Learning about the ins and outs of crypto is not something you can just casually figure out
on a Wednesday afternoon.
It's a lifestyle.
To gain a complete holistic understanding of the markets
requires a vast amount of dedication and discipline.
Learning how to do technical analysis on a chart is one thing,
but a multitude of factors also plays a role in understanding
why the charts go one way or the other.
Just some of these factors include
the traditional markets,
crypto news,
global news,
market sentiment,
funding rates,
Bitcoin dominance,
and whale manipulation,
just to name a few.
The catch is
that it's not a static environment.
Things are constantly changing,
fluctuating on a daily basis.
Your head has to practically be on a swivel to keep up with this.
It's not just the money you invest.
It's the time you invest too.
Eventually, you'll learn how to bob and weave away from downtrends and flash crashes.
Over time, you'll have a better strategy in place
so when you take an unexpected loss,
you'll be prepared to roll with the punches.
To fully understand crypto,
it's imperative to have a strong baseline understanding of the traditional markets,
US monetary system and macroeconomics as well.
Today, we're going to dive deep into some of that
because here at BitBoy Crypto,
it's our goal to educate and inform the BitSquad
so you have the best possible chance to make life-changing gains.
Let's get it!
Welcome to BitBoy Crypto!
Home of the BitSquad
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My name is Ben.
Everyday on this channel, I show you how to make money in crypto.
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In this video, we will discuss the US bond market,
how it leads the economy,
and what that could mean for you.
You want to make gains,
just like everybody else,
but to make gains the smart way,
you have to have some knowledge about money and economics.
When you begin to familiarize yourself with the world of economics,
just like with crypto,
you'll hear all sorts of new lingo.
You'll need to look it up.
There's a new wave of young investors getting into the game that jumped straight into crypto
and don't care about stocks, bonds, or anything to do with the legacy monetary system.
I love the enthusiasm,
but it's important to learn how to crawl before you sprint.
And understanding the ins and outs of our monetary system
is critical for staying in the green and not getting wrecked.
Bonds, for instance, is a common word you'll hear all the time,
but the meaning can vary because there are several different types of bonds.
There's general obligation bonds,
revenue bonds,
municipal bonds,
corporate bonds,
Treasury bonds,
James Bonds, etc.
For the scope of this video, we're going to specifically focus in on government bonds
which are issued by our US Treasury.
The government uses bonds to borrow money to pay for infrastructure, wars, schools, Social Security, etc.
Investors use bonds for a low risk source of fixed income.
By definition, bonds are units of debt issued by companies or governments
that are converted into tradable assets.
Simply put, it's an IOU.
Once it matures,
you sell the bond back for its face value,
aka the amount it will be worth after it fully matures.
For a quick example,
if you buy a one-year bond for the issue price of $1,000
and the interest or coupon rate is 10%,
in one year, your nominal rate or yield would be $100.
This is where things can get confusing though for beginners.
Because the nominal return refers to the expected amount of money you'll get back
before you take taxes, investment fees, fluctuation of bond prices and inflation into account.
Once you subtract these factors from your nominal return,
that number is known as the real return.
Keep in mind, bond prices have an inverse relationship with interest rates.
When the interest rates are high,
the bond prices are low and vice versa.
As time goes on,
there is less and less incentive for people to buy bonds because they're no longer profitable.
A recent bloomberg.com article points out
that Treasury investors are losing more money than they have in four decades
once inflation is taken into account.
Now, before we get into how the money printing and inflation affects all this,
it's important to understand that the bond markets are the spark plug
in the engine of our economy's well-oiled machine.
Without the spark,
the pistons won't move and the motor stops running.
The bond markets lead the economy
because without that money flow,
without that spark,
our economy would seize up,
just like a motor.
The government has to utilize open market operations
to ensure there's always an incentive for businesses, corporations and retail investors
to keep buying bonds to keep the economy running.
Although our national debt has just surpassed a whopping $29 trillion,
our bond markets are more or less our lifelines
because they still have high ratings.
