There’s something sinister on the horizon for global markets right now. Any rational person can see it.
Bitcoin has been grappling with the Macro outlook, Faketoshi’s lawsuit and the lingering after effects of Luna and other scams that gobbled up the leverage throughout the crypto system.
However, when chatting with Bitcoiners who ignore the noise and focus on the long-term; there is still a strong presence of positivity and patience.
Let’s take a look at a few things that have been happening recently:
Macro outlook and the death spiral of debt
There are so many factors to talk about, so we’ll try to get to the point by looking at the developed markets..
Macro is showing the world that we are clearly in a period of economic slowing. Politicians are doing everything to halt any narrative of a recession. We think we’re far past that.
In the US, there was negative GDP growth in Q1 and Q2. Q3 is not looking good and if this continues in Q4 and Q1 2023 – there would be a strong likelihood of a depression (not just a recession).
The US Fed and ECB remain unambiguously hawkish as the prospects of further rate hikes into September are more than certain at this point.
The world’s central banks met at Jackson Hole this past week to talk about various things but most of the discussions were around the monster in the corner in all of our lives: inflation.
Powell appeared straight after the symposium with a short, 8-minute ‘Until the Job is Done’ speech. Markets have been routed since that point.
He clearly stated that the latest inflation figures mean more tightening and ‘restrictive policy’ is required. It is safe to say that a 50bps hike will happen in the next month.
Since then, the US 2y yields have risen to levels last seen in November 2007. Remember what happened in 2008? These 2y yields are indicators of how the market sees the fund rates in the next 2 years. This means the market is betting that rates will climb more than 100bps in the coming months.
Enough with the Wall Street Journal lingo… What does this mean for all of us now?
It means risk-on assets are becoming more and more dangerous. Unfortunately Bitcoin is also considered as such. The world doesn’t understand it. It trades as a crypto where we have said over and over again – it is the furthest thing from it. But it’s the market that decides this, not us.
Now, with terrible Macro and a hawkish Fed, banks will continue to tighten up liquidity and become more defensive with their reserves. They are protecting themselves from the external dangers that are so blatant now. Banks will lend less and credit will become hard to find.
As people claw for more credit due to inflation, unemployment and the ever-growing need to top up their credit cards, their profiles increase in risk and banks become more unwilling to lend to them.
This drives consumption down and in theory, inflation too.
The Fed, ECB and their compadres want this. They want this badly. And they want it in a ‘soft-landing’ fashion.
A soft landing (which to us is fantasy right now) means inflation comes down to 2% and QE measures can begin again. This provides more liquidity to banks and thus, to consumers. Thereby, starting the bull market again… Sounds easy doesn’t it?
Well, there’s a couple of things that the world needs to go through before a soft landing can even be attempted.
As tightening continues, interest rates go up, the Dollar is likely to as well. You see, as people let go of risk-on assets and banks tighten up their reserves; liquidity and credit is hard to find. Supply goes down and demand goes up. It is the rise of the Dollar in these times.
This hurts US businesses. They can’t sell their goods and services at competitive prices in a globalised world.
Corporate debt becomes tainted and unbearable and zombie companies that flourished during the easy times will wither away.
Cantillionaires who have thrived on the Fed’s spigot begin to bare their teeth. Greedy, short-term-thinking politicians open their ears to both the lobbyists and their constituents. Midterms are near, elections are everywhere. They need to make their donors happy and there’s only one way to do that.
Money printer go brrrrrr.
At this point, if we think we are in the similar environment where Powell and Lagarde can remain segregated from the political system like Volcker did in the 70’s – we would likely be very, very wrong.
The world has become more globalised, more centralised since then. The banks and political system are intertwined like a Roman Orgy..
The Fed and ECB will need to pivot at some point. But personally, we don’t see this happening this year. With a likely increase in rates, something in the system will sound the alarms and the next step for the central banks will simply be to pause, not decrease. They would then wait to see the statistics. This is a slow process in a world moving incredibly quickly.
It is also prudent to assume that as more of the world comes to understand that the entire system is broken. As political pressure increases. And as inflation remains far away from the 2% target; we will see the central banks quietly increase their inflation targets to 3-5%
This will only cause more imbalance in a system with legacy models built around the initial target.
Coming back to the present. Inflation is still rampant and employment is fairly high in developed economies. The dual mandate of the Fed, which is cloned by all other central banks remains in place. Tightening has to continue.
Housing, equity and other markets will continue to grind down in an environment where there is simply nothing tangible to hold it up; other than the floundering hope that the central banks will turn the tap back on.
So based on that, we continue our march into a global recession.
Some over-indebted developing economies default; just like Sri-Lanka. Their Dollar-denominated debt simply becomes too much to bear. If they print their own currency, internal hyperinflation is likely.
The IMF becomes concerned about this. They will need more liquidity to provide to their debtors.
The over-leveraged credit market becomes more imbalanced as demand outweighs supply and over-leveraged institutions too shall fall.
There will be a point of reversal. No doubt. It just simply can’t be based on a soft landing. The likelihood of a reversal upon or before catastrophe is more likely.
At this point, the central banks have to pivot to keep the system from collapsing. The spigot flows once again.
Bonds return to balance sheets and entitlements, subsidies and overall UBI flow into the hands of the populace.
Consumption goes up and so do most assets.
The natural course of cycles becomes shorter, harsher and more pronounced. Inefficient capital into energy due to inefficient measures (cough, cough, ESG) hurts the supply side. Increased consumption drives up the demand side.
Inflation begins to run hot.
The central banks begin to panic and attempt to reverse their course once again. Rates go up, maybe a bit more aggressively than last time.
