Bitcoin signalling dovish Fed turn or noisy ponzi blow-off?

See the latest Australian dollar analysis here:

Elon Musk may have just saved Bitcoin

Over the weekend, Bitcoin hit a new record high against both the US dollar and gold. Should we read this as market signal or ongoing ponzi scheme inflation?

Bitcoin record ponzi scheme

Bitcoin record ponzi scheme

My recent thoughts on BTC have followed the schizophrenic thinking in market participants. On one hand, we have titanic figures like Elon Musk declaring BTC the new medium of exchange for goods and services. On the other hand, we have an entire industry of asset managers declaring BTC is the new gold, the ultimate store of value as fiat currencies are devalued.

I have noted that it cannot be both. If it is the former then it is so threatening to governments and central banks that it is inevitable that they will crush it. If it is the latter then BTC may have a future, even though it is a far contingent form of gold than gold is.

So, between these two polarities, should we read BTC’s new high as signal or ponzi scheme noise? Gold has also been a little bid last week as the US dollar rally eased but not enough to even signal a change in trend. Moreover, the more that the US dollar rallies, the more some are expecting the Fed to step in to end its threat to reflation. From the Bear Traps Report:

Highly-priced assets need lots of central bank love to stay highly-priced. Likewise, just a hint of future possible Q3 2021YCC (yield curve control) deployment is the tactical nuclear weaponry needed arrest the dollar’s ascent and preserve the global economic recovery.TheFed must “out-dove” other developed market central banks, they have NO choice. Everyone thinks it’s 2013-taper fears are sky high for gold. In reality it’s probably 2010. In other words, we eventually get the taper, but the overwhelming point is-other weapons have to come first. We understand the economic growth outlook is robust. Rosy 6-7% U.S. GDP street forecasts are on every corner in Manhattan-but the 2nd fiscal deal of2021 is not a slam dunk. In Washington, ACG Analytics reminds us the next piece of legislation needs 60 votes in the U.S. Senate and comes with tax hikes through “regular order.” Ten Republicans need to come on board. We could geta large infrastructure bill through “reconciliation” (50 votes needed) in December tied to the 2022 budget year, but that’s a ways off. Keep in mind, last year (similar to 2002-2006), U.S. mortgage refinancing added 50-75bps to GDP through home equity extraction. With higher bond yields, we won’t have this luxury in the U.S. economy’s back pocketin 2021.

Bottom line, if the Fed doesn’t contain the USD-they blow up the global economy for the 4th time since 2013, even they can figure out this piece of risk management. Over the last decade, the higher greenback’s global deflationary powers have been well advertised. This is the Fed’s biggest fear, it’s a large inequality driver indeed. If Powell plays“tough guy” in staying with the current path-without offering further assurances of deeper, more sustainable accommodation-the beast inside the market will keep pushing him until he breaks. We will see a repeat of Q4 2018-Q1 2019, where the Fed was forced into an utterly embarrassing pivot. One of those is enough for Powell’s legacy, he doesn’t want two. With 13,000,000 more Americans now outside the labor force, relative to January 2020 levels, theFed chair has NO room for games. A narrow window indeed. He must act proactively now and he knows it.

The Nasdaq is facing a lose-lose risk dynamic. A Federal Reserve offering insufficient accommodation places markets in the crosshairs of a risk-off event, equities need more love to stay afloat at nosebleed levels. A FederalReserve pushing forth a dovish pivot, extending accommodation with forward guidance and hints of yield curve control-pressures the dollar lower, putting commodities, value, global cyclicals, materials and emerging markets into rotation overdrive.

A few points:

  • A turn in the Fed will not be bearish for tech stocks even if a rising DXY most certainly will be.
  • It is not inevitable that the broader market will push the Fed to ease or it will crash because there is a very powerful value rotation underway beneath the surface.
  • The Biden Administration is only pretending to want Republican votes for its huge infrastructure package. It knows that they are pretending so it is too. Budget reconciliation is already in play for the new fiscal year beginning October 1st. This is timed perfectly to pass the growth baton from the $1.9tr stimulus enacted last week:
Goldman on the US fiscal impulse

Goldman on the US fiscal impulse

  • Given the speed of this amphetamine-driven market cycle, the Fed may well be already done easing and allow rising yields to deflate the tech stock bubble. After all, financial conditions remain astoundingly loose. So long as it does so without upsetting the 30-year yield and mortgage rates, little macro harm will result amid so much fiscal support.

So, my question today is, is a new high for BTC signaling a turn in Fed posture even though gold is not? Or, is BTC ignoring all market signals and simply inflating because it can, as the first-ever global ponzi scheme might?

