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How does society judge scarcity given that humanity has not achieved a utopian science fiction existence after scarcity? Infinitely abundant energy does not allow us to consume what we want whenever we want, eliminating the need for money. Therefore, we must use this satanic construct called money to allocate scarce resources. Money and markets combine to produce the best tool for telling society what to produce, in what quantities, and who should get it. The market price of a commodity determines its scarcity. It follows that the price and quantity of money are the two most important variables in any society. A deviation of one or both variables leads to societal imbalance. Each economic “ism” offers a theory about how to discredit or glorify markets, and all contain a modicum of monetary manipulation.
While the free market is the ideal way to judge scarcity, it does not mean that more market freedom leads to linear progress toward economic Valhalla. People want to mitigate economic fluctuations by regulating markets and money. This is the primary goal of the government. Government provides goods and services that people believe are best left under collective control. Or the government restricts markets from producing immoral outcomes such as human slavery. Along with these powers, the government must exercise some degree of control over the price and quantity of money. Sometimes governments are benevolent and other times they are tyrannical monetary dictatorships. Since governments can legally kill their own citizens for violating their laws, they can enforce the use of some type of money. This leads to good and bad results.
It is certain that all governments, regardless of the theory that guides them in governance, are always working to reduce their stock of money in their search for an immediate means of transportation to a post-scarcity society. Achieving post-scarcity will not be the result of clever ways to print money, but will require a deeper understanding of the physical universe and the ability to manipulate this construct to our advantage. However, a politician cannot wait decades or centuries for a scientific revolution. Thus, people’s palliative for a volatile and uncertain world is always to print more money.
While governments are powerful, people always find ways to retain their sovereignty. In many cultures that have experienced endemic inflation over centuries of successive governments or dynasties, cultures have created gifting rituals that mark major life milestones (birth, marriage, death) and involve the exchange of hard money. In this way, people are saved through cultural rituals. No politician dares to sabotage this ritual for fear of losing their mandate to lead and finding themselves beheaded.
In the modern era, when the power of central governments – be it a democracy, a socialist republic, a communist state, etc. – are all powerful because of the advances made by thinking machines and the Internet, how can we the people maintain our rights to sound money? The gift that Satoshi gave to humanity with the Bitcoin White Paper is a technological miracle that was launched at a very important time in history.
In the current state of human civilization, Bitcoin is the best form of money ever. Like all money, it has a relative value. Given that the quasi-imperial Pax Americana system rules through the US dollar, we estimate the value of Bitcoin relative to the dollar. Assuming the technology succeeds, the price of Bitcoin will ebb and flow due to the price and supply of the dollar.
The goal of this philosophical preamble is to provide context that produces guiding light regarding the duration of the Bitcoin/USD price cycle. There have been three cycles, with the all-time high (ATH) occurring every four years. With the fourth anniversary of this cycle coming, traders want to apply the historical pattern and predict the end of this uptrend. They apply this rule without understanding why it worked in the past. Without this historical understanding, they miss the reason for its failure this time.
To explain why the four-year cycle ends, I want to do a simple study of two graphs. The basic issue is the price and quantity of money, for example the dollar. Therefore, I will analyze the graph of the Federal Reserve’s effective funds rate and dollar credit supply. The secondary issue is the price and quantity of yuan issued by China. For most of human history, the richest region was squiggly lines on the map. It took a half-millennium break, from 1500 to 2000, but they came back to reclaim the throne of the global economy. The question is, are there any clear turning points at different Bitcoin ATH levels that can roughly explain the peak and subsequent collapse of the price? For each four-year period, I will provide a summary of monetary trends while illustrating the charts.
US dollar:
The white line is a measure of the price and supply of credit in dollars. This is a combination of bank reserves held at the Federal Reserve and the total deposits and other liabilities of the US banking system. The Federal Reserve publishes both figures weekly.
The green line represents the effective federal funds rate, which is set by the Federal Open Market Committee.
The golden line is the BTC/USD price.
yuan:
The Chinese economy is more dependent on credit than the US economy, so I used the Bloomberg Economics China Credit Impulse % to 12-month change. You would get a similar chart if you looked at the annual change in nominal GDP.
Back to the past.
Training cycle: 2009 to 2013
On January 3, 2009, Bitcoin produced its first block, called the Genesis block. The global financial crisis erupted in 2008, devastating financial institutions globally. Bankers aided and abetted by the bought-and-paid US government nearly destroyed the global economy, but Fed Chairman Ben Bernanke “saved” the system by enacting unlimited quantitative easing, announced in December 2008 and beginning in March 2009. The Chinese helped the global economy by increasing infrastructure spending fueled by credit. By 2013, both the Federal Reserve and the People’s Bank of China had wavered in their support of an infinitely expanding money supply. As you will see, this caused a slowdown in credit growth or a complete contraction in the money supply, which ultimately brought an end to Bitcoin’s rise.
