Bitcoin….have we descended into a bear market or is the market just beginning.
That is the question on everyone's mind who is still around.
Researching, learning, and trying to make sense of this thing called crypto.
Well there is a bear market coming, but not for Bitcoin…give me just over 10 minutes
of your time and I’ll explain.
Because it’s time for Chico Crypto!!
Arthur Hayes, if you do not know who this man is…you should definitely figure it out.
For those who have been around since the 2017 cycle you know exactly who he is.
He is the infamous former head of Bitmex, the former largest Bitcoin derivatives platform.
He understands Bitcoin like no other and he understands how the asset fits into the wider
macro economic environment.
When he writes a blog, as a bitcoin investor and trader…I always listen and last week
he put out an excellent blog which explains what’s going to happen to Bitcoin over the
next few years to a decade and why Fiat currencies are going into a bear market.
The article was titled Energy Canceled and this video is going to summarize the article
which plus put our own little Chico spice into the mix…but if you want to read the
article yourself, it’s of course included down in the description.
So let’s begin…Monetary systems around this world will forever be changed since the
invasion of Ukraine by Russia.
And it has everything to do with Energy.
If you didn’t know…Energy is what makes this world go around.
From Oil to Natural gas…it’s what powers people's homes, powers how people get places,
and powers how goods get to people.
And Russia has been the golden key in how this energy transfer monetary system has worked
in the past for the entire world.
This system is blowing up before our eyes.
I’m sure you have seen the prices at the pump after the invasion.
Astronomically high gas prices are killing the consumer.
The quickly rising prices is living proof of how important Russia is to the flow of
global energy.
Here is what Arthur says in his article about Russia being removed from the global energy
system.
“This time the West decided to “live their values” and cancel the world’s largest
energy producer.
Don’t allow your opinion on the righteousness (or not) of the military action between Russia
and Ukraine detract from the fact that this time around the Western energy consumer decided
to go on strike.
I am 100% certain that there will be a financial crisis of epic proportions predicated on losses
faced by commodity producers and traders who touch every aspect of the globalised financial
system.
You cannot remove the world’s largest energy producer — and the collateral these commodity
resources represent — from the financial system without serious unimagined and unintended
consequences.”
The current PetroDollar / EuroDollar monetary system ended last week with the confiscation
of the Russian Central Bank’s fiat currency reserves by the US and EU, and the removal
of certain Russian banks from the SWIFT network.
In a generation hence, when hopefully this sad episode of human history concludes, historians
will point to 26 February 2022 as the date on which this system ended, and a new, currently
unknown-to-us system sprouted.
So what is this new system??
Well we are going back to what backed currencies in the past….GOLD.
Russia knows this…that is exactly why they have been stockpiling it.
From this article we can see back in January of 2021 Russia for the first time held more
gold in its reserves than US dollars and as we can see the ramping of gold purchasing
by the country has been ever increasing since 2014.
Why would countries be going back to gold?
Well Arthur explains in his article.
He says “Excluding gold, approximately $12 trillion worth of “savings” are held by
flags in a small set of fiat currencies.
The USD commands the elephant’s share of this amount.
As I explained in the previous section, these “assets” ride on multiple centralised,
permissioned, digital networks.
If you save in dollars, America controls the network.
If you save in Euros, the EU controls the network.
If you save in renminbi, China controls the network.”
Well the US just showed they control the network and can remove entire countries in a jiffy.
On 26 February 2022, the West decided to confiscate the reserves of a sovereign nation held in
a variety of G10 currencies.
The Russian Central Bank lost access to $630 billion worth of reserves.
In addition, various large, systemically important Russian commercial banks were removed from
the SWIFT network.
And then, of their own accord, many private businesses decided to cease trading in any
capacity with Russia or Russia-domiciled businesses.
JP Morgan and Goldman Sachs are recent examples of American banks that “cancelled” Russia.
The Wall Street Journal posted this article March 3rd titled “If Russian Currency Reserves
Aren’t Really Money, the World Is in for a Shock Sanctions have shown that currency
reserves accumulated by central banks can be taken away.
With China taking note, this may reshape geopolitics, economic management and even the international
role of the U.S. dollar.
US dollar’s role will be reshaped by all of this…why and how?
