Is Bitcoin just another mega cap tech stock?
Also the US debt is growing fast and the stock market is only halfway down.
Welcome to the Friday edition of the Ecoinometrics newsletter.
Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets.
Today we'll cover:
Is Bitcoin just another mega cap tech stock?
The US debt is growing faster than during the Great Recession.
The stock market is only halfway down if the US goes into a recession.
Each topic comes with a small explanation and one big chart. So let’s dive in.
In case you missed it, here are the other topics we covered this week:
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Is Bitcoin just another mega cap tech stock?
In 2023, 14 years after Bitcoin’s launch, there is still a surprisingly large amount of people who are misinformed about Bitcoin.
Many of them probably think Bitcoin trades like some penny stocks. The reality is Bitcoin has a return profile that’s pretty close to mega cap tech stocks.
If you look at the distribution of returns of Bitcoin, Tesla and NVIDIA since 2016 you can barely tell which is which.
Now of course that’s not saying that Bitcoin has the consistency of an Apple or a Berkshire Hathaway. But my point is that there are many stocks whose market cap is in the range of hundreds of billions to a trillion dollar that exhibit similar characteristics than BTC itself.
Bitcoin isn’t some exotic outlier asset. It is ripe to be a mainstream store of value asset. Just need to wait for time to do its thing.
The US debt is growing faster than during the Great Recession.
The US debt has reached $33 trillion, a huge sum for sure. But at this point we are used to the federal debt constantly making a new all-time high.
What might be more concerning than the absolute value of the debt is the rate at which it is currently growing.
To make this clear, instead of looking at the evolution of the total value of the debt over time we can instead ask how much federal debt is created daily. Calculating this using the average amount of debt added over a rolling 90-day window, the US debt is currently growing by $18 billion per day.
By comparison the COVID relief made the debt grow as fast as $35 billion per day at its peak. And the Great Recession had seen the debt grow by at most $14 billion per day at its top.
So for a period during which the US economy is allegedly doing very well, this amount of debt newly created is staggering. And costly since interest rates are much higher than in the past few years.
From the chart below it seems that since COVID the us debt is growing at a much faster rate than the 12 years that followed the 2008 financial crisis.
If the spending habits of the federal government don’t get under there is a risk that the US will enter a period of fiscal dominance. That is the monetary policy of the US would be tailored by the Federal Reserve to help the government finance its debt.
In the past, periods of fiscal dominance have lead to artificially controlled interest rates and step changes in the debasement of the US$. If you think that’s likely to happen, get ready to load up on hard assets.
The stock market is only halfway down if the US goes into a recession.
Is the US moving towards a recession and is this recession going to start within the next couple of quarters?
No one know for sure of course, I could very well. But that’s my bet based on the dynamic of the leading indicators and the yield curve over the past year.
Now if we are heading towards a recession, how low do you think the stock market could go?
Here is some historical benchmark for you to consider. The numbers below are the drawdowns (drop from previous all-time to bottom) of the SP500 that have coincided with recessions going back to the Great Depression:
Great Depressing, stock market down -86%
Great Recession, stock market down - 58%
Dotcom Crash, stock market down -50%
Crash of 1973, stock market down -50%
Nixon Recession in 1969, stock market down -37%
Black Monday in 1987, stock market down -36%
COVID Crash, stock market down -35%
That’s an average of -50% for the SP500 during a recession.
Compare that to the current bottom which settled at -27.5%… if the US is moving towards a recession then that’s only about half way from what you can expect.
For reference a -50% drop from the all-time high would bring the SP500 back down to about ~2400. That’s near the lows of the COVID Crash.
So even if there is a small chance this kind of scenario play out, it would have a very big impact. Better be prepared for this possibility than ignoring it completely.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.
Cheers,
Nick
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