Bad timing for a bull run article, huh? Given the recent selloff…
a two-part bull run newsletter may seem hilarious, but this is just normal volatility for bitcoin. Embrace it.
The volatility is designed to shake you out along the way up.
Instead of fretting, use these dips as buying opportunities if you understand the true value of bitcoin and are in it for the long haul.
Bitcoin truly is looking up (no joke), and its best days are ahead. Get excited. This bull market is JUST getting started folks.
Unfortunately, I DO think we have another dip/capitulation ahead of us though, but I’m not convinced the price will reach 15-16K again. 20-24k seems like the low to me, but who knows.
Before we get into the continuation of my bull market thesis, I came across a sign in our Emergency Medicine workroom the other day that made me chuckle and think of Bitcoin.
“Trust no one, expect sabotage”
It’s more of an inside joke, and is especially true in July-August with new interns running around, but I thought it was very apropos for bitcoin.
Trust no one. Verify.
Bitcoin nodes trust nobody so that everyone else can trust anybody.
It’s really ingenious when you think about it, as it solves the “prisoner’s dilemma” and allows for a monetary system to be built on math and code instead of human trust.
Every person on this Earth just wants a fair system where the rules are transparent and equal for all. From there, it’s up to you to make the most of it. Bitcoin is that monetary system.
If you fix the money, you fix the world and the majority of its problems.
99% of people don’t understand they want a bitcoin standard. It’s staring them in the face, but it doesn’t look like what they’ve always known and what’s comfortable. They revert back to their ex-lover (fiat) because it’s familiar, but they’re miserable.
I’m here to tell you it’s okay. Bitcoin isn’t going anywhere. Bitcoin is real and it’s spectacular…
Ditch your ex. They’re the problem.
Time for some bull market talk…
As a reminder, the most important factors during this next bull market, as previously discussed, are:
The halving
Bitcoin ETFs (Blackrock (see below), etc.) and institutional/nation-state adoption
AI (as a narrative. It won’t be ready for prime time, real-world use by 2024/2025 IMO).
The rest of these things are pure gravy. But fun to discuss nonetheless.
Presidential election year and bitcoin
Any publicity is good publicity
As mentioned in a prior newsletter…Presidential candidates talking about bitcoin regardless of their stance is bullish (it gets bitcoin in the news). Presidential candidates talking about bitcoin in a positive light and personally owning some is mega bullish.
Multiple candidates have voiced their support of bitcoin (RFK Jr., DeSantis, Suarez), which further entrenches in society’s brain that it’s “okay” to own bitcoin and the government isn’t going to ban it. Do you think the President would ban something he/she owns? Do you think the government would ban something Blackrock sells to the public? Not a chance. Bullish. Mega bullish. The presidential election in 2024 also coincides with the halving in 2024. Bitcoin in the news 24/7. Get ready for it.
SEC kerfuffle and Regulation
This seems to change on the daily in terms of what charges the SEC is bringing against some altcoin or a cryptocurrency exchange like Coinbase. Most recently, the SEC has LOST its court battles labeling altcoins as securities (they are appealing). You could argue that this is bearish for bitcoin and good for altcoins, but I disagree. A rising tide lifts all boats, and if these altcoins, which are primarily used for gambling purposes (but not all), are not labeled as securities, a ton of capital will flow into them. A good chunk of that capital will eventually make its way into Bitcoin as most people use these tokens to speculate and acquire more bitcoin. I certainly do.
If the SEC wins, capital will just rotate exclusively into bitcoin as altcoins become more of a challenge to invest in as securities. A bullish scenario for bitcoin regardless, but maybe not mega bullish. Let’s see how it plays out.
Regarding regulation, there’s so much happening underneath the surface that is required for bitcoin/crypto to become a legitimate asset class for major institutions, hedge funds, and even countries to invest in it. The roads are being built right now that are essential for big money to flow in. It’s almost daily news, but meaningless to most.
Once the Autobahn road was built, cars could drive fast. Have patience as the bitcoin/crypto Autobahn is under construction.
