The US economy continues its late-cycle deceleration. January nonfarm payrolls rose 130K (vs 110K consensus), and unemployment edged down to 4.3%. However, revisions matter more: prior months were revised lower by 175K combined. Rolling 3-month average job gains now track 95K versus 220K at the same point last year. Stripping out private healthcare and government, the private economy shows flat to negative job creation.

Wage growth at 0.3% month-on-month and 3.9% year-on-year remains firm but no longer accelerating. Retail sales flatlined against 0.4% expectations, and the control group fell 0.1%. Households are becoming more selective as excess savings fade and real rates bind.

Inflation Trending Lower

Core CPI came in at 2.4% year-on-year, an 8-month low. CPI has been on a clear downward trend since September 2025, just as the Fed began cutting rates. This suggests monetary policy remains restrictive in real terms—inflation is cooling even as nominal rates have started to fall, implying real rates are still exerting downward pressure on demand.

For the Federal Reserve, growth is cooling and inflation is trending lower. While consensus embeds two cuts, the balance of risks now leans toward the Fed potentially doing more if labor market softness broadens. The probability of renewed tightening has faded materially.

For Bitcoin, slower growth and sustained disinflation reduce the risk of further hikes and increase the probability that real yields drift lower over time. Historically, Bitcoin has responded positively to easing liquidity conditions and falling real rates. The fact that inflation continues to trend down despite initial rate cuts reinforces the view that policy is still restrictive, providing room for further easing if required.

Near-Term Positioning Risks

On-chain data show fresh selling from whales holding more than 10K BTC. Fund flows support caution: Bitcoin ETPs recorded $423M of inflows earlier in the week, but the last two sessions saw $636M of outflows. Add political uncertainty—including potential Department of Homeland Security shutdowns—and volatility is likely to persist near term.

Bitcoin is now trading below the estimated average cost of production for listed miners, which we place around $74,600. Periods where spot prices remain materially below production costs have historically been short-lived.

Portfolio Implications

The macro backdrop is turning incrementally more constructive for Bitcoin. The US economy is cooling, inflation has been trending down for several months, and policy remains restrictive even as cuts have begun. If the path ahead is slower growth and gradually easier policy, the medium-term backdrop becomes more supportive, even if short-term noise continues.

For advisors, current volatility presents a strategic opportunity rather than a reason to exit. Bitcoin remains primarily a function of liquidity and real yields. With the Fed signaling a dovish tilt and real rates likely to drift lower, the fundamental case strengthens. Near-term weakness driven by positioning and political uncertainty should be viewed as tactical noise against a structurally improving backdrop.

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