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| Hi Everyone,
I just returned from Bitcoin 2022 in Miami, and I am excited to share some boots-on-the ground stories.
However, in reading my Twitter feed, it was also hard to miss some of the not-so-positive news content coming from the conference.
Added to the mix, there's some relevant news regarding central banks and inflation here in the U.S. and worldwide. It can be easy to get lost in the noise, so let's focus on the broad strokes and what this means to you in the long run.
First, let's talk about fiat world problems.
Yesterday, the official U.S. consumer inflation report came in, and it was red hot. Annualized inflation hit 8.5% in March, the highest since December 1981.
The figures were so high that White House Press Secretary Jen Psaki warned of "extraordinarily elevated" figures the day before.
And the U.S. isn't the only country experiencing issues right now. |
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| Fiat world problems
Sri Lanka is the second country in as many weeks that is claiming that it simply can't pay its bills. Last week it was Lebanon, whose deputy prime minister stated the obvious, that the country and its central bank didn't have the cash to pay their bills.
Back in North America, Canada's inflation hit 5.7% in February, the most since the early 1990s. To combat this, the Bank of Canada raised its benchmark rate 50 basis points to 1% today.
It's not a stretch to assert that the trust in centralized institutions, for example banks and governments, continues to deteriorate around the world.
Ok, now let's talk about crypto. Bitcoin was created during the Great Recession as a solution to distrust in centralized institutions.
So are we going to $100,000 next week? Not so fast. The stress on the U.S., and other major global economies, may not in fact be good for bitcoin's price in the short term.
I'll get to that in a minute, but first let's talk about Bitcoin 2022.
For me personally, the conference in Miami was great. I even met fellow analyst Jason Deane for the first time. He was lots of fun, and I also made dozens of other excellent connections.
I was naturally pretty pumped when I started writing this, so I was a little surprised when I googled "Bitcoin Miami 2022." |
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| Brutal headlines
These were some of the first headlines I saw:
"'We're a Cult': Inside Bitcoin’s Shameless Hypefest" - The Daily Beast
"Bitcoin fans are psychopaths who don't care about anyone, study shows" - The New York Post
"Guns, Gains And God: Four Days In Miami With Crypto's Most Faithful Fans" - Forbes
I am not exactly sure what caused these headlines, but this media coverage isn't friendly. Perhaps these writers couldn't handle the energy from the largest-ever crypto event, which had 25,000 attendees.
Perhaps they were surprised to see such a diverse audience and only a few individuals with extreme views. I saw it as a plus that those with starkly opposing viewpoints were welcomed in one place.
There were environmentalists who were excited that bitcoin mining created green energy incentives. And there was Peter Thiel, who railed against ESG companies.
Like it or not, bitcoin is here to stay, and its supporters come from across the ideological landscape. |
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| Investor's take
The Federal Reserve and other central banks are in a precarious situation. They have created massive inflation by relying too much on quantitative easing.
Now, they are left with a desperate balancing act. This isn't good for the average person, and it isn't necessarily good for bitcoin's price. I see four potential outcomes:
The Fed achieves the "Goldilocks economy," gradually getting inflation under control and the U.S. gov doesn't mess it up with massive borrowing. Inflation slows down and causes no major economic shocks. The stock market and crypto have a mildly negative year or two at the most, and the Fed proceeds to gradually lower interest rates. Then, markets continue their sharply upward trajectory. The Fed’s tightening actions cause a recession. The inflation bubble pops in the next few months and the U.S. economy collapses in the near term. Prices drop and unemployment increases. The stock, real estate and crypto markets drop sharply. Assets considered recession-proof, or less risky, outperform other assets. Gold, corporate bonds and dividend stocks, for example, outperform higher-risk equities. Bitcoin drops and most smaller altcoins will lose over 90% of their value. Fearing economic shock, the Fed backs off from raising rates. The U.S. government spends its way deeper into debt, inflation reaches double digits and politicians continue to point fingers at each other, as well as any other potential sources of the problem. The stock market, real estate market and crypto markets continue to grow, reaching massive valuations completely disconnected from the economy. Those who invest will continue to grow their wealth and those living paycheck to paycheck will be driven into poverty. This will be very good for the price of bitcoin, and anyone who converts a good portion of their savings into BTC. In a few years this will end with a bang with either point 2 above or point 4 below. The Fed continues to raise interest rates, but inflation does not drop, and economic conditions instead transform into a situation of high inflation, high unemployment and slow economic growth. This happened to the U.S. in the 1970s, and it is known as stagflation. In this scenario, commodities will likely outperform assets that are considered risky.
The long view
Scenarios 1 and 3 are great for bitcoin's value. Scenario 2 is bad, and scenario 4 is uncertain.
If you see bitcoin as a 20-year play, not a trade, you will win. We can't predict what will happen in the near term. It may keep acting like a glorified tech stock, as analyst Jan Wüstenfeld recently pointed out. Geopolitics could bring good or bad news.
Either way, with all the problems fiat is experiencing, there is almost no possibility of a bearish scenario over the next 10-20 years. The safest best is to buy and hold bitcoin for the long term.
Sincerely,
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| Alexandre Lores Opportunity Analyst |
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