Bitcoin vs. the macro monster

The fake economy continues its slow death spiral. Will bitcoin go down with the ship?

Image: PixTeller

The Fed lost the narrative

John Maynard Keynes once said, “markets can remain irrational longer than you can stay solvent.” For the first time in the 50-year history of the US fiat dollar, markets stayed irrational longer than the Fed could stay solvent.

I suppose it should come as no surprise. For the last 40 years or so, the Fed has been quietly planting seeds of moral hazard. With the monstrous stupidity of Covid helicopter money, those seeds have taken root.

Modernly, anybody that was paying attention knew the Fed was bluffing all along. Every dip, investors bought. Didn’t matter if it was Apple or Netflix or Bitcoin.

The Fed rattled their interest rate sabres. They even took some hearty QT swings. But investors across the spectrum just backed up a little and let them keep swinging.

We all knew the Fed pivot was coming. It didn’t matter why the pivot came, whether debt became too expensive to service, or credit became too expensive grant, either way, all roads led to pivot town.

And, now we’re here.

The last two pivots didn’t work out so well for risk-on investors. 2008 and 2018 both resulted in pretty sharp drawdowns in equities and crypto.

Here’s 2008:

Image: TradingView

And, here’s 2018:

Image: TradingView

The entire regulatory apparatus completely missed the massive problem unfolding in 2008. In fact, they didn’t see it until after the entire global financial system had catastrophically imploded.

Every major bank in the United States was at imminent risk of collapse. 2018 was a little different. Only the overnight repo market was collapsing then.

Didn’t matter though, the result was the same: money printer goes brrr.

The Fed is in a pickle

If you were the Fed chairman, what would you do in this situation? You can either:

A. Monetise debt through inflation; or

B. Collapse the system.

Obviously, they choose “A” every time. Trouble is, they’ve chosen “A” so many times now, the inflation from repeated debt monetisations is completely out of control.

Meaning, chances are good come summer, or next fall, we’re going to see that CPI number going through the roof again. But, since the Fed has already pivoted, what are they going to fight the fire with?

A stern look?

I’ve said this before and I’ll say it again, NO ONE ON EARTH knows how this mess plays out. The scale of the collective, global monetary debasement we’ve seen over the last 15 years has never happened before.

Food for thought, since 1976, on a QUARTERLY basis, the S&P500 and the AGG (Bond ETF) have simultaneously declined nine times.

However, they have NEVER declined at the same time on an ANNUAL basis:

Image: Ben Carlson / awealthofcommonsense.com

But, things have changed since 2008. Now, on an ANNUAL basis, the S&P500 and the AGG have declined TWICE. Once in 2018, and again last year in 2022:

Image: TradingView

On a longer time horizon, the S&P500 and 10-year Treasuries have only declined three times between 1923 and 2013:

Image: Ben Carlson / awealthofcommonsense.com

Yes, the AGG is a broader metric. And, yes, corporate debt is bound to be trashier than the 10-year. This exercise is to drive home the point that things really are different, and probably not for the better.

As I mentioned a moment ago, this kind of global, coordinated monetary debasement has never happened. Ever.

Individual countries have done this kind of self-inflicted harm. But, on a global scale? What we’ve unleashed is an industrialised, globalised poverty machine that is going to bury the world in worthless paper.

Got Bitcoin?

Gold and silver hold value, generally speaking. Gold in particular has a number of intrinsic qualities that preserve its status as an object of value.

Often when I mention gold and silver, people tend to conflate that with support for a return to some sort of gold standard for paper currency. That is not what I’m suggesting, nor would I support such an idea.

Maintaining a paper peg to a commodity is damn near impossible. Such a scheme requires trust in the party issuing the paper. But, the incentives to remain trustworthy are grossly misaligned, and political expedience always trumps stewardship.

That, in a nut-shell, is why ALL pegs eventually break. People create more paper (or crypto) than they have assets to back it with.

Gold and silver are important to retain individual purchasing power. As in, I think history has shown it is important to have some gold and silver lying around for when the sovereign inevitably fucks up your paper money, whether they be dollars, rupees, or schillings.

Bitcoin changes the equation a little bit.

On a fundamental level, the critics of Bitcoin are correct: there is no “intrinsic” value to a reward created out of thin air for solving a math problem. Unlike gold and silver though, “intrinsic” value is not what makes Bitcoin valuable.

There is a quote I see on Twitter from time to time that sums it up surprisingly well:

Gold and silver = God’s money; Bitcoin = the People’s money

Bitcoin is an electronic means to defend property, specifically money. Once you convert your government issued paper promises into Bitcoin, the network defends your ability to store, retrieve and use that money.

You don’t need permission from anyone and you don’t have to trust anyone. Trust is hard-coded into the protocol and the mining network ensures security and egalitarian access.

The hard part to understand is price. Price is measured in fiat terms — US dollars. As is oil and gold. The thing we need to understand is the value of gold and oil doesn’t change.

Only the price does.

Generally speaking, the price of gold and oil directly relates to how many dollars are floating around in the world. And, generally speaking, the same is becoming true for Bitcoin.

Image: TradingView

That chart is gold (yellow), oil (green), and BTC (orange). They’re not an exact, line for line fit, but you can kind of get the idea.

Aside from a major oil market manipulation in 2009, US dollar prices of all of these commodities generally track in a similar direction.

BUT, look what happens to the same chart if you price everything in Ether:

Image: TradingView

Looks a little different, doesn’t it? Here are the same commodities priced in BNB (Binance):

Image: TradingView

Different still, but much closer to ETH than to our good buddy the US dollar. The point is, rather than focus on the dollar denominated price of BTC, what you should focus on is this:

Image: Glassnode Studio

As more and more people join the BTC network, the more resilient (and valuable) the network becomes. The reason I began to hold BTC is because of the massive amount of monetary debasement that has occurred.

The reason I want to hold more BTC is because of the unimaginable amount of monetary debasement that’s about to come. There is no other way for the central bankers to go.

They are facing an existential crisis right now. 2008 was when we diagnosed the fiat cancer. 2020 was when the fiat cancer metastasised. The fiat cancer has spread everywhere now, and there is no cure.

Remember, gold and silver = God’s money; Bitcoin = people’s money.

Position accordingly.

These are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.

Until next time, be safe, be smart and be sure to tie the camel.

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