The Crypto Comms #45; on the Brink
Financial markets are in the early-stages of a global monetary regime change — shifting from one that’s pegged to thin air, to one that’s pegged to energy and the real economy. Banks are stuck between a rock and a hard place with an empty toolbox.
In this issue
- Bitcoin analysis
- Fed opens liquidity taps
- Latest happenings
- Listening material
Bitcoin is in the process of transitioning into the global reserve currency. In November 2022, Bitcoin/Dollar bottomed at $15,600 following the collapse and implosion of fraudulent exchange FTX. The 2022 cryptocurrency apocalypse can be described as a story of bad actors bringing everyone down with them — Do Kwon, Sam Bankman Fried, Alex Mashinsky, and others. These menaces have since been cleansed from the ecosystem — no doubt they won’t be the last.
Bitcoin’s dollar-price currently traverses in between the 200 and 20-weekly exponential moving averages (Bitfinex), similar to March 2019, and March 2020.
BTC/USD is also within the ‘undervalued’ band of the power-law corridor — a long-term indicator tracking Bitcoin’s trajectory towards to $100,000, $500,000 and $1,000,000.
The Bitcoin Power Law Bands are a set of three US dollar price trendlines and two price bands, indicating overall long-term trend, support and resistance levels as well as oversold and overbought conditions. The model does not predict timing of long-term cyclical tops and bottoms, but rather models predictable ‘minimums’ and ‘maximums’ as Bitcoin transitions into the currency for the internet, and the world.
It was popularized by Harold Burger, using a log chart of bitcoin/dollar and applying a linear regression to establish the long-term growth corridor. Long-term liquidity levels described in a previous post remain high-time frame magnets to keep an eye on as Bitcoin exits the bear market.
Fed opens liquidity taps
Meanwhile, traditional banks are predictably failing — mired in ever-more-complex tranches of synthetic assets, derivatives, MBSes, and a never ending list of useless tradeable assets that nobody wants. They’ve pushed the leverage barriers (with other people’s money) so far that the entire fractional reserve banking system teeters on the brink of disaster. The $209 billion Silicon Valley Bank black-hole was the second largest bank failure ever, and is indicative of underlying weakness in legacy finance (despite the nuances).
This weakness if further corroborated by the Fed’s press release on Sunday, which stated that the central bank is ready to “address any liquidity pressures that may arise”. In no uncertain terms, the announcement means Jerome Powell is more worried about contagion effects in the traditional banking sector than he is about inflation. So the ‘higher for longer’ rhetoric and ‘soft landing’ narratives have both gone out the window.
The Treasury and Federal Reserve’s coordination to make a new facility called the Bank Term Funding Program (BTFP) lets banks use securities as loan collateral, instead of having to sell them. This opens up liquidity for potential bank runs, but does not solve the underlying problem — banks with long-duration bonds are getting squeezed at both ends.
As described by finance strategist Lyn Alden in her latest newsletter:
If the Federal Reserve does continue to push forward by raising interest rates and performing quantitative tightening, the long tail of small and medium-sized banks are at risk of ongoing liquidity drains, starting with the most vulnerable and moving up from there. If the small banks sharply raise interest rates to keep deposits, then they risk getting into solvency problems. The beneficiaries of this flight to safety would most likely be several of the the largest banks and money market funds.
Due to the way the system inherently operates, there has been a long-term consolidation of small banks into big banks, and this recent episode provides more fuel for that trend.
This will squeeze small banks, and benefit mega-cap banks like J.P. Morgan Chase and others like them across the world. The ones ultimately left holding ‘the bag’ are depositors who are too late to withdraw their funds (once liquidity runs out).
The entire situation could very well lead to a hand-in-hand increase of global fiat liquidity (to keep the system afloat) and asset price inflation, invariably causing the so-called ‘lower’ and ‘middle’ class to merge into each other, deepening an ongoing crisis. Incidentally, this crisis would be the perfect moment for central bankers to hold hands and announce a Central Bank Digital Currency as double-digit inflation pushes calls for a form of universal basic income by those who don’t know any better.
Of course, this solves nothing — and only serves to further consolidate money into an ever-more-restrictive ‘members-only’ club who wish nothing more than to place spending limits on normal, everyday working people to bring about their desired utopia. Indeed, one can’t help but wonder whether this is all part of a controlled demolition process that paves the way for CBDC coupon codes (i.e. not money). The pieces of the puzzle are certainly there, and central bank interest in creating this dystopian tool has only grown since 2019.
But ultimately, just as paper money is not worth the paper it’s printed on, fiat-currency extensions (CBDCs) won’t be worth the disk space they’re stored on. Regardless, it appears that stealth-QE is back online, and the case for a Bitcoin or Nakamoto standard has never been stronger.
- Shrinkflation is not included in Consumer Price Indices.
- GBTC Up 18% After Gaining Ground Against the SEC in Court.
- Long and Short of it: Silicon Valley Bank Collapse Tldr.
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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