FED and BTC Are Like Batman and Joker - 8/29/2021
BTC, TIP/TLT, XLF, and EURJPY at the weekly view.
I will try to make this simple. Bitcoin was created as a hedge against the Federal Reserve's Quantitative Easing (money printing). Bitcoin evolved into an inflation hedge over the years.
Each inflation scare at the time (2011, 2013, 2016-2017, and 2021) saw Bitcoin rising dramatically. Why? Let's look at the reflationary hedging options.
Gold - The myth is that it's an inflation hedge. It is not. When bond yields dramatically go up, it hurts gold. What if bond yields go up because of speculative inflation? Not a good option.
Silver- Artificially pushed down since it's an industrial metal. $50 silver would ruin some industrial companies.
Oil - A decent inflation hedge but has so many factors that might affect it.
Lumber - You might as well head to the casinos.
That makes Bitcoin a lot more straightforward than I previously thought. The July low of the reflationary ratio was the July low of Bitcoin.
Conclusion: So as long as the Federal Reserve's Quantitative Easing exists, Bitcoin will continue to exist. It's like Batman and Joker. Joker cannot exist without Batman.
Due to the deflationary forces in a post-pandemic economy, QE might evolve into the norm of the market. Granted, there will be periods of quantitative tightening (2017-2019). However, in the next decade, QE might be the norm due to the nature of a post-pandemic economy. Link is below. Explanation is in my ES post.
voxeu.org/article/in...h-wars-and-pandemics
So that leads me to believe that Bitcoin will never go to $0. Fidelity is going to meet with Microstrategy in 2022. There is a race for the first Bitcoin ETF. Permabears/doomers claim that Bitcoin will get banned by regulations. That's just desperation.
Think about it. If the government sees a new source of tax revenue and it's not committing high crimes, why would they ban it especially with new bills/spending being pushed? Why would institutions want to ignore crypto when they can find a way to get in and join that profiting?
The so-called "regulations" are very likely meant for 1) How to tax crypto including de-fi. 2) Guidelines on how to approach crypto for institutions. 3) How to find a way to offer it as an investment option to clients and NOT get sued. Why destroy something that you can easily profit from?
That's why I'm not worried about crypto's future at all. If all else, it will be one of the few options that Gen Y, Gen Z, and Gen Alpha have left to invest in. What else can they invest in? You have the real estate bubble, stocks at all-time highs, and low rate bonds. Not many options left for the younger generations.
That said, September is usually a volatile month for crypto in general. What will give Bitcoin the great parabolic boost is another inflation scare. If there is a pullback in September (maybe October), then I won't say no to buying for the long-term... or at least until the second inflation scare is over.
I will try to make this simple. Bitcoin was created as a hedge against the Federal Reserve's Quantitative Easing (money printing). Bitcoin evolved into an inflation hedge over the years.
Each inflation scare at the time (2011, 2013, 2016-2017, and 2021) saw Bitcoin rising dramatically. Why? Let's look at the reflationary hedging options.
Gold - The myth is that it's an inflation hedge. It is not. When bond yields dramatically go up, it hurts gold. What if bond yields go up because of speculative inflation? Not a good option.
Silver- Artificially pushed down since it's an industrial metal. $50 silver would ruin some industrial companies.
Oil - A decent inflation hedge but has so many factors that might affect it.
Lumber - You might as well head to the casinos.
That makes Bitcoin a lot more straightforward than I previously thought. The July low of the reflationary ratio was the July low of Bitcoin.
Conclusion: So as long as the Federal Reserve's Quantitative Easing exists, Bitcoin will continue to exist. It's like Batman and Joker. Joker cannot exist without Batman.
Due to the deflationary forces in a post-pandemic economy, QE might evolve into the norm of the market. Granted, there will be periods of quantitative tightening (2017-2019). However, in the next decade, QE might be the norm due to the nature of a post-pandemic economy. Link is below. Explanation is in my ES post.
voxeu.org/article/in...h-wars-and-pandemics
So that leads me to believe that Bitcoin will never go to $0. Fidelity is going to meet with Microstrategy in 2022. There is a race for the first Bitcoin ETF. Permabears/doomers claim that Bitcoin will get banned by regulations. That's just desperation.
Think about it. If the government sees a new source of tax revenue and it's not committing high crimes, why would they ban it especially with new bills/spending being pushed? Why would institutions want to ignore crypto when they can find a way to get in and join that profiting?
The so-called "regulations" are very likely meant for 1) How to tax crypto including de-fi. 2) Guidelines on how to approach crypto for institutions. 3) How to find a way to offer it as an investment option to clients and NOT get sued. Why destroy something that you can easily profit from?
That's why I'm not worried about crypto's future at all. If all else, it will be one of the few options that Gen Y, Gen Z, and Gen Alpha have left to invest in. What else can they invest in? You have the real estate bubble, stocks at all-time highs, and low rate bonds. Not many options left for the younger generations.
That said, September is usually a volatile month for crypto in general. What will give Bitcoin the great parabolic boost is another inflation scare. If there is a pullback in September (maybe October), then I won't say no to buying for the long-term... or at least until the second inflation scare is over.