Lightning network adoption
The growth of the Lightning network over the past few years has been astounding. Bitcoiners build during bear markets, and that’s exactly what is happening. Look no further than the AI example discussed in the last article. All made possible through the growth and development of Lightning.
Lightning is a peer-to-peer network built on top of the bitcoin blockchain base layer. It’s helpful to understand, so please refer to a prior newsletter for a more in-depth discussion. Basically, it’s like a credit card layer built on top of the traditional banking ACH payments layer. Every financial system is built in layers, and scaling bitcoin adoption worldwide will be no different. The base layer is immutable, slow, and meant to be that way (bitcoin). Layers built on top (Lightning) allow for speed and new use cases, but rely on the stability and predictability of the base layer (bitcoin) to function.
What’s really cool is the adoption of Lightning into the corporate world, which will further speed up the adoption of bitcoin. Companies like Microstrategy are utilizing Lightning in new and innovative ways to grow their business and incentivize/retain employees.
Given the game theory of corporate America – others will want in on the action if it proves successful, which I’m betting it will. Other companies like Lightspark are paving the way for non-bitcoin companies to adopt a bitcoin/Lightning strategy easily. This is critical for the network to grow as bitcoin/lightning is a new technology and requires simplification to facilitate global adoption to make it easier for the end user. That’s what these companies are doing. Making the user interface so slick and easy that you don’t even know you’re using bitcoin/lightning under the hood, but are deriving the benefits of the network and bitcoin the asset.
It’s what made the iPhone so powerful and desirable – an amazing user interface that abstracted away technology complexity so that even my parents could use it and enjoy it. Pretty cool…and most certainly bullish. Mega bullish.
Finally, I’ll try to be brief on this since it’s really deep into the weeds, but there are other companies/projects/altcoins trying to leverage the network effects of bitcoin and be a barnacle of sorts to ride the bitcoin wave of adoption while simultaneously growing their business as a result.
Companies like Liquid and bitcoin layer 2s (not exactly, but close) like Rootstock and Stacks are trying to build smart contract use cases leveraging bitcoin as opposed to Ethereum and other blockchains. The bitcoin base layer blockchain does not and will not ever have smart contract capabilities like Ethereum does. That’s why Ethereum was created, to try and do something different than bitcoin. However, ETH and all the other blockchains have made sacrifices related to decentralization along the way to allow for the creation of these complicated smart contract blockchains, which bitcoin won’t ever do (sacrifice decentralization). As bitcoin continues to prosper and grow, developers are now trying to build on top of (in layers) the bitcoin blockchain to bring smart contract capability to it without disrupting the immutable bitcoin base layer. They are doing this as opposed to building on Ethereum, and that’s a big deal.
Even the hyped NFTs on Ethereum that you hear about (that have questionable at best value and zero utility currently as monkey pics) are now available to be bought and traded on bitcoin (bitcoin NFTs are called Ordinals, just FYI). I have no interest in them, but some people do, and that’s the beauty of bitcoin. You can’t stop anyone from doing what they want to do. It’s open source technology. Let the free market dictate what wins.
What I do know is that all of these new use cases like NFTs and smart contracts leveraging bitcoin is insanely bullish. It just drives adoption, generates critical fees for miners, and eats away at the competition’s perceived moat. What’s the purpose of other blockchains if you can buy/trade NFTs and do Defi with smart contracts on bitcoin layer 2s that leverage the network effects and security/stability/immutability of bitcoin? Not much, but I could be wrong and stay open-minded since it’s still so early. Regardless…this is all bullish. Just maybe not mega bullish.
Nation-state adoption
Over the next few years, and once again likely coinciding with the halving and peak bitcoin bull run will be increased bitcoin adoption by “bigger players.” By this, I mean nation-states, US states, and publicly traded companies with massive balance sheets. Some of this has already happened, but it will happen on a larger scale and be mega bullish.
