Looking at charts of the monetary actions of the Fed I can’t help but get a feeling of déjà vu.
More money printing, more financial assets inflation and always more attempts to kill the free market.
Except that this time we have a tool to opt out of the system: Bitcoin.
Remember the message contained in the genesis block:
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."
Bitcoin was born as a reaction to the 2008 financial crisis. Twelve years later it is proving a very useful tool.
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
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Copy-paste at the Federal Reserve
Last week we discussed the similarities between 1970 and 2020 when it comes to comparing Bitcoin with gold.
But there is another year that looks a lot like 2020 and this one is much closer.
Of course I’m talking about 2008.
The parallel is uncanny if you look at it through the lens of the Federal Reserve. It is like they took the 2008 playbook and did a copy paste to 2020:
It starts with an economic crisis.
The Fed puts in place emergency measures which create a massive expansion of their balance sheet in only a few months.
When the acute phase is over the emergency measures are dropped and all that remains is the slow quantitative easing grind.
Of course in practice it is more like a copy-scale-paste operation… just take a look.
The balance sheet of the Fed is back at an all time high this week: $7.24 trillion.
The total added in 8 months is $3 trillion which is more than twice the amount added by the emergency measures in 2008.
That’s a lot of money. But when you look at it in percentage terms the expansion has been lower this time.
But however you look at it, we are out of the emergency phase and just at the beginning of the QE infinity expansion phase.
If this QE phase plays out the same way it did after 2008 the Fed will probably end up with more than $20 trillion on their balance sheet, most of it being US Treasury bonds.
Keeping up with that kind of money printing isn’t easy. But you can count on Bitcoin to help.
Until recently BTC was lagging the money printing machine. However things are under control now:
Year to date the Fed balance sheet is up 70%.
Year to date Bitcoin is up 154%.
Even if the Federal Reserve 5x their total assets in the next few years Bitcoin should still end up ahead thanks to the halving cycles.
Remember that for an asset that has the properties of digital gold, Bitcoin is still relatively small.
To give you a sense of scale, as of today the market cap of Bitcoin is $336 billion… the Federal Reserve added 10 times more than that to its balance sheet so far in 2020...
Needless to say Bitcoin is cheap. Buy in now and enjoy the ride.
BlackRock gets it
For those who don’t know, BlackRock is simply the largest investment management company in the world.
Their total assets under management amounts to $7.4 trillion… that’s as much as the Federal Reserve.
BlackRock CIO of Fixed Income Rick Rieder was interviewed on CNBC’s Squak Box last week and he had interesting things to say.
Some highlights:
"I think cryptocurrency are here to stay, I think it is ... durable,"
Bitcoin has been there for 12 years and has proven to be resilient. As per the Lindy effect we can expect that it will still be there for a while.
"[millennials] receptivity [to technology and cryptocurrency] is real, digital payments systems is real,"
This. We are at the start of a generational transfer of wealth from the baby boomers to the millennials.
Demographic trends are powerful and it seems that millennials are likely to trade gold for Bitcoin.
“it's so much more functional than passing a bar of gold around,”
And trading gold for Bitcoin would totally make sense given the fact that Bitcoin is digital gold i.e. a better version of gold itself.
Hearing this kind of take from the CIO of Fixed Income at BlackRock should give you a clue regarding where institutional investors are standing.
That looks promising.
Grayscale reaches $10B
A combination of a continued inflow of money together with a positive momentum in the cryptocurrency market has pushed Grayscale above the line of $10 billion assets under management.
That’s a 5x growth of their AUM in one year. Quite impressive.
Notably 85% of the AUM is coming from the Grayscale Bitcoin Trust. Far away in second position is the Grayscale Ethereum Trust with about 12% of the AUM.
So looking at that there should be no doubt that there is demand for Bitcoin coming from the smaller scale institutional investors.
But it feels like bigger institutions aren’t far behind.
Jamie Dimon is still not a fan of Bitcoin
And nobody cares…
You might have heard this one before: “blockchain is the future not Bitcoin”.
This sentence is usually followed by: “and here is my own coin that is better than Bitcoin because it can do X and Y…”
That’s a classic technique for hyping your shitcoin to the moon.
So what did Jamie Dimon, CEO of JPMorgan, said at a conference last week:
“The blockchain itself will be critical to letting people move money around the world cheaper”
“Let them [buy Bitcoin] [...]. It’s just not my cup of tea.”
Meanwhile JPMorgan is about to launch a JPM Coin...
That’s it for today. If you have learned something please subscribe and share to help the newsletter grow.
Cheers,
Nick
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
Click on the subscribe button right below.
Follow Ecoinometrics on Twitter at https://twitter.com/ecoinometrics.
Done? That’s great! Thank you and enjoy.