Well Arthur explains.
He said “Russia is the largest country by landmass, exporting the most raw energy globally
(mostly in the form of hydrocarbons — oil and natural gas — and it is one of the largest
producers of foodstuffs).
The West includes the wealthiest countries globally, who consume energy and food, and
purchase it with their own fiat currencies.
This arrangement is fini.
Never before has it been possible, due to the digital nature of fiat currency payments,
to shun a country like this.
Money is a medium of energy storage, and the most-used monetary instruments now lack the
largest energy producer globally as a user.
Why should any central bank “save” in any Western fiat currency, when their savings
can be expropriated arbitrarily and unilaterally by the operators of the digital fiat monetary
networks?
The next step in the progression is to estimate the magnitude of flows and the mechanisms
by which central banks MUST shift reserves out of fiat currencies where their domestic
government does not operate the value transfer network.
The Shift will be out of fiat currencies and into harder assets that can’t be confiscated
by governments in snap.
Assets like gold and Bitcoin….so how is this going to happen and what will be the
effect on the price of these assets?
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Now back to why a global shift out of the USD inot things like Gold and Bitcoin will
eventually happen.
Well let’s look at China for example.
If you didn’t know…China is the world’s low-cost factory.
Since 2001 when the US allowed China entry into the World Trade Organisation, China’s
export growth ballooned as it served countries across the globe.
China get’s fiat currencies for trade, which as required in the past, has been for them
to reinvest into assets such as US Treasury bonds making China one of the largest holders
of US government debt.
Although this has been slowing down.
October of last year, right around the same time Russia reserves of the USD hit their
lowest point…this article was posted “China cuts US Treasury holdings in Aug to lowest
since 2010 amid financial risks”
And those risks just showed their face with what happened to Russia…the savings China
has in US debt, can be confiscated at any moment.
The US controls the digital monetary network.
So what is China going to do ? Well arthur explains.
He says “ But who would have thought the current situation with Russia would unfold
in the current fashion?
It’s a “jump the shark” moment, and China is on notice that their “savings”
are not safe.
Don’t make the problem worse.
When you inherit a poopy position as a trader that you can’t immediately ameliorate, just
simply don’t get deeper into the hole.
In the context of China and other surplus countries, that means do not let your fiat
currency position grow as you earn income internationally.
Instead, what China will do is accept a fiat currency for their goods and immediately exchange
it for a harder asset.
Given gold is the hard money choice for humanity, China and others like it will begin to provide
a sizable bid in the physical gold market.
China will purchase gold in the spot markets and take delivery in the paper derivatives
markets of gold bullion in exchange for Western fiat currencies.
Gold resurgence is coming …so what is that going to do to the price and what does this
have to do with Bitcoin?
Well let’s let arthur continue.
He says “From a philosophical standpoint, central banks and sovereigns appreciate the
value of gold, but not that of Bitcoin.
Human civilization is approximately 10,000 years old, and gold has always been valued
as a monetary instrument.
Bitcoin is less than two decades old.
But don’t worry: as gold succeeds so will Bitcoin.
And I will explain why.
“Flags that astutely stop accumulating reserves in foreign fiat currencies will compete to
buy gold out of mines via taking delivery in the paper futures markets.
This competition will push the marginal last price well north of $10,000, and we could
see stupendous prices for gold that seems unfathomable.
Be on the lookout for more dysfunction in gold futures markets as entities actually
start taking physical delivery.
We may finally find out if all that gold is actually there.
A gold price of >$10,000 will psychologically shock the global asset markets.
As global asset allocators now think chiefly about inflation and real yields, any and all
hard monetary assets believed to protect portfolios from this pestilence will get bid to astronomical
levels.
And that is the mental shift that breaks the correlation of Bitcoin with traditional risk-on
/ off assets, such as US equities and nominal interest rates.
As gold marches its way above $10,000, Bitcoin will march its way to $1,000,000.
The bear market in fiat currencies will trigger the largest wealth transfer the world has
ever seen.
Are you ready for 10k Gold per ounce?
Are you ready for Gold 2.0 aka Bitcoin to hit 1 million?
Arthur thinks it’s coming and so do I.
The bear market on FIAT is here.
Cheers I’ll see you next time!!