When companies similar to Microstrategy start allocating portions of their treasury to bitcoin as a diversified financial strategy, that will bring a massive amount of capital into bitcoin. Fixed supply and higher demand usually means a higher price. As discussed before, the regulatory clarity regarding bitcoin as a commodity and improved accounting rules (FASB) that are important to companies reporting quarterly to their shareholders matters a lot. Million/billion/trillion dollar businesses don’t rush into anything. They wait for clarity and dip their toes in not to make a monumental mistake.
Do you think Lockheed Martin will put bitcoin on their balance sheet without absolute certainty in the asset and approval by US governing bodies? No chance. They also need a simple vehicle like an ETF to do it, which is likely coming. Over time, as companies/nation states/etc. allocate a portion of their savings to bitcoin, and the benefits become clear, the floodgates will open for everyone. Even a 1% position for companies with billions of dollars of free cash flow is a huge amount. Buckle up.
Do you think companies are a big deal? Try states and nation-states. North Carolina is creating a team to explore putting bitcoin on their balance sheet as a reserve asset.
Other states are making laws to protect and incentivize bitcoin miners to locate there. El Salvador has already adopted bitcoin as legal tender. What happens if the bitcoin price rips higher and El Salvador suddenly finds itself out of debt and in a financially advantageous position for the first time in its country’s history? Look how their bitcoin-backed bonds are doing.
Do you think other nation-states might take notice and want to emulate that strategy? How big are their balance sheets? The answer is infinite because they can print fiat money to buy bitcoin since it’s a global asset with no borders. 8 billion people on the earth have access to it, but no one can make more bitcoin no matter how much fiat they print.
That’s when things get wild. Blackrock, AI, and nation-states are coming for your bitcoin. Nation states can print all the fiat they want, but there’s still only 21 million bitcoin, and > 90% are in circulation today. The remaining <10% will be mined over the next 117 years. The race is on for the hardest asset on the planet. Get some before they do.
ESG fud (fear, uncertainty, doubt)
Nothing grinds my gears more than bitcoin ESG FUD.
If you want to trigger me, say something like, “bitcoin uses too much energy” or “bitcoin mining is wasteful and harmful to the environment. It should switch to POS (proof-of-stake)”. Nearly everything that gets reported by the mainstream media is entirely wrong and grossly negligent just to drive a narrative that is often backed by special interest groups and incentivized by fiat money. I get it. Everyone has to make a living. But I’m also free to call out BS when I see it and do my best to inform people of the truth behind bitcoin mining and how amazing the technology is. See prior newsletters.
Luckily, as bitcoin becomes more mainstream and is deemed investable by larger institutions like Blackrock, suddenly, the negativity starts to magically change!
ESG FUD is still rampant, but it’s decreasing, and the correct narrative is now actually starting to filter through the noise. I feel vindicated.
That’s exciting to me and certainly bullish for bitcoin, as many many individuals and institutions/companies won’t touch it given the ESG “stain” it has. When the truth comes to light that bitcoin uses just a fraction of the world’s energy (for good use as a global open monetary network and as a Store of Value), that the energy it does use is mostly excess/wasted energy others aren’t using, and that it incentivizes renewable energy and can eventually become carbon NEGATIVE (not just neutral)…that’s mega bullish.
Energy is life. We need MORE energy as a species to evolve and prosper. I’m not returning to the Dark Ages and using candles and firewood. We need to lean into technology and develop new, more dense, clean energy forms to make energy more abundant and therefore cheaper to all. Imagine a world where energy is free! I’m not saying that will happen, but bitcoin is literally the thing that can get us close to it.
Bitcoin mining is the energy buyer of last resort. It will buy the cheapest energy wherever it is, whoever is producing it. Bitcoin mining is capital intensive and cheap energy boosts profits. Bitcoin is the most desirable asset on the planet, and miners will go anywhere to get it. This incentivizes cheap, renewable energy forms and bitcoin miners can subsidize costs as infrastructure gets built out to bring renewable energy to the people (transmission lines, etc).
