The Crypto Comms #51; you are Exit Liquidity
When faced with the option of throwing the investment classes or the average Joe under the bus, the United States and its Western hegemon has been fairly consistent. If you doubt this, ask yourself: in whose interest do domestic politicians act overall?
As much as politicians may want to act in the best interest of their constituents, financial reality demands that politicians act in the interest of retaining the global reserve currency status. This behaviour is in turn exported wholesale to the rest of the world. And it means that when push comes to shove, the US will play its part and flood the system with money.
In this issue
- Bitcoin analysis
- Bloc balkanisation
- Capital controls
- Latest happenings
- Listening material
Bitcoin analysis
- Bitcoin/Dollar closed a bearish-engulfing candle at $27,500 on Sunday, indicating that the top crypto is possibly heading into a cooling off or consolidation period. The $30,000 level has proven hard to breach so far, and a cluster of weekly moving-averages rest at around $24,000 — $25,000.
- The question as to whether BTC/USD will test these lower levels in the short term before heading higher is an open one. Macro headwinds such as a possible reversal in the DXY could slow-down Bitcoin’s move higher.
- Risk-seeking behaviour has remained fairly neutered in the space, with perpetuals contracts, open-interest and funding rates tapering off relative to spot volumes.
- All in all, the technical picture is bearish, but only just. The weekly bear candle suggests potential buyers may get a better entry around the $24,000-$25,000 level. A reversal in Dollar strength could bootstrap the sell-off. But compared to this time last year, there are effectively no signs of severe overheating.
- Additionally, as mentioned in this Litecoin Twitter thread, volumes remain low across the board. Typically, low volumes precede prolonged bull-market rallies, and Bitcoin has been in a secular bull trend since inception. Admittedly, low volumes are a double edged sword due to thin orderbooks. While not guaranteed, a move lower to bait sellers would be ideal for bulls to step back in.
Bloc balkanisation
Financial bifurcation is well underway. In fact, it’s been going on since the great financial crisis. Since 2008, central banks have been accumulating gold reserves at an increasing pace. Incidentally, the Bitcoin whitepaper was published in 2008 — what a coincidence!
Central banks do not buy the shiny yellow metal to show it off to each other. They do this to hedge risk in the face of a changing global order, since gold has been viewed as a neutral asset for millennia. At any rate, the future is balkanisation, with various currency blocs effectively rebelling against the Dollar standard, and choosing to resolve trade in a neutral currency. This will create problems of its own since taking stock of gold is cumbersome, unwieldy and downright medieval, literally and figuratively.
Trade with the West and its allies will continue, while the Chinese CNY, gold and other currencies begin to take on a larger role. CNY-settled oil contracts are an attempt to reduce reliance on the US Dollar. Imbalances between blocs will be resolved in Gold regardless, given that trust is not coming back, and deglobalisation is not going to reverse. Historically gold tends to shine with governments, but for the average Joe, lugging around a heap of gold makes no sense. You’re far better off saving in Bitcoin or Litecoin.
As the secular balkanisation trend continues, demand for Dollars will slide. Keep in mind, the West effectively stole Russia’s reserves and this one event set off a multi-decade process of deglobalisation. The global South, which produces goods and sells it to the world in exchange for fiat shitcoins will start accepting other currencies instead of Dollars or Euros. This depletes foreign demand for stocks and bonds at the margin, dropping prices.
CBDC Capital controls
However, the largest impact will take place when there’s a new direct stream of money printing. Without it, US bond yields will go up, and as yields go up, bond prices fall. This capital flight outside the West won’t go unchallenged, so capital controls — partly by means of a CBDC — will be introduced under some false pretence (similar to the covid lockdown scam). The West does not want capital to flee to crypto or worse yet, foreign markets! Admittedly, the Chinese capital accounts are closed; this is because the Chinese are already levered to the max, and foreign capital flows would destabilise their economy — therefore they’re severely restricted.
Back to the West. The colossal debts accumulated post-WW2 cannot be paid off — someone has to be left holding the bag. That’s you, dear reader. You will be exit liquidity when the greatest inflationary event ever seen in our lifetime hits. Too much capital flight out of the system would mean the end of the USD’s role as the global reserve currency. Therefore, capital controls will be massaged into the public since the West cannot create these draconian measures due to their open capital accounts which are also open to foreigners.
Exodus
Despite these draconian attempts at control, the mass exodus will still happen one way or another as the Western ethos of defiance is not going away any time soon; just look at how a persistent minority has made the entire covid-vaccine scam narrative the talk of the town (even if it’s not covered on legacy media). On the flipside, the Asian ethos places collectivism over the individual, so it’s hard to say what will happen there.
Since 1971, dollar-denominated investments has been the obvious bet, so much so that investors are no longer familiar with how capital behaves. Today, while Bitcoin has made inroads into finance, the consensus is that crypto is mostly fraud (and who could blame them, really?). In fact, crypto is the next iteration of financial markets. Given this knowledge gap, savvy investors with a brain-cell or two will continue to position themselves in the ‘outside money’ basket, that is, Bitcoin, Litecoin, cryptofinance, gold and silver.
As such, incumbents will focus their efforts on these neutral & free market assets since they’re not tied to any country. Bitcoin and Litecoin can’t be debased by a central bank desperately trying to prop up the legacy financial system with printed money. As more countries begin to look out for their own interests instead of being serfs to USD hegemony, their international trade revenue will be diversified into different assets.
The financial media will frame it as a choice between the Dollar and the Chinese Yuan. But in truth, it is neither because better monetary technology exists now. Bitcoin and Litecoin are neutral assets with superior qualities to every fiat currency in existence. Every spawn of legacy fiat finance is an attempt at misdirection, in an effort to not be the last one holding the bag when the game of hot potato comes to an end.
Cheers.
Latest happenings
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.
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