This matters a great deal for where it is about to go:

  1. If the Fed doesn’t panic then gold and BTC should both track tumbling tech stocks lower.
  2. If BTC goes up despite point one scenario playing out then it sure isn’t any kind of gold that we’re used to and looks a lot more like a straight-up ponzi-scheme.
  3. If BTC leads a shift in the Fed and gold doesn’t then the latter will have been genuinely displaced as the chosen reflation currency of global markets.
David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. two plus twoMEMBER

    Comparing BTC to gold is a little disingenious. Even if their purpose is similar, BTC is the new kid on the block and will be growing market share even without the ongoing games of fiat debasement. While there are doubters being convinced to get onboard, the market for BTC as a store of value is growing. The same can’t be said for gold – arguably, it could be suffering from the reverse.

  2. Once you figure out what Bitcoin is, and that means putting many hours into researching it (reading books, articles, listening to podcasts) you realise you need to grab as many as you can as quickly as you can. Because there is no alternative.

    Do you guys even realise how old the Banks core systems are? They are decades old. Built in another era many decades ago. The entire system is riddled with inefficiencies, middlemen taking their cut and is slow as molasses when it comes to settlement.

    • I was recently issued a cheque as a refund from St George

      So I mailed it back with a toy dinosaur.

    • So you’re arguing its biggest feature is it’s a currency? I thought the majority of crypto fans dropped that and flipped to it being a store of value. I think the majority are just jumping into the bubble purely for speculation (and hey, I’ve made some profits from crypto but I don’t believe in it long term).

  3. USD down, BTC up; USD up, BTC up; bond yields up, BTC up; bond yields down, BTC up.

    Doesn’t seem to YET be functioning as a currency; looks like the price goes up to simply reflect capital inflows, which delivers the ‘returns’ to incumbents, generating more interest, inflows and returns…Ponzi scheme.

    Since I think this is the case, why can’t it make it to $100K USD? Think about it: lots of cheap money floating around in a low-IR/yield environment, looking for yield…BTC!! It goes up because it exists.

    So…where do I sign up, to get in ‘late’ in the game? I’ve got a Coinspot tab open in my browser, but have been too busy to get around to filling out yet another form.

    Coinspot good? Maybe an good Aussie-based system?

    Open to suggestions.

    • I think you have your ponzi schemes mixed up. Any reasonable person who exams the government debt-based system will see that it is a ponzi scheme that creates more and more inequality as time goes on.

    • Coinspot does the job.
      It covers most of the popular cryptos.
      If you are going to invest a sizeable amount into crypto, then its worthwhile to invest in your own hardware wallet.
      Trezor and Ledger are 2 popular ones.
      Transfer from Coin Spot, for example, to your hardware wallet once you have accumulated your crypto.

      If you are going to buy and sell a lot, regularly, you may as well just leave in your Coin Spot wallet/s.

      As Always DYOR.

      .

  4. Bitcoin will facilitate the wealth transfer from the old to the young that you have talked about so often and is so needed.

    • about 2 – 2.5% of accounts hold 95% of all bitcoin. It’s not exactly the social utopia for the young that everyone thinks.

        • lol lama, sort of. The top 10% own about 85% of equities and about 50% of investment property in the US. Worldwide I’m not sure. That’s better than the distribution shown in Bitcoin, but I agree, its still not great. In the end bitcoin or fiat doesn’t grow on tress.

  5. Based on previous Z-Values and RSI monthly values bitcoin can climb 50% from here.
    HOWEVER… this is the first time bitcoin is reaching close to end cycle with the equities market also in over valued territory with bond yields getting frothy very fast. In other words we are really going to see how bitcoin holds up to market move in other areas. In short its too risky now for me and I would rather wait a short few month for it to crash back down to 20k to get in.
    If I do get in it will be short 1-5 day trades taking profit off as it goes. When it finally goes it will be in the middle of the night and 20% down.

    As for gold/silver, tough trade. It could keep its gradual decline for years until it finally climbs again or since we finally have inflation expectations running really hot ( 5yr breakevens highest since 2008!) that it could put a rocket under them IF (and its a big if) people flood back into bonds as a safe haven from market turbulence and those yield go back down. They don’t have to drop far for real yields to drop to their previous lows especially when everyone is adamant we will get inflation.

  6. Gold is the king of commodities (or the queen if you think platinum is the king). Together with platinum, silver, titanium, copper, crude oil, etc., commodities collectively serve as inflation hedge. So gold has been doing exactly what it is expected to do. What Peter Schiff and his followers got it wrong is that they appear to think gold is special compared to the other commodities. It isn’t.