Crypto Traders Hit Hard; Bitcoin Down Around 30% From Oct. High | The Pulse 12/2

Key Concepts: Cryptocurrency Volatility, Macroeconomic Indicators, Federal Reserve Rate Cuts, AI-driven Growth, AI Bubble, Corporate Margins, K-shaped Recovery, Inflation Re-acceleration, Geopolitics, Ukraine Peace Plan, Shadow Russian Fleet, UK Office for Budget Responsibility (OBR), Iran Human Rights, EU Critical Raw Materials, China-Japan Tensions, US-China Tech Competition, AI Power Capacity, Lawyers vs. Engineers, Technological Fragmentation, DeepSeek AI, Airbus A320 Software Glitch, Fuselage Panel Misalignments, Supply Chain Issues, Bayer Lawsuits.

Cryptocurrency Market Volatility and Macroeconomic Outlook

The video opens with a discussion on Bitcoin's volatility, noting it has stabilized after tumbling around 30% since October, following a volatile start to the month. Anna, Senior Editor for Digital Finance, suggests this stabilization "could be the beginning of another drop," as crypto increasingly follows macro indicators, reflecting investor risk-aversion. Retail investors, many of whom traditionally invested in crypto, are worried about selling Bitcoin due to broader stock drops (e.g., MicroStrategy setting aside money for dividends). Despite a "great year for crypto in general," Bitcoin has lost all its accumulated gains, though it's "still not the lows of the year" seen in April. The question of whether Bitcoin will break new record highs in the short term is posed, with the observation that while industry conditions seem optimal (US President support, institutional buyers), the current situation feels different due to broader macro factors like the Federal Reserve's actions and Japan's economic situation.

Grace Peters, a market analyst, states that crypto is "not an asset" due to its "extreme volatility." She views the current pullback as indicative of year-end position assessments, where investors acknowledge risks, especially for assets not connected to cash flows.

Federal Reserve Policy, AI, and Economic Risks

Grace Peters provides her 2026 outlook, predicting the Fed will cut rates in December and again in the first quarter of next year. This view is based on the belief that the "economy is weaker than consensus expects," citing "red flags" in youth unemployment. This contrasts with the consensus view of strong, accelerating growth in the first half of the year.

AI is identified as a key driver of growth, having driven "over 50% of U.S. GDP growth" in 2025, surpassing consumer spending as the primary growth engine. While near-term demand for AI is "extremely strong," the long-term question (2-3 years out) is about the "productivity beneficiaries" and "revenue growth opportunities" that manifest in higher corporate margins. Peters believes the "corporate margins story could play out sooner rather than later," with benefits extending beyond the technology sector.

Regarding risks, Peters highlights a K-shaped recovery, with particular risks to youth unemployment. She also discusses the inflation argument: while the labor market might be weaker than expected in the next three months, a "re-acceleration of growth and with that a re-acceleration of inflation" is possible next year. This could be driven by tax rebates and beneficiaries of "big beautiful bill" spending, affecting all consumers, especially the lower-end cohort. She suggests that by mid-next year, the Fed might need to "raise rates through the end of 2026 or into 2027," presenting a "complex picture to navigate." Despite these pressures, she believes "the promise is going to win out," expecting "another good year for equities" and recommending alternative asset classes like hedge funds and infrastructure as diversifiers.

Global Market Insights: UK, Europe, Japan, and Geopolitics

Grace Peters offers insights into various global markets:

• UK Market: Often "overlooked," but with "pockets of value." The recent budget was "better than many of our clients expected." Opportunities exist in UK gilts for "gated income" and in the UK stock market, particularly banks and the mining complex, for their "dividend component."
• European Market: The ECB is expected to "be on hold." While consensus predicts European growth (driven by German fiscal spending) to pick up in 2027, Peters suggests stronger growth in 2026 could be a "positive catalyst" for the domestic economy, noting that accumulated wealth is arguably higher in Europe than the US. She also mentions a pickup in Asian retailing, which is positive for the "European luxury" sector, recently upgraded despite structural issues in China.
• Japan: The market saw a "wobble" due to Bank of Japan speculation. For equities, "shareholder returns" are key. Fixed income continues to provide support, with a recommended duration of around 6.5 years for government bonds to offer both inflation and downside growth protection.
• Geopolitics: While geopolitics commands significant airtime, it "rarely has had a lasting influence" on markets, with the "exception... when it hits the oil price." Oil is currently "range country drifting lower" due to supply. Gold is highlighted as a "main commodity we are constructing." Peters believes the market is "moving through the worst of the trade issues," with corporate sectors having largely dealt with them, partly linked to AI productivity benefits. A major systemic disruption, akin to the COVID pandemic's supply disruptions, would be needed for significant impact.