There’s tons of excess wind energy in Texas. There’s tons of solar energy in many isolated spots. The problem is that there’s no infrastructure to get it to the people who need it and use it. It’s too costly, so the initiative never starts (ESPECIALLY WITH INTEREST RATES AT 5%). Bitcoin miners change that equation entirely by buying that cheap energy wherever it is (to earn bitcoin and profits), which subsidizes the green energy producer until infrastructure can get built out over time to send it to the grid where you and I can benefit from it and the supplier can earn more money. Bitcoin mining incentives clean energy, employs people, drives DOWN energy costs, stabilizes electrical grids and thus saves lives (because it’s the BEST demand response/flexible load program EVER), and likely will be carbon neutral to negative in the near future. It’s a freaking unicorn!! No other industry uses >50% renewable energy, but bitcoin mining does.
It will be the most ironic thing ever when the biggest holdings in ESG funds are bitcoin miner stocks. I am going to LOL. Can’t wait. Bullish. Mega bullish when Shell and Exxon Mobile and BP are all mining bitcoin and holding it on their balance sheet.
Credit card bitcoin rewards
This is really small potatoes in the grand scheme of things, but sometimes anecdotal evidence is the best thing to make a believer out of someone.
I use a credit card that earns me bitcoin with my purchases (Gemini). Instead of getting worthless fiat cash back, I get bitcoin back with every single purchase every single day. I sound like Samuel L. Jackson, but it’s true.
Over the past year, just through this reward program I’m testing out, I’m up ~25% and earned bitcoin without “purchasing” any bitcoin outright, but just via daily living expenditures.
I live in the fiat clown world but save on a bitcoin standard.
Given inflation, dollars received via cash back are always worth less year over year, and airline mile point conversions can be changed at the whim of the company to benefit them. I’d rather accumulate bitcoin and grow my purchasing power.
Just wait until this next bull run, and that % goes up. I’ll post it. Maybe the same amount of bitcoin could buy three flights instead of one soon enough (yes, it’s okay to sell some on occasion to live your life). That’s your purchasing power going up compared to the USD. People eventually take notice as it’s relatable to them in the real world, and they say, “Hey, I want that too.” Soon, everyone will get sats back instead of cash back/airline miles on their cards. The great part about it is that the bitcoin supply is still fixed even if demand explodes, and thus the price must rise. There is no other asset on the planet with that quality.
I can’t emphasize enough the importance of digital scarcity and just how insanely scarce bitcoin is. Our brains can’t fathom it or appreciate it. As of this upcoming halving, it will be more scarce than gold, and we’re only on the 4th halving with 28 to go afterward!
>90% of the supply is already in circulation, with 117 years to go! 75% of that is held by psychos like me, who aren’t easily selling for garbage fiat.
In addition, a few million of the 21 million coins are probably lost forever due to people losing them. That just makes it even more scarce and your sats more valuable. Bullish. Mega bullish.
SOV, streaming money, best collateral ever
Bitcoin, as a store of value, has no match. As we’ve discussed ad nauseum there is no other asset on the planet with the unique properties of bitcoin that make it so attractive in this regard. Nearly every other asset on earth will have an increase in supply based on an increase in demand, and the supply of that asset is infinite or near infinite. Even gold, although scarce, has a near infinite supply that humans just get better and better at mining and extracting over time.
Oil, minerals, food, houses, dollar bills, bonds, stocks, boats, cars, you name it…all infinite supply. The more humans want/need them, and the price rises to reflect this, the more supply comes online to satisfy that need, and the price goes back down.
What about the Mona Lisa? True – it is absolutely scarce. That’s why the price keeps increasing over time as humans value scarcity and inflation floods the system with more fiat. But is it liquid (can you sell it at 2 am on a Saturday night)? Is it easy to custody? Can everyone in the world own it? Does it DO anything other than hang on the wall?
Winner winner chicken dinner – BITCOIN.
The first and only asset to ever exist that is digital, absolutely scarce (like the Mona Lisa but yet the most liquid asset on the planet simultaneously), HARDER to acquire (no increased supply comes online) the more that people want it, and in 2140 there will be no more issued based on the immutable rules of the protocol. It’s also a bearer asset that you can hold on your own with no counterparty risk.
