with the next generation of financial technology.
Add a potentially less inflationary macro environment to that equation, and you can understand why Wood remains so optimistic about the years ahead. Of course, none of this guarantees that Bitcoin or any individual asset will move higher in a straight line. Markets can remain irrational, liquidity can change direction, and even the most compelling technological revolutions produce winners and losers.
But Wood's central message is clear. The next phase of the technology revolution may be far more powerful than the market is currently pricing in, and Bitcoin could be one of its biggest beneficiaries. If you enjoyed this breakdown, make sure to like the video, subscribe to the channel, and share this with someone who follows Bitcoin and the global economy.
And I want to hear from you. Do you agree with Cathie Wood that we're moving toward a deflationary environment, and could Bitcoin be one of the biggest beneficiaries of this technological revolution? Let me know your thoughts in the comments below. Thanks for watching and I'll see you in the next video.
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