The Crypto Comms #44; the Fed is insolvent
All fiat currency is going to zero by design. It’s the end of the road for a monetary era, and the beginning of a new journey built on sound money. We who exist today will witness a monetary regime change that has never been. As with all things finance, it happens at the margins and it starts with insolvency.
In this issue
- Bitcoin analysis
- Insolvent Fed
- Latest happenings
- Listening material
Bitcoin is in consolidation mode. When high-time frame patterns seemingly stall, it’s not a bad idea to ask yourself: ‘where would I consider jumping in if this were a five-minute chart?’
Bitcoin/Dollar exchanges hands at $22,400 at the time of writing. The monthly contextual range is $21,300 (LML) and $25,200 (LMH). The range’s importance is further stressed by the weekly context, the 200-exponential moving average and the 20-EMA.
This is the over-arching context, wherein we want to look at buying the range low, and potentially reshuffling at the range high as break-out traders pile in. As you know, my sense is that break-out buyers will start being correct more often than not in the next couple of quarters.
In terms of level-to-level price-action, it’s correct to look for low-time-frame reversals below $22,000, and blind bidding any movement below the 20-weekly ema ($21,300).
The following model is another visualisation to consider.
So far, price has traded within a 1%-2% range since last Friday on low-time-frames. Open interest (OI) gyrations have been fairly muted following the -6% move on Saturday. Around $2 billion worth of OI got wiped and no more significant moves took place — indicating caution.
Technical charts considered, Bitcoin is already back within the passive-aggressive accumulation zone, with multiple points of confluence. The question each potential buyer must ask is how aggressive he wants to be in his purchases.
But in the spirit of considering all scenarios, if price falls below the long-term cost basis ($19,800 realised price), then BTC/USD will have opened the door to fresh lows. Though I’m fairly certain that only another FTX-level disaster would precipitate this doom scenario (i.e. Binance or Tether going under).
Be sure to keep a printed copy of your McDonalds application close by at all times. I know I do.
The Fed is insolvent
Since mid-September 2022, the Federal Reserve has lost around $36 billion and will continue to post billions of dollars a month in losses for many months if not years to come. These losses are indefinite and perpetual, until more spreadsheets break. Fed losses have already consumed about 85% of its stated capital of $42 billion. It will take less than 3–2 weeks for the Fed to burn through the $6.6 billion of its remaining capital.
This means the Federal reserve is ‘broke’. In essence, if the Federal Reserve was a private entity, it would have to file for bankruptcy. But because central bankers are omnipotent entities who answer only to themselves and the public-private cabal that passes for our so-called ‘good governance’ structures, they can simply extend and pretend — for a time. These accounting gimmicks are explained in a detailed report by macro finance analyst Lyn Alden.
Put differently, the central bank that underpins the global reserve currency is operating at a financial loss, whereby its liabilities exceed its assets.
The consequences of such a situation are mostly long-term. But in a nutshell, here’s what’s happening:
- The US Treasury loses its $100 billion yearly revenue source. Since the government must function, the money must come from somewhere, therefore it will be printed and added to the $22.6 trillion US national debt which will never be paid off. That’s the equivalent of losing four fully-operational NASA’s worth of income.
- Secondly, commercial bank profitability will increases as the money which flowed to the Treasury now goes to commercial banks and money market funds. These liabilities for the Federal Reserve are interest-bearing assets for commercial banks.
- Thirdly, as this insanity continues, political pressure will mount. Tens of billions of dollars of dollars will be paid to private banks in a high-interest rate environment. As deficits and debt continue to pile up, with tax receipts trending in the opposite direction, the money still has to come from somewhere. An inflationary death spiral is inevitable.
This ongoing quagmire is replicated across most central banks, with the exception of El Salvador which has moved to a Bitcoin standard. When push comes to shove, the situation will end in the exact same way it began — printing the difference, and then some until more nations opt out of fiat ponzis, and opt into the Bitcoin standard.
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.
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