Ukraine-Russia Conflict and Oil Tanker Attacks

The video covers the ongoing efforts for a peace deal in the Ukraine-Russia conflict. U.S. Envoy Steve Witkoff is meeting President Vladimir Putin in Moscow to discuss proposals. Ukrainian President Volodymyr Zelenskiy states the latest version of the peace plan "looks much better." However, Piotr Skolimowski reports that the initial 28-point plan, which emerged weeks ago, "caught everyone by surprise" as it was largely drawn up by Witkoff and the Russian envoy with "little or no input from Ukrainians" or Europeans.

Key sticking points remain "huge," primarily concerning territories. Ukraine is "ready to kind of freeze the frontline" where it is, but Russia "want[s] full control of the Donbas region." A conclusion is difficult without external pressure, with a "growing push from the administration of President Donald Trump to cut the deal very quickly." Witkoff's sixth visit to Russia has not included a meeting with the Ukrainian side, raising "certain concern" in Ukraine, which recently sent a delegation to Florida to meet Witkoff and present their viewpoint. A breakthrough today is unlikely, as Ukraine's agreement is "so far from that."

Separately, a third oil tanker linked to Russia has been hit at sea, this time off the coast of Senegal. Two previous attacks on "shadow Russian fleet" tankers occurred in the Black Sea, for which Ukraine claimed responsibility. Ukraine views attacking Russian refineries and shadow fleet vessels as "fair game" to reduce Russia's oil and gas revenues, which are crucial to its economy.

UK Political Developments: OBR Resignation and Budget Controversy

The head of the Office for Budget Responsibility (OBR) has resigned after taking responsibility for the "premature publication" of budget details, an inquiry describing it as the "worst failure in their history." Joe Mays, UK Politics Reporter for Bloomberg, notes the resignation felt "inevitable." There are still questions about potential pressure on Chancellor Rachel Reeves. Prime Minister Keir Starmer defended Reeves against accusations of misleading the public about the state of finances, stating that while there was a "£16 billion pound hit from their productivity downgrade," tax receipts were also "much better than expected." Mays argues the government's account is "hard to fully accept" and that the story "will continue to run and run," with public trust in Reeves being questioned.

Iran Human Rights and EU Raw Materials Strategy

Narges Mohammadi, a leading Iranian human rights activist and Nobel laureate (who won the Nobel Peace Prize in 2023 while imprisoned), told Bloomberg that "repression has intensified" in Iran. She states that the "executions reflect the degree of cruelty the Islamic Republic has unleashed against the Iranian people," with arrests becoming "far more widespread" and targeting previously untargeted layers of society. She describes the "establishment's violence against its own people is a naked one," and people are "deeply angry."

The European Union plans to commit "at least 3 billion euros over the next year" to reduce its dependence on Chinese raw materials. This broader plan includes creating a "European Critical Raw Material Center" to oversee investments and build stockpiles.

China-Japan Tensions and US-China Tech Competition

Taiwan's Foreign Minister, Joseph Wu, warns that tensions between China and Japan, sparked by Japan's new Prime Minister's comments on military action regarding Taiwan, "could drag on for a year." Taiwan is adopting a "soft approach" to "cool down the situation," maintaining "very good communication channels with the Japanese government" to avoid escalation. Wu believes Beijing is also not interested in escalation due to its "economic downturn," "rising unemployment rate," and trade issues with the United States. He suggests that if not provoked, the situation could "die down sooner," but Xi Jinping might need to "do something to show his domination."

UK Prime Minister Keir Starmer clarified his government's approach to Beijing, stating the UK will adopt a "more pro-business approach to China" but "will not trade its national security for greater trade ties." He recognizes China as a "defining force in technology, trade, and global governance" while also posing a "national security threat."

The video then delves into the US-China tech competition, particularly in AI. China's DeepSeek has unveiled new AI models that "match the performance of OpenAI's flagship GPT5" on benchmarks, suggesting China's open-source systems are competitive. Dan Wang, author of a new book arguing "America's run by lawyers while China is run by engineers," states China is "much more competitive than we give it credit," with "super competitive Chinese firms" like DeepSeek and Huawei. He notes government support in China is a "double-edged sword," offering benefits like land and financing but also allowing Beijing to "smack around" tech founders.