Wrap your head around that for a second. Oh, wait. YOU CAN’T. I CAN’T. No one can. Humans cannot comprehend exponential technologies and absolute scarcity. Just like 99.9% of people would take a million dollars today over a penny that doubles every day for a month (wrong answer), 99.9% of people cannot comprehend the power and the potential of bitcoin.
Because of these properties, over time and as understanding grows, all other assets on the planet relative to bitcoin will fall in price. Your home? Going down. Your favorite stocks (S&P500 index fund (SPX))? Down.
Your bond portfolio? Zero eventually. Cash? It basically already is a zero. These other savings vehicles have simply created ILLUSIONARY WEALTH. The fiat number is increasing, but not more than the money supply (M2). Your purchasing power is essentially flat if fully invested in stocks/real estate over the past 20 years.
Your portfolio is down significantly if invested in cash/bonds/etc. This makes intuitive sense as you likely feel despite your 401k and other accounts increasing in size, improving (or even maintaining) your quality of life is harder. Newsflash: we’re all just running on a hampster wheel. Bitcoin is the only asset class beating fiat money supply growth.
The world has been seeking a store of value (SOV) because our money is broken. Money is meant as a medium of exchange for goods and services AND to save. Since fiat allows the former but not the latter, humans are frantically trying to store their wealth in non-money forms like stocks and homes/second homes, etc., which drives prices higher and creates extreme wealth inequality. When people wake up to bitcoin’s superior properties (SOV most importantly) and EVERYONE HAS EQUAL ACCESS TO IT, it’s game over for everything else.
Why would you store a significant portion of your wealth in anything else? You won’t. Yes, you’ll own a home and a car and invest in good businesses/stocks, but these things will no longer carry the monetary premium they do today and will return to their native/net asset value, which is much much lower than it is today, as the demand for them will be lower compared to bitcoin.
It’s simply supply and demand, and humans want the best money over everything else, but the money has been broken for so long many don’t comprehend that. The other things are nice to have but are more risky, complex, and expensive to own as a store of value. Simplicity wins.
Oh, but you want yield on your asset and cash flows like real estate?? That’s usually the counterargument to bitcoin as it doesn’t generate free cash flow like a business or real estate, and doesn’t offer a yield like US treasuries. WRONG (about yields).
I’ll dedicate an entire article to this at some point in the future as it’s still early, but yields are coming to bitcoin holders – as long as you can accept some risk (which you may not want to take with such a valuable asset). People are earning small bitcoin yields RIGHT NOW, running Lightning nodes and routing payments. Yes, normies like you and I can route payments on the lightning network and earn a small yield for the liquidity you provide. In the near future, the yields you will earn on loaning out your bitcoin, I predict, will be insane. Sure, I’ll loan you some bitcoin, but it will cost you 10-20% interest, maybe more. I’m risking loaning you the best collateral asset ever to exist. If you go bankrupt, I’m out my bitcoin. The yield will need to compensate me for that risk, and I’m not sure how high that is, but the free market will determine it. Bitcoin is pristine collateral, something the world desperately needs more of.
People (and banks!) will pay those high yields to get the best money/collateral ever to exist, mark my words. It’s like owning a highly desirable NYC skyscraper or Miami beachfront multi-million dollar home as a collateral asset, but it’s digital (thus infinitely divisible for selling/trading), trades 24/7/365 and price is marked to market similarly, incurs negligible fees to own or trade, and has no counterparty risk.
There will be endless opportunities with bitcoin in the future. The best part about it is that all of these things are OPTIONAL. Currently you feel FORCED to earn yield to keep up with fiat inflation. You are basically FORCED into stocks and high-yield opportunities to keep pace with the cost of living, and it’s barely working.
Bitcoin is a disinflationary asset (inflation rate keeps going down over time) until in 2140 it stops and is absolutely scarce. Yield just isn’t that important with an asset like bitcoin. It’s designed to protect and INCREASE your purchasing power over time without you doing anything.
