Enough with ETH! I need to take a break. I know I promised a third newsletter on ETH and some of its competitors and their similarities/differences, but I’ll get into that throughout the rest of this bear market. It’s fugly out there macro wise. Likely to get even fuglier. Plenty of time to talk altcoins over the next few months. Right now, it’s all about macro which is driving the price of btc/crypto….down. Hard.
On the brighter side, this is just a standard BTC 80% drawdown from the high which has happened in every other bear market. Volatility is a feature, not a bug…embrace it.
Before we get into some macro talk, just a quick reminder about ETH - the “merge” should happen 9/13-9/15 (exact date unknown). See the prior newsletter for what this event is. You don’t need to do anything with your ETH if you own it. Just sit tight. The price could pop on the news or it’ll be a “buy the rumor sell the news” event. No clue. I’m sitting tight. Watch the news over those few days - good chance you’ll see a big headline about it. Despite some of my negativity around ETH, I’m a technology bull and in awe of this space. It truly is a massive event and a herculean computer science feat if/when they pull it off. Mad respect. What happens after that, who wins/loses…
And although some may disagree, BTC and ETH after the merge aren’t even competing anymore, they are two totally different things trying to solve two totally different problems. BTC is money, ETH is a new type of digital tech stock. That’s my stance and I’m sticking to it.
The point of today’s newsletter is definitely more macro oriented, but it has crypto tie-ins that I think are relevant for Crypto Pulse readers. Overall, I think it’s really important everyone stays aware of what is going on from a zoomed out macro perspective so that when btc/crypto plunges (and everyone is laughing at you) it makes sense in context and there is no panic…
but rather opportunity realized. I think the market is severely mispricing BTC, and that is when legends are made.
Proxy WWIII (a deadly blinking contest)
It’s my belief that we are IN WWIII (yes, right now), it’s just that nobody wants to acknowledge it, and most don’t recognize it because it’s a new type of war…a “silent” proxy war that is really a currency/cyberspace/energy war. You can’t really have “wars” anymore between superpowers (Ukraine is not a superpower) because everyone has nukes. Threats escalate to that too quickly and NO ONE wins in that scenario. Thus, superpowers now fight not with kinetic energy, but by attacking a nation’s lifeblood - their currency and energy resources. I call it a deadly “blinking contest”
because it’s really just a standoff to see who will cave first…someone will/must blink. Russia blinks if its economy collapses due to sanctions and people revolt. US/Europe/others blink if people die/starve/freeze/revolt without Russian energy/resources and hyperinflation becomes intolerable due to energy scarcity (gas, food, etc) and endless money printing. It’s really that simple, but lives are at stake, unlike in a standard blinking contest.
Obviously, I think this is a big deal (and has huge BTC implications), and am often surprised by how few people (esp. in America) are aware of the gravity of the situation at hand. America is literally at war IMO, and Putin is threatening the dollar reserve currency status that has benefited all of us to some degree. However, we’re all busy with work/life and interestingly the US media is not really covering this angle (the “silent war” as I call it) because no Americans are getting killed, so I get it. Thus, if you have no clue about what’s going down on the other side of the pond - I got you. It’s a big deal, you need to be aware. Toilet paper supplies are at stake!! Most importantly, I’ll tie it back to bitcoin at the end.
TLDR: “You can’t print energy” (printing dollars/euros to buy Russia’s energy)
Quick recap: The US and Europe (plus some others) froze Russia’s foreign bank assets when they invaded Ukraine as retaliation, and then kicked them off the SWIFT international payment system to isolate them from most of the world and tried to neuter them with sanctions basically (as we always do, standard stuff). They tried to stop/limit buying Russian oil which they are heavily dependent on (Europe mainly) and get it elsewhere as an additional tactic to hurt Russian export income. These moves figured to cripple Russia and their economy as a huge commodity/energy exporter to the world.
“As a result of these unprecedented sanctions, the ruble almost is immediately reduced to rubble,” President Joe Biden, March 2022
Putin was a few steps ahead…
He demanded that “unfriendly” countries purchasing his energy supplies pay in Rubles now, not dollars or euros that could be printed out of thin air. If they didn’t, he’d cut energy supplies or stop selling outright. The US and most of Europe refused his offer, but some countries didn’t. What happened? Well, it’s not exactly rubble now is it?
