Bitcoin is testing critical support as a stronger yen and rising Treasury yields threaten global risk assets. Here’s what investors should watch next.

Welcome to this week’s market recap. Today, we will examine Bitcoin, the S&P 500, the US dollar, the Japanese yen carry trade, the recent rise in long-term Treasury yields and my initial Coinbase purchase.

Overall, it was a difficult week for crypto and technology stocks. However, the weakness was not evenly distributed across the market. Established, cash-generative businesses performed relatively well, while many highly valued AI-related stocks continued to decline.

This is the type of valuation reset we anticipated and warned about previously. Palantir, for example, has now fallen 40% from the area where I first raised concerns about its valuation. The divergence between profitable, cash-generating companies and more speculative AI stocks is becoming increasingly visible.

Bitcoin remains below the bull market support band and is currently on track to close the week below the 200-week moving average. From a technical perspective, this is a bearish development that must be taken seriously.

In previous bear markets, a sustained break below the 200-week moving average was followed by a deeper correction and the formation of a new cycle low. During the previous cycle, Bitcoin declined approximately another 33% after losing this moving average before eventually establishing its final bottom and beginning the next bull market.

The current structure therefore remains broadly consistent with the historical four-year cycle. Bitcoin is now 42 weeks into the bear market, while previous bear markets have generally lasted around 52 weeks. History never repeats perfectly, but it often rhymes. So far, nothing within the current structure has invalidated the four-year-cycle thesis. A confirmed weekly close below the 200-week moving average could reinforce it further.

However, this does not mean that the bottom must occur in exactly week 52. We have discussed this possibility extensively because markets frequently front-run the consensus expectation.

The important lesson is that investors should not become dependent on one perfect price or one exact date. Attempting to deploy all available capital at the precise bottom is often how investors miss both the bottom and the recovery that follows.

A more disciplined approach is to begin establishing exposure gradually while preserving sufficient capital for lower prices. An initial entry does not need to be perfect. It needs to form part of a broader allocation strategy with predefined accumulation levels, position sizes and risk controls.

I recently initiated a position in Coinbase near the recent lows. However, I have not completed the position and intend to increase my exposure if the stock reaches more attractive prices.

I continue to view Coinbase as a high-conviction opportunity for the next market cycle, but conviction should not be confused with deploying all available capital at once. The position will be built methodically rather than emotionally.

Sonderberg Research clients receive the complete Coinbase roadmap, including the specific entry zones I am monitoring, the amount allocated to each tranche, concentration parameters, portfolio positioning and the levels at which I plan to reduce or exit the position.

The US Dollar Index fell below the 100 level. Under normal circumstances, a weaker dollar is often interpreted as supportive for Bitcoin and other risk assets. However, that relationship does not apply automatically.

The primary reason for the dollar’s decline was the sharp appreciation of the Japanese yen. The USD/JPY currency pair recently approached a major resistance zone that has remained relevant for approximately 40 years. After reaching that area, the pair declined sharply, meaning the yen strengthened significantly against the dollar.

This matters because of the Japanese yen carry trade.

The yen carry trade is a strategy through which market participants borrow Japanese yen at very low interest rates and use that capital to purchase higher-yielding assets elsewhere. Those assets may include US equities, technology stocks, government bonds, cryptocurrencies and other global risk assets.

During the expansion phase, investors borrow yen at a low cost, sell the yen to purchase US dollars and use those dollars to acquire higher-yielding assets. This process places downward pressure on the yen while allowing investors to benefit from the yield differential and, in some cases, further currency depreciation.

The danger emerges when the yen begins to strengthen rapidly.

As the yen appreciates, the profitability of the carry trade declines or disappears. Investors may then be forced to sell equities, bonds, cryptocurrencies and other assets to repurchase yen and repay their liabilities.

That additional yen buying strengthens the currency further, potentially creating a self-reinforcing cycle of margin calls, forced deleveraging and cross-asset selling. The effects can extend far beyond the foreign exchange market because yen-funded capital has circulated through global financial markets for decades.

This is why a falling US dollar is not necessarily bullish for Bitcoin in the current environment. The cause of the dollar’s decline matters. When the dollar weakens because of a rapid yen appreciation, the resulting carry-trade unwind can create substantial selling pressure across technology stocks, crypto and other liquidity-sensitive assets.

I covered this subject extensively with clients because it is currently one of the most important macroeconomic developments affecting global markets.

Another important development is the renewed rise in long-term US Treasury yields.

According to the latest available official data through July 30, the 10-year Treasury yield increased from 4.61% on July 28 to 4.68%, while the 30-year Treasury yield rose from 5.09% to 5.21%. The 30-year yield moving back above 5.2% is particularly significant because it represents an elevated long-term cost of capital.