Remember, purchasing power matters at the end of the day.
If I gave you 1 USD or 100 Pakistani Rupees, which would you take if you could spend it on anything? The dollar, of course, because it buys you more even though it's a lower nominal amount but has greater purchasing power. Same thing with bitcoin. Soon enough, you’ll take one bitcoin over a million USDs because it buys you more over time. You can just sit back and relax as the cost of everything decreases in bitcoin terms. You don’t need to take on risk to chase yield if you don’t want to because your purchasing power is going up over time, given bitcoin’s fixed supply. No yield is required.
Not only is bitcoin the world’s best money, but the bitcoin protocol base layer is the payment rails for the best money to travel on, and 8 billion people worldwide can use it without permission. It allows you to stream money, including micropayments (like 0.000001 cents), nearly for free, instantaneously, with final settlement, and cannot be stopped by anyone and is operational 24/7/365. Crazy powerful stuff. Perfect money was built by humans for the digital age. Human beings and technology are F’ING awesome. We solved a problem gold and fiat couldn’t solve…now it’s just a waiting game for the world to catch on as this technology disrupts everything. Money is ultimately a form of technology…
Adapt or die.
The total addressable market (TAM) of bitcoin as money is MASSIVE, and its current market cap is small (i.e. growth opportunity). Right now, the market cap of bitcoin stands at around 500 billion dollars. ~30,000 dollars x 21 million coins. The TAM of bitcoin, I believe, is somewhere around 10-100 Trillion dollars (complete guess). I’m more bullish on bitcoin than others, but if all the assets on the planet total nearly 900 trillion and the derivatives market probably has quadrillions of hidden value, bitcoin will eat a sizeable chunk of that over time. 100 trillion might even be bearish.
It won’t wipe out ALL other asset classes entirely, but a solid amount. In addition, new technologies like bitcoin increase the TAM more than people can imagine. The iPhone, when launched, didn’t just eat into the cellphone market, but it disrupted, grew, and simultaneously benefited from the larger TAM of music, internet, etc. as well, and is now a ~3 trillion dollar company. Bitcoin will do the same and blow people’s minds - it’s not just digital gold.
When I say it’s akin to the wheel, fire, printing press, car, airplane, and internet discoveries…I’m not joking. It’s a massive step change in society, and the effects will last forever and allow society to flourish in ways never thought possible. I only wish I could be alive to see it all, but I take solace in the fact that I’m around for the start of it, at least.
QE infinity will return…eventually, but not yet
I left this part for last on purpose. Feel free to skip this if it bores you, but I love it and enjoy writing about it. Importantly, it’s critical to Bitcoin’s future, so I think it’s worth discussing even if most people could care less about the economy and some of this financial jargon. You SHOULDN’T have to care about stuff like this, but unfortunately, you do in today’s hyper-financialized world. Having a basic understanding is essential nowadays in this game of musical chairs. Don’t be the one without a seat when the music stops.
Even though I have no clue what will happen over the next 6-12 months (nor does anyone else), I feel confident that in the next 5 years, we will return to lower interest rates and QE/money printing. It’s just math (debt and interest rates are too high). Bitcoin is the best hedge in that scenario as it will be the scarcest asset in existence. Mega bullish.
Why are we in a debt death spiral and QE infinity must return?
Lynn Alden wrote a phenomenal article describing how fiscal and monetary policy are currently at odds with each other, and it’s creating problems beneath the surface. Normally, monetary policy via raising federal interest rates works to slow the economy down (and thus inflation) as the private sector borrows less money with higher interest rates. Makes sense. That works when the primary reason is that the private sector is overheated and banks are lending aggressively. This was the case in the 1970s (high inflation) when a demographic surge of baby boomers were all in their 20s-30s, had jobs, and needed a house to raise their growing families (massive demand). Jacking interest rates up to 20% will halt that and slow things down quickly and, therefore, inflation. Makes sense.