Putin had been preparing for these sanctions for quite some time and knew what was coming. The most important thing to all of humanity (outside of time) is ENERGY. Everything we do and use in our daily lives consumes energy. Typing this newsletter with the lights on and AC running while drinking coffee and listening to music all requires energy. The snack bar on my desk wrapped in plastic…tons of energy was used to get it to me.
Without energy, humanity basically goes back to the dark ages.
Nobody wants that or can tolerate it, and Putin knows it. When push comes to shove, everyone needs energy and will pay for it at all costs when things get dire enough. This is how he’s waging the proxy war - cutting off energy supplies to cause a currency crisis, with the USD and Euro as public enemies #1 and #2.
I wrote this in March (passage copied below) and I think the thesis is on track…
“I’m in the camp that Putin is not some idiot that has come unhinged and is doing dumb/awful things without an end game. He knows EXACTLY what he’s doing. He hates the USD system / “dollarized” world, and is more or less controlled by it like everyone else (basically the entire financial world is controlled by US banks/SWIFT system). He also hates that everyone buys Russian goods with dollars that the US/Europe can just print, devaluing his profits. He wants it to end and timing is everything.
I believe he sees the US and the rest of the world in a feeble position with few energy options, few commodity options, and MASSIVE unsustainable debt. He has dealt with US sanctions and other frustrations in the past and now is his chance to blow stuff up, cause chaos, and retaliate to regain more power/influence. He/Russia controls much of the world’s oil and commodities which we all need (Europe is way more dependent on Russia than the US) and he knows it. If the world sanctions Russia he can just starve the world of food and energy in retaliation, and prices will skyrocket due to supply/demand imbalance. The knock on effects are that other countries must now hoard their food/energy exports which further exacerbates the problem. Meanwhile, although Russia is crushed economically by the sanctions, the price of oil and food skyrocket higher to which they benefit. The more of their reserves we freeze and as we attempt to “cancel” them from the world (no McDonalds, Tik Tok), the more pissed off he gets and will tighten the noose of energy reserves around the world’s neck. As the war and sanctions persist, commodity prices and inflation will go to record highs and this will bankrupt governments, corporations, and people. It may even cause a severe worldwide famine. It’s a globalized interconnected world, and that has its trade-offs. When a bad actor goes off the rails, suddenly the whole world has big problems, even if not directly linked to the conflict.
This commodity crisis on top of the current unsustainable world-wide government debt will lead to additional massive money printing to try and help save these entities, but that will just be like pouring gasoline on a fire, and he knows it.
It’s already happening in Germany and Canada with gas stimmies. This is printed money. The US is talking about doing it as well.
Remember, all the world’s currencies are linked together. If Europe and Canada print money to debase their currency, the US has to debase theirs to keep up or else the dollar just gets stronger (relative to other currencies) and that makes our debt harder to pay back (and crushes emerging market economies). It’s a race to print more whether we want to or not.
On top of that, the US right now is trying to INCREASE interest rates to cool off inflation (at 9%) while other countries are printing. Rapidly increasing interest rates and high oil/food prices can trigger a big recession….which will bring more printing. Firing up the dollar printing press (which is inevitable) at these levels of debt is quite frankly…dangerous. Hyperinflation lurks.
This could cause the fiat system/USD hegemony to collapse, and Putin’s ready to put his country through hell to get to the other side where he controls the resources and has little debt and owns hard assets (gold, oil, land, commodities, etc). He’s been preparing for this for years by buying less US treasuries and more gold.
Doomsday? Kind of, yea. Timeline? No clue (I think 1-2 decades given how entrenched the USD is in the world economy). In a world where everyone has nukes and no one wants to use them, this is how you play hard ball - financial and cyber warfare. The US and Europe have backed themselves into a position of weakness with massive debt and few resources (especially Europe). We rely on other countries for EVERYTHING. We are massive importers. What we export is the US dollar (everyone needs it to buy oil - the Petrodollar system) in exchange for goods, and that needs to change.”
We’ll see how this continues to play out. Putin might be speeding up the timeline. I also think a deflationary bust is just as plausible as hyperinflation…end result is bad both ways.
Before the sanctions, the US and Europe figured they could get by and do just fine without Russian oil, buuuuut maybe they miscalculated?
The three things the sanctions failed to take into account IMO are:
Russia controls a large portion of the world’s resources used to produce energy.
Given the current economic state we’re in (high debt, high inflation), we can ill afford a commodity inflation bomb on top of that due to scarce energy as Russia cuts off supplies. It’s the perfect storm. The problem that the US, Europe, and the rest of the world face is that we have been blessed by “peak cheap energy” for decades (energy abundance), but now the party is over given the war.