The rise at the long end of the yield curve matters because it tightens financial conditions even without an immediate Federal Reserve rate increase. Higher Treasury yields increase the return investors can receive from comparatively low-risk government debt, raising the required return for holding equities, crypto and other volatile assets.

This is especially relevant for AI and high-growth technology stocks. Much of their valuation depends on earnings expected many years into the future. When long-term yields rise, those future cash flows are discounted more aggressively, reducing the present value investors are willing to assign to them.

Higher long-term yields also increase mortgage rates, corporate borrowing costs and the government’s cost of refinancing its debt. They can therefore restrict liquidity throughout the economy while placing pressure on equity valuation multiples.

The Federal Reserve has noted that the broader increase in far-forward rates appears connected to higher real risk premiums, concerns surrounding future adverse supply shocks and growing uncertainty about federal deficits. This suggests the move cannot be explained solely by short-term inflation expectations or the expected path of the federal funds rate.

For risk assets, the combination of a strengthening yen and rising long-term Treasury yields is particularly important. A yen carry-trade unwind can force leveraged investors to sell, while higher Treasury yields simultaneously make risk assets less attractive relative to government bonds.

As long as the 10-year yield remains near 4.7% and the 30-year yield remains above 5%, financial conditions will remain restrictive. A continued rise would create another significant headwind for AI stocks, the broader Nasdaq and crypto.

As expected, the Federal Reserve left the federal funds rate unchanged at 3.50% to 3.75% at its July 29 meeting. The Fed continues to describe economic activity as solid, with job growth keeping pace with the labor force and the unemployment rate showing little change. However, inflation remains elevated relative to the Fed’s 2% target, partly because of renewed supply pressures in sectors such as energy.

Chairman Kevin Warsh maintained a firm stance on inflation, emphasizing that the Federal Reserve remains committed to restoring price stability and delivering its 2% inflation objective. This suggests that the Fed is not prepared to tolerate persistently elevated inflation simply to support financial markets or accelerate monetary easing.

The decision passed by a 9-3 vote. Beth Hammack, Neel Kashkari and Lorie Logan dissented because they preferred an immediate 25-basis-point rate increase. This was an unusually hawkish dissent and reflected continued concern about elevated inflation, energy-related price pressures and the broader risks created by geopolitical uncertainty.

Overall, the meeting unfolded largely as expected. Rates remained unchanged, but the vote revealed a meaningful divide within the Committee. With three officials already supporting an increase, the possibility of further tightening cannot be dismissed if inflation remains persistent or energy prices continue to rise.

For markets, this means that monetary policy is likely to remain restrictive. Investors should not assume that the next policy move must be a rate cut. The Fed remains data-dependent, and another inflationary shock could keep rates elevated for longer or potentially force the Committee to resume rate increases.

This is particularly important when combined with the recent rise in 10-year and 30-year Treasury yields. Even without an immediate increase in the federal funds rate, higher long-term yields are already tightening financial conditions and increasing pressure on equities, technology stocks, crypto and other liquidity-sensitive assets.

The recent weakness in equities has remained concentrated primarily within technology and AI-related stocks.

Palantir experienced a decline of approximately 40% from its recent high to the low. The Nasdaq also declined by approximately 11% to 12% from peak to trough and currently remains around 8% below its high.

The S&P 500 has been considerably more resilient. Rather than experiencing a broad market correction, the index is primarily consolidating near its highs. This reflects the stronger performance of mature, cash-generating businesses relative to more expensive AI and speculative technology companies.

However, I continue to expect the broader S&P 500 to experience a more meaningful correction later this year. Rising long-term Treasury yields, restrictive financial conditions and the risk of a disorderly yen carry-trade unwind create an increasingly difficult environment for equity valuations.

A decline toward the 200-week moving average would represent an exceptionally attractive long-term accumulation opportunity. With the exception of the extraordinary COVID-related decline, the 200-week moving average has served as a major structural support level since the 2008 financial crisis.

Investors should not assume that the market must reach the moving average before any capital can be deployed. Intermediate levels could also become attractive accumulation areas. As with Bitcoin, the objective should be to construct positions across predefined tranches rather than wait for one perfect entry.

Several important risk factors are now developing simultaneously.

Bitcoin is threatening to confirm a weekly close below the 200-week moving average, which increases the probability of another correction or a new cycle low.

At the same time, the Japanese yen is strengthening near a historically important USD/JPY resistance zone. A rapid carry-trade unwind could force leveraged market participants to liquidate positions across technology stocks, equities and crypto.