Unfortunately, that playbook can’t be copied in 2023, but they’re trying. Just like every patient I treat is slightly different and needs individualized care, so does the economy. We aren’t in a demographic boom. We’re in a demographic nightmare, aka the Gray Tsunami (10,000 boomers have turned 65 every day since 2010 and will continue to do so until 2030), and the birthrate is falling. Banks aren’t lending aggressively, they’re being cautious. Debt:GDP ratio isn’t 30%. It’s 130%. These things matter. You can’t just say inflation was high in the 70s, so we should do what we did back then. Inflation today is entirely different (stimmy checks, supply chains, QE, labor shortages). The problem is that the Fed doesn’t have any more tools in the tool belt to fight inflation (which is why they want CBDCs, just FYI), so they try to use the old playbook and adjust interest rates to squash demand, but that comes at a massive cost.
In 2023, as the Fed raises interest rates, they are just hastening the debt spiral we are already in. When debt:GDP is so high, raising interest rates to slow down the private sector (that isn’t really overheated) just adds more debt to the public sector/gov’t balance sheet at an exponential rate.
It’s like seeing your credit card interest rate go from 0% to 5.5% overnight, but you’re behind 32 trillion on payments. Gulp!
Einstein once said, “Compound interest is the 8th wonder of the world. Those who understand it, earn it. Those who don’t, pay it.” Trust me, you don’t want to be the one paying it, and that’s the government right now. The interest on our debt right now is about 1 trillion dollars annually.
For context, defense spending is approximately 800b. We’re spending more on interest than on defense. Red flag people!
What’s worse is that the government must refinance a large chunk of that 32T in debt from 0 to ~5% interest rates over the next few years
and then the debt really compounds and just goes parabolic. Einstein would shake his head in disgust. The only way to pay the interest debt is to print more money so we don’t default. Bond “yield” payments will just be printed money at that point. Pure Monopoly money.
The loser in all of this is you and me via monetary debasement and the erosion of our money’s purchasing power. It’s like your friend (the government) going bankrupt because they spent money like a drunken sailor, but yet YOU bear part of the consequences. Absolute clown world.
Higher interest rates just force the government to go deeper into deficit to pay the rising interest payments on their debt (a debt spiral). Right now, everything is fine…for a while. The Fed is in the process of:
You could also drink 20 shots of Tequilla in 5 minutes and everything will be fine…for a while. Eventually, the pain will come. There’s no free lunch. You can’t have essentially zero interest rates for a decade and accumulate insane amounts of debt and then close your eyes and hope nothing happens with rates at >5%. You could also close your eyes while driving on an interstate and get lucky, but I wouldn’t count on it.
This fiscal policy of issuing more debt/bonds (spending like a drunken sailor) is at complete odds with the Fed’s monetary policy of higher rates to slow down the economy.
America is running a 8% budget deficit AND TIMES ARE GOOD!
WE aren’t at war (technically), inflation is near 3%, the stock market is doing fine, employment is at historic LOWS, tax revenue is at historic highs, and we’re not in a recession by any means. Like, are you kidding me?? You SAVE when times are good so you have a cushion when times are bad. What happens to the deficit when times are bad?? Good grief. It will look something like this…the private sector eventually runs out of gas with unsustainably high interest rates, and the economy tanks. Job losses ensue, tax receipts go down, capital gains taxes go down, sales taxes go down, and the government deficit explodes higher with fewer taxes collected. The debt spiral picks up even more speed.
The reason the US is NOT in a recession is due to reckless spending driving the budget deficit, but that is a DANGEROUS game.
And people wonder why Fitch downgraded the US credit rating status?
When debt:GDP is low, and it’s the private sector of the economy that’s the problem (1970s) – higher rates work. When both are untrue, you EVENTUALLY get a slowdown of the private sector (and thus inflation) but at an untenable expense of the US government’s debt.