The US and Europe don’t make up the entire world. Russia is still openly selling energy to China, India, and many other smaller nations.
The world is attempting to transition to a cleaner, ESG-conscious energy state due to climate concerns, but the infrastructure and grid capabilities are not ready to support this yet (esp. in Europe)…it’s likely a decade or more away. Unfortunately, by shutting down and underinvesting in carbon-producing energy resources over the past decade that we need RIGHT NOW, and “green” energy not being ready for primetime yet, Russia holds the trump card for energy, and Putin’s using it. Remember, energy is life. Scarce energy brings social unrest, political/economic chaos, and possibly death. It’s no joke.
Russia is definitely hurting from the sanctions though, but their currency is at an all-time high given high prices for oil and minerals. How’s Europe doing with the decreased energy supplies from Russia? Let’s see…
The world operates on simple supply/demand principles. Less supply, same or higher demand = higher prices. Throughout the past 6 months, prices for energy have gone nuts, especially in Europe. Here are some charts:
This is REALLY problematic if you live in Europe, and some of the costs will get passed onto Americans as well just because of our interconnected economies. Our energy bills will be going up as well this winter, but not as dramatically. My suggestion:
People are going to struggle to eat and heat their homes in Europe. Businesses will close due to high energy costs, consumer discretionary income will plummet as people are forced to pay for energy bills above all else. It’s a BAD setup. Costs will get passed onto consumers, and eventually to Americans, further stoking inflation that is hanging around 8%. Yuck.
The US is at least in better shape because we have WAY more energy resources than Europe AND we have the SPR (Strategic Petroleum Reserve). Biden gave the blessing to start draining it due to high gas prices and Americans getting pissed about it. Gas prices have responded accordingly lower with more supply (not the only reason why).
He also flew to Saudi Arabia to meet with OPEC+ officials for a “fist bump” increased oil output arrangement.
Midterms elections are in early November and the SPR drain ends at the end of October. OPEC+ is cutting oil output end of October. I’m sure there’s no correlation.
During the past week, after months of slowly turning down the faucet of oil/energy flowing to Europe through the Nord Stream pipeline, Russia turned it off. Sorry Europe, no more oil for you.
This was in response to Europe stating they would “price cap” Russian oil to protect consumers and prevent bankruptcies (while simultaneously destroying the free market), which would obviously also hurt Russian oil export profits. Putin also has been aggravated by the billions of dollars in aid we have sent to Ukraine fighting this “proxy war” and is using this as his proxy retaliation.
This is a brewing economic bomb in Europe with knock-on effects around the world that are not pretty. 2008 housing collapse/Lehman Brothers failure being “a crisis for ants” type scenario.
Russia’s actions basically sent Europe into pure panic mode, and the results were predictable - energy “lockdowns” (yay! More lockdowns!), price controls/caps (NEVER a good idea), and money printing (delays but worsens the pain).
Governments always be governing and money printers always be money printing. When faced with difficult choices, governments will ALWAYS take the road of the least pain and kick the can to maintain societal order. They will print, they must.
THIS TIME IS NO DIFFERENT.
Europe is providing an energy bailout to its people of epic proportions. Hundred of billions of dollars of subsidies to limit the devastating impact of the high energy prices. They are basically nationalizing energy costs and putting the debt on the public balance sheet.
At the same time they are spending obscene amounts of money they don’t have, they are raising interest rates to curb high inflation (due to high energy costs) to suppress demand and will likely cause a severe recession.
You read that right. They are raising rates to suppress demand while providing price caps on energy which will…you guessed it…NOT SUPPRESS DEMAND.
For the first time in decades, Europe’s interest rates are now above 0%. Still pretty pathetic given CPI of 9%.
Loose fiscal policy and tight monetary policy seems highly combustible. I’m not sure what is going to break and when, but it’s a pressure cooker over there and everyone needs to be on high alert.
The US is in a slightly more envious position with more natural resources, but let’s revisit this come December/January when the SPR is no longer being used and the mid-winter needs for energy are at a high and OPEC has cut supply.
The US government is trying to play hardball and is raising interest rates to 3-4% to crush demand and tame inflation here. What’s crazy to me is that we use a financial system that none of us have a say in and rely on a few people who are “experts” (who always get things wrong) to make decisions that impact our lives. The Fed experts are telling you that they need to raise interest rates so people lose their jobs (increase unemployment) and wages must go down so people stop spending money so inflation goes lower.
