Fundstrat’s Tom Lee Says Bitcoin Could ‘Easily’ Hit $200K by Year-End

• Tom Lee anticipates the Federal Reserve will implement three rate cuts this year in response to a weakening labor market, viewing upcoming inflation data as transitory and emphasizing the need for swift intervention to prevent further deterioration.
• He believes these cuts will significantly ease mortgage rates, stimulate the housing market amid pent-up demand, and boost business confidence, leading to broader economic growth and strong performance in small caps.
• Lee remains bullish on equities and cryptocurrencies, forecasting Bitcoin (BTC) to reach $200,000 by year-end due to monetary easing, with widespread market skepticism signaling potential upside surprises in stocks.

Tom Lee, head of research at Fundstrat Global Advisors and CIO at Fundstrat Capital, joined CNBC to discuss the current state of the economy, the Federal Reserve’s efforts to combat inflation, expectations for interest rate adjustments, recent market trends, and developments in the cryptocurrency sector.

Addressing the debate surrounding recent jobs numbers and their implications for the economy and the Fed, Lee noted that fed funds futures had shifted from pricing in about 2.3 rate cuts by year-end to nearly three following the latest jobs report. He explained that the bond market interprets this as the labor market diverging more from the Fed’s targets than inflation, thus warranting an extra cut. Lee anticipates that upcoming August CPI data might show elevated inflation, but markets will likely see it as temporary, while labor market weakness, once underway, is difficult to reverse without swift Fed intervention.

When asked if he views at least three cuts this year as necessary, Lee affirmed that the bond market’s pricing suggests the Fed is lagging in recognizing evolving conditions. He predicted that the FOMC’s decision on September 17 could respond to this, providing reassurance to markets about the weakening labor market.

On the potential effects of rate cuts on the longer end of the yield curve and the mortgage market, Lee expressed concern over the global rise in 30-year yields. He pointed out that central banks, including the Fed, exert strong influence on yields up to five years, with a 90% correlation, but beyond that, particularly at 10 years, the market independently assesses growth prospects. However, he highlighted that mortgage rates could decline significantly due to the current spread between 30-year mortgages and 10-year Treasuries exceeding 300 basis points, compared to a 50-year average of around 160. If the Fed resumes cuts and signals an easing trend, mortgage rates might drop by 150 basis points even without movement in the 10-year yield, delivering substantial relief to the housing market.

Regarding the broader economic outlook amid potential cuts, Lee positioned himself as optimistic, arguing that such actions would be constructive. He described high 30-year mortgage rates as stifling the economy, noting a sharp slowdown in housing alongside pent-up demand that requires resolution through better supply-demand balance. He also cited the ISM index remaining below 50 for 31 months -the longest such period since its inception – as evidence of depressed business confidence that could rebound with Fed cuts. This combination, he said, would broaden the economic cycle, which is reflected in small caps outperforming as the second-best group after the Magnificent Seven over the past eight weeks.

Lee partially concurred with comments from Treasury Secretary Scott Bessent that the economy may be stronger than perceived and jobs data could improve. He observed no uptick in corporate earnings reports indicating business slowdowns in July or August, despite labor market deterioration, and noted that the Fed’s Beige Book showed improving conditions in most regions. Additionally, he mentioned that labor data revisions, including September benchmarks, might reveal consistent weakness throughout the year, potentially indicating stability in recent months.

Turning to cryptocurrencies, Lee emphasized Bitcoin’s sensitivity to monetary policy, identifying the September 17 Fed decision as a key catalyst. He forecasted Bitcoin (BTC) reaching $200,000 by year-end, acknowledging the near-doubling from its current level around $112,000 but attributing potential gains to the Fed’s pause ending after nine months. He drew parallels to 1998 and 2024, when late-year rate resumptions boosted equities, with crypto acting as a higher-beta version. Small caps, such as those in the IWM ETF, should also rally, benefiting Ethereum (ETH) due to its linkage.

Lee concluded by expressing strong bullishness into year-end, driven by these rate cuts. He dismissed concerns that cuts signal bad news, instead citing widespread skepticism – evidenced by the S&P 500 (SPX) up 10% year-to-date amid five weeks of negative AAII net bulls-minus-bears sentiment – as a contrarian indicator. With investors bearish at all-time highs and bracing defensively, he expects the stock market to surprise positively.

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