Higher rates will work temporarily and suppress consumer demand, but ultimately will create havoc at some point. As debt interest payments balloon, US bond holders demand higher yields to be compensated for the inevitable money printing that must ensue to pay the debt, which just exacerbates the debt spiral. You’ve seen that recently…
Who wants to own a 10-30 year bond yielding ~4%?! No thanks! Sure, you’ll get your money back in 10-30 years plus some interest. But what will the purchasing power of that money be in 10-30 years is the real question. As QE infinity is a mathematical certainty, the purchasing power of those dollars won’t keep up. Remember, purchasing power is the key, not the nominal amount. You’d much rather have 1 USD over 20 Turkish Lira. Similarly, 100 dollars 30 years ago bought you a LOT more than 200 dollars today. Your money needs to be invested elsewhere (other than bonds/cash) to maintain purchasing power in things like stocks, real estate, and you guessed it…bitcoin. LONG TERM bonds are a scary proposition right now, buyer beware (speaking to the typical 60/40 portfolio of stocks/bonds).
How’s the economy doing? Resilient as ever actually! Maybe we’ll just never have a recession again and it’ll be allll good! The government will just keep spending and going deeper into debt to avoid the pain now to get re-elected.
Short-term, selfish, wishful thinking.
The economy is currently “hanging on/fine” as we speak, but call me skeptical. Time will tell, but the next few quarters and early-mid 2024 will be VERY interesting. I think the economy may start to run out of gas, and the lag effects from higher interest rates will really kick in. My student loans start back up in October, and I’m cutting costs as a result. The housing market is basically at a standstill with 7% interest rates, and it’s the main driver of our economy…that’s going to become a problem eventually. The commercial real estate apocalypse has yet to manifest fully. China is falling apart. Europe is a ticking time bomb given the war/inflation. Japan’s bond market is breaking. Inflation is persistent, and wages haven’t kept up completely.
All this is to say my current outlook on the economy is cautious. Very cautious. A downturn in the economy will send the prices of EVERY asset, including bitcoin, down hard. If anything will derail my 2025 price prediction for bitcoin it’s this (but not for long). That doesn’t sound very bullish, does it?
No, but there is a silver lining.
If you plan well and time it right, having some dry powder (cash) available to buy the dip will be ideal because the inevitable rebound will be eye-watering. Or you can just HODL through and be fine. If there’s a recession, interest rates will go to the floor, and QE infinity will be the answer. Bank on it and capitalize on the opportunity.
Don’t get scared. If they don’t do these two things, the world economy will collapse in a debt implosion, and money won’t matter at that point anyway (think Mad Max scenario, you’ll need guns).
They won’t let that happen, so understand now what they MUST do in the future so you can be prepared and benefit from it and not be the one without a chair when the music stops. They aren’t going to apologize or feel sorry for you, they’ll show you how much money they’ve handed out as the “savior” to fix things, and they certainly won’t take any responsibility. They’ll instead blame someone/something…probably bitcoin!
In the end, large QE and lower rates are coming, it’s a waiting game and pure math.
The debasement of your hard-earned dollars will continue. It’s variable in intensity at times (and for brief periods of QT and higher rates, it stops), but it must eventually continue, and it won’t ever stop completely until the system dies. It’s honestly just math, given every country’s current debt. The US is the cleanest dirty shirt in the pile, but bitcoin is a global asset, so it thrives as fiat currencies fail across the world. Don’t forget that.
Monetary debasement/inflation via money printing is a silent tax on your time and wealth, even at “acceptable levels” or when it’s trending down like today. It also compounds over time.
You never got a choice or a vote in the matter, until now. You can vote with your wallet and opt-out to bitcoin. It’s peaceful and optional. You can still live in the fiat clown world like I do while simultaneously saving for the bitcoin standard that’s coming. It’s actually quite delightful, in my opinion.
No matter what, the bull market is on, it’s just very early days. There will be more hiccups/pain along the way.
Stay the course, zoom out, HODL, and try to enjoy it if you’ve made it with me through the bear market. You’ve earned it. Good times are ahead, so get ready.
I’m probably not even mega bullish enough, if that’s possible.
My prior prediction still stands: 150k-300k in 2025. Big range, but way higher than 69k (prior high). Not financial advice, obviously.
Until next time…
Thanks for reading.
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