Bitcoin is still holding up – but make no mistake – the recent swoon in risk assets is the start of something bigger.
We are nearing the end of the biggest trend of the century. In the post-2008 world, bad news was good news for asset prices. Now that’s over.
If you are a big fan of higher asset prices – 2025 is gonna suck.
Bitcoin is The Barometer
Bitcoiners love Bitcoin – but it’s bigger than crypto now.
Today Bitcoin is the flagship global risk asset. When there is a global risk-off selling party – Bitcoin gets hit first – and it gets hit hard.
The market’s perception of risk is the most important fundamental for Bitcoin – at least day-to-day. It’s pretty easy to see we are in the middle of a risk-off phase, and we think risk-off selling is here to stay.
The risk-off trend will continue. But it will go longer and deeper than Wall St. would care to consider at the moment. Bad news is bad news again.
Powell Will Let Markets Burn
To state the obvious: Jerome Powell isn’t Ben Bernanke!
The big trend of the 21st century is central bank intervention to support asset prices. To some degree this began under Alan Greenspan in the wake of the 1987 stock market puke – but it really went direct under Bernanke in 2008-9.
We are 100% sure it was a total coincidence that 2008 is the same time Bitcoin hit the markets.
Regardless, that trend is over. Inflation is the reason why.
Central banks are no longer creating good news for asset prices from bad economic news. Without a new game plan – more money means higher inflation across the board – which undermines the power structure.
People get upset when they can’t afford to eat or pay for a place to live. It’s totally understandable!
Powell is in an unenviable position. Much like Paul Volcker in the early 1980s – Powell is going to create unpopular monetary policy for a terrible economy. The key takeaway is: Powell isn’t coming to the rescue anytime soon – so Bitcoin prices are going lower.
All About Curves
If you like economics – you know something about inverted yield curves.
We won’t bore you with hundreds of words explaining why inverted yield curves scare the s#!t out of Wall St. Watch the video below for more info.
As you can see – we are in a treacherous situation. This would be the first time in modern US financial history that the steepening out of a massive yield curve inversion didn’t end in a recession.
Our argument is that the West entered a depression many years ago – around the time the technocratic wonks were punishing the global economy in the COVID19 era.
That said – things could get so bad in the coming 12-18 months that all the pranks the government statisticians play won’t cover up how terrible things actually are.
Again – all this is apocalyptic for risk asset prices. Especially in an economy where central banks won’t step on the gas with cheap money and asset buys.
Oh The Borrowing!
This year is a big one for government borrowing.
Germany rocked markets with its wild new spending plan. Long story short – more German government spending means more borrowing in a world where central banks aren’t buying government debt.
If the plan is approved, Germany won’t be alone in the government borrowing binge.
The US has trillions in debt to roll over in 2025. President McTrumper is talking about less USG debt – but on the ground – the USG is still spending like crazy.
Here is a wild idea on how the US could REFI big time existing debt without draining dangerous amounts of liquidity from the markets:
“Bloomberg reports that the replacements (REFI bonds) would be 100-year, non-tradeable zero-coupon bonds. That means the bonds wouldn’t pay interest. Instead, they would sell at a discount from their face value. Holding them to maturity would be the only way to recoup the investment and the accompanying return. If one of the countries needed cash, they could borrow temporarily from the Federal Reserve against the bond.”
Media is calling it the Mar-a-Lago accord (or part of it – it’s all speculative at the moment). The idea is a throwback to the Plaza Accord in the 1980s – and we let you know this nonsense was a strong possibility last year.
If you feel like holding US bonds for 100 years you are insane. Sure, some countries like Japan may go for it – as they need the US military backing them up. China might go for it too – for entirely different reasons.
Something is better than nothing!
Investors got hyped up in the wake of the Trump victory – but the global economic reality is horrific.
Unless we get invaded by aliens – there is some serious economic volatility baked into the next 18 months!
The Streets Suck
The financial economy is the only thing holding up the real economy.
If you take a look at the largest economies – they are in terrible shape. The US, EU and China are all flailing, which makes sustained risk asset strength pretty unlikely.
We know that central banks are terrified of inflation, which means that easy money isn’t coming to jack the economy back up. China is trying, but it isn’t working.
The US and EU are not trying to spend their way to better economic performance, which means that financial asset prices are likely to fall for months to come.
A Good Year (to Buy)
If you have been in the game for a while – you will notice that no one calls for the end of cryptos anymore. Back in 2017 – it was a different story.
Unfortunately – while the fundamentals for cryptos have never been better – global macro is body slamming risk assets.
Clearly, there will be market volatility going forward – with markets grinding lower. Unfortunately, until we see a sea-change in monetary policy – sustained risk asset appreciation is off the table.
Fiat currency is broken. So, if you are able to accumulate risk assets in the coming months with a time horizon of years, you will likely do very well as the global financial system falls apart.
This articles is written by : Nermeen Nabil Khear Abdelmalak
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By Nermeen Nabil Khear