US dollar:
The dollar rate was effectively 0%. The supply of dollars rose sharply, peaking and then declining at the end of 2013.
yuan:
The massive surge in credit growth has flooded the world with the yuan, trillions of which have fled from China into bitcoin, gold, and global real estate. By 2013, while credit growth was impressive, it was much lower than before, and the slowdown coincided with dollar credit growth.
This slowdown in dollar and yuan credit growth led to the emergence of the Bitcoin bubble.
ICO cycle: 2013 to 2017
This was an ICO cycle because during this time period the Ethereum mainnet was commissioned and heralded the growth of new issues funded by subscription via the public blockchain using smart contracts. Bitcoin rose from the ashes because the supply of the yuan exploded, not the dollar. As you can see below, China’s credit drive accelerated in 2015 alongside the depreciation of the yuan against the dollar. The supply of dollars decreased and interest rates rose. Bitcoin has risen dramatically due to tons of yuan being traded in global financial markets. Ultimately, as yuan credit growth slowed from the highs of 2015, tight monetary conditions for the dollar sent it into a bull market and hit it flat to the ground by late 2017.
yuan:
US dollar:
The Covid Hoax: From 2017 to 2021
While the coronavirus has certainly killed millions, the crisis has been exacerbated by poor government policies. The coronavirus has been a ploy to condition the population to accept the loss of their freedoms, and this has transcended any kind of governmental theory that governs in a particular area. In the spirit of throwing crap at the wall and seeing what sticks, the coronavirus was a perfect opportunity for Pax Americana to unleash its helicopter money, as then-US President Donald Trump delivered the largest populist government handout since Franklin Delano Roosevelt’s New Deal. Trillions of printed dollars have found their way into cryptocurrencies. Trump made things hot, and all the markets just went up.
US dollar:
The supply of dollars doubled, and the price of money quickly fell to 0%.
yuan:
While China’s credit drive has soared during the Covid-19 crisis, President Xi Jinping has not done his best. He used Covid as a time to launch an attack on China’s real estate bubble. This level of yuan credit growth did not prevent the collapse in local property prices that it initiated.”Three red lines“Policy. But this was intentional, and with no one allowed in or out of China at this time, it was very easy to control capital flight and social discontent on the mainland. As a result, China’s monetary policy did not contribute materially to the Bitcoin bull market.
The inflation caused by Trump and the economic policy pursued by US President Biden subsequently, which exacerbated it, was too great to handle by the end of 2021. Inflation rose, and those without a horde of financial assets felt cheated. The federal government stopped distributing benefits, the Federal Reserve began shrinking its balance sheet, and announced that it would quickly raise interest rates. This marked the end of the bull market.
New World Order: 2021 -?
The Pax Americana quasi-empire is nothing more than a nostalgic dream. What comes next? This is the question that world leaders are grappling with. Change is neither good nor bad, but change creates economic winners and losers. Sometimes the losers are politically and economically powerful, which creates problems for the ruling parties. In order to protect the negative effects of change on the population, politicians print money.
This time, the driver of credit growth came from the Fed’s reverse repo program (SRP in purple with the y-axis reversed). The price of money rose. The supply of money decreased. But Biden needed to stimulate the markets. Therefore, his subordinate, US Treasury Secretary Bad Gur Yellen, issued more Treasury bills than securities/bonds in order to drain the bailout. This has unleashed approximately $2.5 trillion of liquidity into the markets. Her successor, Buffalo Bill Bessent, continued this policy until the suggested retail price fell to its current value near zero. China entered into bouts of deflation as judged by its negative credit impulse. Xi remains committed to reducing housing prices and their importance to the Chinese economy. With no further guidance or changes in the monetary policy outlook for the US and China, I agree with many crypto traders that the uptrend is over. But recent rhetoric and actions by the Federal Reserve and the People’s Bank of China suggest otherwise.
US dollar:
yuan:
In the United States, newly elected President Trump wants to get the economy running smoothly. He routinely talks about America’s growth in order to reduce its debt burden. He criticizes the Fed for having too tight a money supply. His desire is to generate work. The Fed resumed cutting interest rates in September even though inflation is above its target.
The white line is the actual Fed funds rate, the yellow line is the core PCE rate, and the green horizontal line is the Fed’s 2% target.
Trump also talks about lowering housing costs to release trillions of dollars in home equity trapped by the rapid rise in home prices after 2008.
Finally, Buffalo Bill Paycent will deregulate banks so they can increase loans to critical industries. The future as drawn by the ruling political elite points to lower, not higher, interest rates and higher, not lower, growth in the money supply.
Although Xi does not want to issue credit in the quantities of 2009 and 2015, he wants to end deflation. When economic pressures prove too severe, as the BCA chart above indicates, Chinese policymakers print money. I don’t think China will currently be the engine of global fiat credit growth, but it won’t hold it back either.
Listen to our monetary masters in Washington and Beijing. They clearly state that money will be cheaper and more abundant. Therefore, Bitcoin continues to rise in anticipation of this very possible future. The king is dead, long live the king!
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