The Crypto Comms #46; implosion
If it’s not clear by now, the Federal Reserve’s hawkish monetary policy over the last year and a half has sent interest rates flying to levels which the legacy financial system simply cannot handle.
In this issue
- Over the edge
- Bitcoin analysis
- Rock and a hard place
- Latest happenings
- Listening material
Over the edge
The entire monetary system is dependent on low interest rates and dollar liquidity. It cannot function for long in an environment that doesn’t include a deluge of cash injections, quantitative easing or whatever made-up term comes next.
In the midst of bank failures and legacy finance chaos, governments and central banks have thrown the nonsense pretences about ‘separation of powers’ out the window and intervened. The Federal Reserve and five other central banks announced a coordinated effort over the weekend which will introduce US Dollar swap arrangements to add liquidity to failing banks.
Consequently, Bitcoin has started to perform like a risk-off asset — a safe haven outside the system.
It has cleanly disconnected from from equities and fully diverged from legacy banking stocks, some of which are already close to zero.
Citizens from all over the world are waking up to the fact that banks are insolvent by definition; that the entire fiat monetary system is just a made-up confidence game.
Bitcoiners and other proof-of-work advocates have been warning that a bank run and collapse of epic proportions will eventually come to fruition, merely as a consequence of fractional reserve banking’s design. The least painful way of exiting the fiat system is via bitcoin and litecoin — or via hard assets like gold.
Bitcoin analysis
Bitcoin/Dollar closed nearly 30% above market open on Sunday ($28,000). This was the largest upward move (in percentage terms) since March 2021. Price pushed through February highs and traded at levels not seen since June 2022.
Over a period of two weeks, Bitcoin back-tested its cost-basis or ‘realised price’ ($19,800), took off and breached the stratosphere. Historically, this indicates the start of a bull market cycle, which is in keeping with BTC/USD secular uptrend.
A 6-figure Bitcoin should be on everyone’s radar in 2023. Until weakness in the spot market (or overheated derivatives) become apparent, ‘up and to the right’ is the name of the game.
When will there be a pull-back?
Bitcoin is in a place where fundamental and technical tailwinds have aligned. The scale of the problem in legacy finance is unknown, but given the ECB’s insistence that banks are ‘strong’, I tend to think it’s more serious than they’re letting on.
One trader who caused quite a stir said that Bitcoin will hit $1,000,000 in 90 days because the amount of money that will be required to get out of this mess might as well approach infinity.
Of course, this claim is over the top and would mean utter chaos for most of the world. A hyperinflationary event is certainly not desirable, but given enough time it’s inevitable.
That said, a pull-back scenario to $25,000 could be an ideal place to load up as the traditional banking crisis escalates. Tomorrow’s FOMC meeting will be another signal. A 25 BPS hike would be another indication of a pivot, and a flat rate (no change) would be an even stronger indication.
Rock and a hard place
Bear in mind, the Federal Reserve has already signalled it is more worried about contagion in the traditional banking system than it is about inflation. They’ve already opened up swap lines (stealth QE) across the banking system, and if interest rates aren’t either flattened or lowered, and all-out-QE isn’t restarted in time, there will be more ‘too-big-to-fail’ implosions like Credit Suisse.
Notably, saving Silicon Valley Bank, a bank which loaded up on long-dated bonds and was forced to sell assets at a loss because of a maturity mismatch (and liquidity issues) was part of the ‘froth’ the Fed is supposedly trying to fight (via rate hikes).
In essence, the Fed can’t have it both ways, and Bitcoin is positioned for whichever decision comes out of the FOMC. The abrupt loss of confidence in banks will eventually happen to central banks as systemically important (i.e. politically connected) banks begin to fail in greater numbers.
Meanwhile, Bitcoin sits on either side of the fence. It is a ‘no-confidence’, scarce and decentralised bearer asset. Bitcoin called central banker’s bluff in 2009, and need only lie in wait for the inevitable.
The winds of change are in the air, and bitcoin is ready to takeover as we sift through a quagmire of our own making.
Cheers.
Latest happenings
- Regulatory Capture: EU Data Act Leaves a Black Stain on Web 3.0 ecosystem.
- Fed, Central Banks Announce Coordinated Effort to Boost Liquidity.
- Long and Short of it: Silicon Valley Bank Collapse Tldr.
Listening material
Dear readers,
The purpose of this newsletter analysis is to provide context to current events and cryptocurrency markets. It is released every Tuesday. I am not perfect and this is not a science — nor is this newsletter analysis a signals service or financial advice. While I cannot promise perfection I do my best to be honest and transparent.
Thank you for reading.
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