Wang believes the AI race "will be competitive for a very long time," a "multidimensional race" with no clear winner. While the US has an "absolute lead in the recent models," China is "catching up in all sorts of ways," including building "power capacity" for AI, which could be a US disadvantage. He contrasts the "lawyers" in America, who protect intellectual property and wealth, making the rich comfortable creating businesses, with China's "engineers" focused on building. He foresees a "much more protectionist" future with "two blocs" of technology, as Beijing is "uninterested in the global internet" and the US is seeking to create its own supply chains for critical materials. Wang warns that China is "doubling down not just on AI but everything," aiming to "dominate everything" from EVs to batteries, posing a "great challenge for the West." He fears that China's ability to displace American companies could lead to "de-industrialization" in the US, similar to what Germany is experiencing. He also cautions against government support for AI companies like OpenAI, calling it a "double-edged sword," citing Intel's situation under Trump as a "state-owned enterprise with American characteristics." He concludes that "eye-watering" AI valuations are a concern, even before considering Chinese competition.

Robert Lea from Bloomberg Intelligence further elaborates on China's AI strategy, stating the "economy as a whole" will win. China's "AI Plus Governmental Strategy" aims to "proliferate and deploy AI across every sector and every region of its economy" using "low-cost efficient models" and an "open-source approach" due to NVIDIA chip export constraints. This strategy is expected to "boost economic productivity." He notes that private tech platforms like Baidu and Alibaba will largely fund this, with their shareholders "effectively subsidizing this national rollout." Lea confirms it's "highly unlikely that NVIDIA will be allowed to export into China," as China doubles down on "technological self-sufficiency" and domestic chip supply increases. He highlights that third-party benchmarks show ChatGPT's performance premium is only "10% to 11%," questioning if this justifies the "substantially higher levels of CAPEX" by US firms (investing "somewhere around 1/10 of the CAPEX" compared to Chinese firms). Lea concludes it's a "two horse race" in a "bifurcated world," where China will do well in "export-friendly countries" (Southeast Asia, Latin America, Gulf) due to its high-quality engineers and numerical advantage in software developers, while the US and West operate in a "largely parallel universe." He emphasizes China's pragmatic, low-cost strategy focused on "making money" and generating "quick and easy wins."

Airbus A320 Issues and Market Overview

Airbus is facing two significant issues with its A320 aircraft. Tony Fernandes, founder of AirAsia (a major Airbus customer), discusses a weekend software glitch that required an urgent update. AirAsia's team resolved it within 24 hours, with the software downgrade taking about 1.5 hours, causing "no operational major delays." Fernandes suggests the software "was not thoroughly tested."

The second issue involves fuselage panel misalignments, affecting "just north of 600 aircraft" already in service or in production, requiring inspection. While Airbus expects the "vast majority" to be fine, some may need adjustments. The complexity and potential delays to the production line are unknown. Fernandes doesn't believe this issue is "major" and expects "no major delay" for AirAsia. He notes this is the "first time in my 20 odd years" for a "single global modification" requiring 6000 aircraft to be checked, calling it a "good warning to Airbus and the supply chain operators to test things out properly." Despite these "hiccups," Fernandes remains "very, very confident and optimistic" about Airbus, acknowledging past supply chain issues, especially with engines, but believing they are "over the worst of it" and expect stability by 2026.

In broader market news, stocks are "struggling for direction" in a "fragile trading environment," with the cryptocurrency selloff leading to a "broader retreat of risky assets." Bitcoin posted a small gain after a 5%+ slump. Solid demand for Japan's 10-year bond auction helped steady bond markets after speculation of a Bank of Japan interest rate hike. Bayer's share price surged "as much as 14%" after the US Solicitor General urged the High Court to consider thousands of lawsuits alleging its weed killer causes cancer.

Conclusion

The video provides a comprehensive overview of current global economic and geopolitical landscapes. It highlights the ongoing volatility in cryptocurrency markets, driven by broader macroeconomic factors. The discussion emphasizes the critical role of AI in future economic growth, while also cautioning about potential bubbles and the intense technological competition between the US and China. Geopolitical tensions, particularly the Ukraine conflict and US-China relations, are shown to have significant implications, though their direct market impact can be nuanced. Finally, specific corporate challenges, such as those faced by Airbus, underscore the complexities of global supply chains and product quality in a dynamic environment. The overarching theme is one of navigating uncertainty, with both significant risks and opportunities across various sectors and regions.