What if that’s you and your job? Is that fair? Did you agree to that?
“Hey, you’re fired, but it’s for the good of the country, thanks and good luck. PS - when you do get another job the salary needs to be lower, and we’re sorry everything costs more, good luck with that.” - The Fed
This rhetoric coming from the SAME PEOPLE that helped CAUSE inflation in the first place via massive excessive stimulus when the world was on lockdown from Covid and after reopening.
Bitcoin
There are 4 main reasons why this proxy WWIII/macro environment is SO important to bitcoin.
As discussed, fiat debasement is unlimited in scope, scale, and time. The debt spiral is full speed ahead for all countries. Bitcoin is a global store of value that protects against that. The US/Europe won’t default on their debt mind you, they’ll just print it and inflate it away (a “soft” default). Your savings will be sacrificed for their fiscal recklessness. Seems fair.
Macroeconomic headwinds are severe and bitcoin is the most liquid financial asset on the planet, able to be bought or sold 24/7/365 anywhere. It’s being sold to cover debts and is also in a typical 4-year cycle bear market. That forces the price lower. Remain calm.
You can’t print energy anymore…
…but you might be able to buy it with bitcoin soon!! Russia is considering allowing countries to purchase their energy with bitcoin, and if/when this happens, the world (and bitcoin) will change in the snap of a finger. EVERYONE will want bitcoin because EVERYONE needs energy. As a neutral global monetary network that no person or country can stop with sanctions or guns, this is inevitable.
Energy is life. Bitcoin mining incentivizes clean, renewable energy production at a global scale to make energy abundant and reliable while harnessing wasted energy and DECREASING current carbon energy waste. It is literally a magical unicorn that few can see.
Opportunity knocks when you know something before anyone else does. The hard part is recognizing it and having the conviction to act. Bitcoin mining is the golden goose in a world seeking abundant cleaner energy.
The macro environment is scary as hell right now with rising interest rates, home prices/sales falling, inflation remains high, real wages are not keeping up, food and gas prices remain high, unemployment is on the rise, a demographics nightmare is approaching, the “great resignation” is underway, bonds and stocks selling off, inflation is ruining cash, commodity prices are crashing due to falling demand…
Everyone is scrambling for liquidity to pay back margin calls, post more collateral for debt, and pay back loans, etc. Everyone is on the hunt for dollars, and the dollar wrecking ball (DXY) is causing worldwide havoc. Nothing is immune from its damage as its price rises.
Not even bitcoin.
But guess what’s the best performing asset since 2020 despite the mess? Don’t make me say it!
As mentioned in the beginning, it’s in these moments when everyone is fearful that there lies opportunity. Bitcoin is the ultimate RISK OFF asset hedge against government fiscal policy foolishness and fiat debasement. It’s being treated as a risk asset right now because nobody understands it. This is your alpha if you do.
Whether it’s Europe and China today, Canada tomorrow, or the US 1 year from now…fiat debasement can’t stop won’t stop. It’s pure mathematics. The real debasement hasn’t even begun to start (2030s is when social security, medicare, and other issues really become problematic). Think in decades not days.
Ultimately, every country that is able to print its own currency in a fiat system will do so endlessly to keep the party going. It’s not just the US.
There is now a way to protect your hard-earned income (which is really your time) from this endless debasement that you have no say in via Bitcoin.
A trustless, natively digital, immutable, absolutely scarce store of value that can’t be debased and that secures an open, global monetary network - a technological breakthrough for mankind of historic proportions akin to the invention of the internet.
From a risk-reward standpoint, these are HISTORIC opportunities right now. Every metric that exists is screaming the lows are in or are nearly in.
Sure it can wick down some more, but unless you think it’s going to zero (and it could, but I certainly don’t think so), these opportunities don’t come around often.
It’s a long-term, high conviction, prepared to lose it all, asymmetrical bet. The macro events of the past 6 months have only furthered my conviction. The institutions are coming. Blackrock, Fidelity, many others…
They are trying to shake out the weak hands right now to get in while prices are lower. DO NOT FOLD. There is nothing worse than lettuce hands. Diamond hands only.
It’s going to be a bumpy ride and full of self-doubt. But we’re literally investing in freedom technology that is going to revolutionize the energy industry, the internet, and the global financial system for the better…the total addressable market for that is inconceivable and bitcoin is just getting started. It’s SO early.
Sign me up for that any day of the week, fugly macro be damned.
I assure you, I will be the last to blink.
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