Preparing for the Winter of 2023: Will Bitcoin keep you warm or leave you freezing in a ditch?
In the early 13th Century, the Venetians opened a trading route with the Mongols. An empire that created the second-largest kingdom in the world and ruled the world for 150 years. Trades included cotton, spices, feathers, and building materials.
Of the latter, the Mongols bought everything they could afford, and went ballistic on the construction of siege engines.
The same siege engines that ended up bombarding and obliterating Christian cities all over Europe, killing thousands and almost deleting Christianity from the surface of the Earth.
700 years later, this Venetian playbook is strikingly similar to that of the US Dollar. The Federal Reserve wants to solve an issue. They fund the solutions to said issue, like a pandemic or a war, with printing US Dollars. This extra money dilutes the value of money for everyone else. Dilution of money causes inflation, recession, bankruptcies, and broken families. Thanks Venice.
Japan in 2023 is the most clear-cut example of a phenomenon called fiscal dominance. The government starts focussing on funding itself, instead of getting funded by banks and citizens.
In a functioning Keynesian economy, investors need to purchase debt from the government to create this new money. However, investors won’t ever do this if the yield on this debt is less than the nominal GDP growth or the inflation. As it would mean they’d lose money.
This is when things are starting to look slightly crooked. Japan’s Central bank, the DOJ, forces commercial banks to purchase this debt anyway, indirectly spending deposited money from their customers. Purchasing debts leads to printing more money, and the Central bank stalls their seppuku for an extra day.
The West isn’t fiscally dominated just yet, but with a closer look at the Reverse repo program and the Interest on reserve balances, the Japanese set a precedent. For context, the RRP is a system where you sell an asset with the plan of buying it back later for a slightly higher price. The IORB simply means the interest paid on reserves that banks hold in their accounts at the Federal Reserve.
These two interest-bearing economic instruments together, carry a hefty 5 trillion dollars in deposits. The only way to stop this money from entering the economy is for the Federal Reserve to pay billions of interest a month. An interest of 6%. Over 5 trillion dollars. Forever increasing, or until uncle Jerome -king of Venice- stops hiking up the interest rate.
For anyone trading mainly Bitcoin, factors like these are important to pay attention to. Is Bitcoin going to save you from money dilution, or will it wither away in the depths of nothingness under an iron dollar-shaped hand?
In the final week of August, and the first week of September, aplenty of things happened. Michael Burry, known for predicting the 2008 stock market crash, opened up a $1.6B short position on the US stock market. Evergrande turned into a 火與火嘅疯人院 (madhouse of fire and flame) after discovering that the Chinese are good at building houses, but not so good at having them inhabited by anyone.
Jerome had a hawkish speech, hinting at potentially more rate hikes. Grayscale won a court case against the SEC, regarding turning GBTC into a Bitcoin Spot ETF. A day after, the SEC delayed every big Bitcoin spot ETF to the third week of October. All of this happened, and Bitcoin is still between the lower end of the $25k-$30k range, continuing to protect the 50% price surge at the start of the year.
In contrast to these -mostly negative- events, financial powerhouses are starting to make wild proclamations on the price of Bitcoin. The foremost trigger being the Bitcoin ETF, which, according to two Bloomberg intelligence analysts, has a 75% chance of happening this year.
Two prominent examples of these price predictions are from the chief ETF strategist of BBG and Ric Edelman, founder of a $300 billion venture fund. The chief ETF strategist predicts an inflow of $30 TRILLION. Edelman is slightly more conservative with a $150k price.
There is a valid argument to be made that the Bitcoin bull market started in March this year, the moment multiple big American banks got to experience the Mongolian siege engine first-hand. According to Bitmex co-founder Arthur Hayes, the market will need an extra 6 months to a year to price that shift in.
The start of the bull market would imply the Bitcoin price will not seek the $16-$20k lows of late 2022, but hover around the $25k-$30k mark until the market successfully prices Bitcoin’s bull market in.
The start of a bearish divergence would suggest Bitcoin breaking the head and shoulders trendline dominant throughout 2023, and we seek prices at the lower end of $20-$25k.
With the impact of the Bitcoin spot ETF approval being extremely prominent in every single one of these price predictions, it will be the deciding factor of having yourself a warm or cold couple of winter months.
If the ETF gets approved this year, the previous Bitcoin all-time high of close to $70k is up for grabs, and all the Bitcoiners that have remained during the current 18 months of bear market, will explore how close these corporate predictions really are.
Just as the Venetians were completely separated from the rest of the Catholic interests, so will Bitcoin separate itself from the playground of the FED. Interest rates up, interest rates down. Bitcoin seems to take this into consideration less and less.
As the Venetians retrieved the shovels to start digging the grave of a Christian-dominated world, the smart ones predicted the Mongols would wreak havoc and fled accordingly.
Bitcoin is fleeing from a crooked crown and misaligned interests, but patience, as always, is key. You don’t want to get liquidated right before the firewood catches on.
Stay vigilant, stack sats and keep yourself warm.
— Bod