Long-term Treasury yields are also moving higher. The 10-year yield is approaching 4.7%, while the 30-year yield has moved above 5.2%. These levels raise the cost of capital, tighten financial conditions and create additional pressure on long-duration assets.

The broader strategy remains unchanged. Do not become dependent on one exact bottom target. Preserve liquidity, establish exposure gradually and accumulate high-conviction assets according to predetermined entries, tranches and concentration limits.

Stick to the strategy, remain patient and have a wonderful weekend.

Economic: Construction Spending, ISM Manufacturing Index
Earnings: CNA Financial Corp. (CNA), CNH Industrial NV (CNH), Diamondback Energy Inc. (FANG), Ecopetrol SA (EC), Hess Midstream LP (HESM), Krystal Biotech Inc. (KRYS), Marriott International Inc. (MAR), ONEOK Inc. (OKE), Palantir Technologies Inc. (PLTR), Tyson Foods Inc. (TSN), Vertex Pharmaceuticals Inc. (VRTX)

Economic: Business Inventories, Factory Orders, Trade Balance
Earnings: Advanced Micro Devices Inc. (AMD), Amgen Inc. (AMGN), Arista Networks Inc. (ANET), BP PLC (BP), Caterpillar Inc. (CAT), Cummins Inc. (CMI), Duke Energy Corp. (DUK), EOG Resources Inc. (EOG), Gilead Sciences Inc. (GILD), McDonalds Corp. (MCD), Merck and Co. (MRK), Pfizer Inc. (PFE), Space Exploration Technologies Corp. (SPCX), Toyota Motor Corp. (TM)

Economic: ADP Employment Change, EIA Crude Oil Inventories, ISM Non Manufacturing Index, MBA Mortgage Applications Index
Bank of Japan BOJ Monetary Policy Meeting (July 30–31)
Earnings: Allstate Corp. (ALL), AppLovin Corp. (APP), Brookfield Asset Management (BAM), CVS Health Corp. (CVS), DoorDash Inc. (DASH), Eli Lilly and Co. (LLY), McKesson Corp. (MCK), MercadoLibre Inc. (MELI), Novo Nordisk A/S (NVO), SanDisk Corp. (SNDK), Shopify Inc. (SHOP), Uber Technologies Inc. (UBER), Walt Disney Co. (DIS), Western Digital Corp. (WDC)

Economic: Continuing Claims, EIA Natural Gas Inventories, Initial Claims, Productivity Preliminary, Unit Labor Costs, Wholesale Inventories
Earnings: Aflac Inc. (AFL), Airbnb Inc. (ABNB), American International Group Inc. (AIG), Becton Dickinson and Co. (BDX), Cheniere Energy Inc. (LNG), Cloudflare Inc. (NET), ConocoPhillips (COP), Constellation Energy Corp. (CEG), Datadog Inc. (DDOG), Howmet Aerospace Inc. (HWM), Monster Beverage Corp. (MNST), Parker Hannifin Corp. (PH), Sempra (SRE), Targa Resources Corp. (TRGP)

Economic: Average Hourly Earnings, Average Workweek, Consumer Credit, Nonfarm Payrolls (88K consensus), Unemployment Rate (steady at 4.2% consensus)
Earnings: Almonty Industries Inc. (ALM), CG Oncology Inc. (CGON), Fluor Corp. (FLR), Hawaiian Electric Industries Inc. (HE), Oklo Inc. (OKLO), Plains All American Pipeline LP (PAA), Plains GP Holdings Inc. (PAGP), PPL Corp. (PPL), Take-Two Interactive Software Inc. (TTWO), Vistra Corp. (VST)

Everything you just read is what we do every single day at Sonderberg Research. The difference is timing and depth.

By the time analysis like this reaches a newsletter, the move has often already started. My private clients don't wait. They get:

If you're managing $100K+ and you're done reacting emotionally to a market that punishes hesitation, let's talk.

On a private Strategy Call, we'll map exactly where you are in this cycle, the 3 institutional signals that flag the top before retail sees it, and where your portfolio is currently exposed.

No pitch. Just a clear, unemotional plan for your capital.

→ Apply for your Strategy Call: sonderbergresearch.com

Want my full story, track record and ledger? Visit diegosonderberg.com.

Kind regards,
Diego Sonderberg

Share this Newsletter:
If you find these insights valuable, please share this newsletter with anyone who follows crypto or global markets. Since 2021 I’ve consistently identified major cycle tops and bottoms and aim to make this the most useful market-timing letter you read each week.
Share the following link with friends and family: https://newsletter.sonderbergadvisory.com/

More:
YouTube Channel
X Account
Instagram
About Me