Without those AAA ratings,
there would be even less incentives to buy bonds,
and that would be devastating for everyone.
US government bonds still have high ratings because we're the world reserve currency.
And we need to keep it that way.
We've never defaulted on our debt payments
because we keep raising the debt ceiling
and our bonds are backed by the trust in the Fed
and the force of our military-industrial complex.
To learn more about the world reserve currency and the debt ceiling,
you can click on the link above or in the description.
Also, if you guys want to join the BitSquad
and be part of the largest and fastest growing community in crypto,
smash that like and subscribe button.
So by now, I'm sure you're wondering,
what gives?
What has to happen for us to lower our debt instead of adding more to the mountain?
Why would people buy bonds just to lose money
when they can make over 12% a year using BlockFi or Vauld?
How long can the US economy continue to kick the can down the street
before catastrophe strikes?
These questions are why several economists and analysts have been speculating more and more
on the possibility of a recession happening in the not so distant future.
To put this into perspective,
take a look at this chart from macrotrends.net.
This shows the 10-year Treasury bond yield in 1962.
For those that don't know,
the 10-year Treasury is the benchmark used to decide mortgage rates across the US
and is the most liquid and widely traded bond in the world.
As you can see, we've been in a descending downward channel since 1981,
where the yield percentage was just below 16%.
Now, the current 10-year Treasury yield is 1.42%.
According to this chart by inflationdata.com,
the annual inflation rate as of November 2021 is 6.81%.
At this point, it's simple math, and it doesn't add up.
As pointed out in a tweet from Broufus,
the return on US Treasury bonds is now negative.
Who will buy US debt in the coming days?
We're heading for disaster.
For the record, I hope he's wrong about heading for disaster,
but something has to change fast unless we want to live through a black swan event.
The thing is,
it's not like the government doesn't know that this is happening.
They're making an effort to correct this.
We know the worst possible outcomes if they fail,
and at least we can all agree that no one wants China or Russia
to become the world reserve currency.
Let's look at what the US is doing to combat this,
and you be the judge.
Back in March of 2020,
in response to the pandemic,
the government purchased around $700 billion worth of bonds and securities
as an emergency measure to provide liquidity to the financial system.
This money printing started so we could boost money back into the system
to keep the motor running.
This is known as quantitative easing.
According to F. Norrestad from statista.com,
the goal of QE is to increase the money supply and lower interest rates
by injecting money into the banks
so they can extend credit to businesses and consumers at a more attractive rate.
The heart and soul of this idea has good intentions
because without that increase in money supply,
there would be less spending,
less demand,
less investments and higher unemployment.
We also know that the road to hell was paved with good intentions.
With quantitative easing comes the eventual quantitative restrictions
because printing money makes the yields go down even more,
and how could the yields be any cheaper than they already are?
Essentially, the US is printing its own currency,
borrowing that currency from itself,
selling those as bonds,
and now because of inflation,
the real return of those bonds are negative.
You see where this is going?
The inflation that lowers the yield could easily turn into a catalyst for stagflation,
which is a precursor to deflation.
Not only would that have a ground-shaking negative effect on the stock market,
people don't realize the repercussions of this would take years and years to recover from.
It's not quick.
Senior Commodity Strategist for Bloomberg Intelligence Mike McGlone points out in a tweet,
$100,000 BTC, $50 oil, $2,000 gold?
2022 Outlook in 5 Charts -
Peaking commodities and the declining yield on the Treasury long bond
point to risks of reviving deflationary forces in 2022,
with positive ramifications on Bitcoin and gold.
Now, as much as this video is an orange pill to get people to get involved in crypto,
it's also a warning to those out there who are unaware of the current economic climate.
America has to shift its focus away from Kim Kardashian dating Pete Davidson
and focus in on increasing economic education and awareness.
Only then do we stand a chance to see what's really happening
and have time to prepare before it's too late.
That's all I got.
Be blessed.
BitBoy out.