Debt becomes more expensive. Governments borrow more at high interest rates. The Dollar becomes attractive again. More sovereign nations default. Banks default. People lose their savings.
The globalists clamour for us to do more with less. And they continue to try and hold their palaces in place, while the sand around them sinks.
The debt death spiral becomes stronger. The current sweeps everything in its path.
Ok, ok… we’ll stop at this point, maybe a bit dramatic or maybe not.
But nonetheless, it is important to understand the problems, before attempting to understand the solution.
Being this bearish and negative is a hard thing. It is even harder trying to explain this to anyone willing to hear it. Backs, rather than ears, are more easily turned.
But there is hope in it all.
In the words of Robert Jordan,
“The Wheel has turned, for better or worse. And it will keep turning, as lights die and forests dim, storms call and skies break. Turn it will. The Wheel is not hope, and the Wheel does not care, the Wheel simply is. But so long as it turns, folk may hope, folk may care. For with light that fades, another will eventually grow, and each storm that rages must eventually die. As long as the Wheel turns. As long as it turns….”
There is always hope in human ingenuity. That undying willingness to make things better, no matter the cost. The wheel that turns.
And we believe that humanity has created one of the most important tools to help them through the torrential times that are upon us.
Bitcoin is not a hedge against inflation, it is a hedge against insanity
Einstein said that doing the same thing over and over again, expecting a different outcome – is insanity.
The centralists doing the same thing over and over again, which is just kicking the can down the road, is insanity.
It is hard to argue that Bitcoin is an inflation hedge where it is halved in price whilst global CPI has exploded.
But first, we need to agree on what inflation actually is…
Inflation is not the increase in costs of goods and services. The meaning of inflation, for many many decades, has always been, ‘the expansion or increase of the currency of a country by the issuing of paper money.’
This terminology has recently become politicised, much like everything else and we have seen some governments change this meaning through enforcement.
If you, like us, believe that inflation is the increase in money supply and not CPI, then we can argue for Bitcoin as an inflation hedge.
From 2020, through 2021 – the US government increased their monetary supply over 40%
During the same period, we saw Bitcoin increase 800% in value.
As the banks turned the taps off and drew liquidity out of the system, Bitcoin was the leading indicator of the trouble to come. Its price went from $60,000 to $20,000.
Now, it’s average, the base price is around 300% more than it was before the central banks went crazy during the COVID crisis.
If you believe the powers that be will maintain their insanity in the decade to come, then we need a hedge. A weapon.
At this point you might be asking the question, what happens next? Or what should I do?
But the real question should be, why is this happening? Why is the system the way it is?
Well, unfortunately it doesn’t matter. The system is what is. The past is the past.
The fiat system allowed the ability for credit expansion that mankind has never seen before. People have boomed during this time. Peace was maintained at an average level, with a bit of trouble here and there.
However, the price for this was the increased centralisation of power and a complete expansion in income inequality.
Would the world be in trouble without easy money? Well, there wasn’t a central bank in the Renaissance.
Everything comes to an end and every sign is pointing towards an end. Will it be a drawn-out affair or will the world enter a crescendo of awakening quickly, just like Sri Lanka did, within months?
For with light that fades, another will eventually grow, and each storm that rages must eventually die.
Invictus Capital and Crypto20
The past few weeks have been a treacherous one for crypto providers in South Africa.
The Luna scam has taken many down with it. Every Shit coin or Shit scheme markets their uniqueness. Yet, they’re all an inbred, unified, cacophony of bullshit.
We want to draw your attention to this article:
No idea why this wasn’t bigger news in the South African media. Perhaps because the ‘restructuring CEO attempted to use influence to prevent the story from being published.’
This is a former crypto darling in Greenpoint, the heart of Cape Town.
Unfortunately, management went against all principles of financial responsibility, fiduciary duties and of course, risk management.
They invested millions into the Terra/Luna ecosystem and also kept investors’ in Celsius, when it should have been in cold storage.
The standard Shitcoin thing happened after that. Investors were ignored. All social media channels were shut down.
Another day, another rug pull.
We at Bitvice, implore every investor to firstly stay away from Shitcoins and secondly, always hold your own Bitcoin if you can.
Expect more on this recent event from us.
Let’s end on a positive note after everything.
Our good friend at Exonumia is at it again with his ingenious ways of bringing Bitcoin to the masses.
Kgothatso has created a new platform and process for sending Bitcoin via SMS/USSD. Yes, you heard that right.
His new endeavour, 8333, has utilised the wonders of the Lightning network to allow anyone without a smartphone to send and receive Bitcoin. He is also busy integrating with various providers on Lightning, to also allow people to spend, buy and sell Bitcoin at point of sales, using vouchers.
If you’re not amazed by this, then we need to explain the importance of it.
You see, every bank and naive fintech startup wants to ‘bank the unbanked’. However, it is due to their own ignorance and the ever-increasing regulatory requirements (FICA etc.) that they simply can’t. It is their bureaucracy that keeps the unbanked in the same place.
In Africa, most people don’t have bank accounts. And less than half have a smartphone. They can’t download Blue Wallet. They can’t scan a QR code for payment.
USSD is by far the best way to onboard most Africans to Bitcoin right now.
It allows a massive addressable market to be able to easily buy Bitcoin. To finally access a hard asset, when they never could. To finally hold an asset that demagogues cannot take away from them.
It is an extremely important advancement for Bitcoin and humanity.
We can’t wait to see what they do next.
By the Horns: Machankura – Bitcoin and Lightning without internet
If you want to hear more from Kgothatso and 8333, we recently had a podcast with him.
You can check it out here.
Keep focusing on the problems before us, keep learning about Bitcoin and have an awesome week further.