Fellow humans,
For years my relationship with social media has been on and off. I’ve noticed other people have a similar relationship, but mine is on the extreme and impulsive end. I couldn’t tell you how many times I’ve deleted my Facebook, Twitter, Instagram and Snapchat accounts, just to rejoin later. On the bright side, I don’t remember having more than one Myspace. Too bad they’re irrelevant, but had they stayed relevant I’d probably end up having the same relationship.
Continuity is important, so I do regret not keeping my original accounts, but what’s done is done 🤷🏻♂️. I’ve been trying to spend more quality time on X (formerly Twitter), mostly for two reasons: 1) X is useful as an investor, and 2) I like Elon Musk. He’s obviously planning and trying to execute something big with X, and I want to be around to witness. Also, some people have been making a lot of money from the engagement on their Tweets, could be me someday.
An hour and a half ago I posted something about the price of bitcoin, and I’d like to take the opportunity to use my blog to briefly expand on each point.
Mathematics is the foundation of financial markets, specifically supply and demand. There are other factors, but without supply and demand, we cannot effectively assign monetary value to an asset. Next year, the inflation rate of bitcoin will decrease from 1.70% to 0.84% which means supply shock. As long as demand for bitcoin stays the same or increases, the price must go up.
Bottom line — higher interest rates encourage people to save money, instead of borrowing/spending/investing (especially risk assets). Below you can see a chart from the Federal Reserve Bank of New York, showing the effective federal funds rate over time. Rates do not typically increase this quickly, but inflation was over 9% so the Fed needed to act aggressively to tame inflation.
Money printing is the biggest driver of inflation, because adding new money into circulation dilutes the existing supply. All money works this way, even gold. Each time a new ounce of gold is dug from the earth and added to circulation, the rest of the supply is diluted (by a minuscule amount). Unlike gold and bitcoin, the inflation rate of the dollar is often out of control.
Both gold and bitcoin have the proper monetary properties to benefit while the dollar is being inflated.
ETF stands for exchange traded fund, and it’s simply fake money, but institutions and other big players like ETFs for a number of reasons, largely because ETFs allow you to capture the market movement of an asset without buying the raw asset. For example, you can buy a gold ETF, which allows you to capture the market gains of gold without ever touching gold.
The Fed cannot keep rates high forever without sacrificing something else. For example, the US government has to pay interest payments to US bond holders, and banks have to pay interest payments to banking customers. There are always tradeoffs when making monetary policy decisions, and none of the Fed’s decisions are permanent. They are always in a state of evaluation, then the data they assess helps them make new decisions.
Bitcoin is fair money because the monetary policy is nearly guaranteed to execute as planned for the rest of time. Technically it can change because it’s just code, but the chances are extremely low, and as time goes on the chances get lower. Although the market of bitcoin is unpredictable (which is a problem for many people), the inflation rate and supply are extremely predictable.
As far as money printing, the US government will find a new reason soon enough to need (want) liquidity. Trillions of freshly printed dollars will once again (remember 2020) slosh around in abundance, spilling over into bitcoin and other “risk assets.” It’s quite simple — people are more likely to invest in risky assets when they have loads of disposable income. The time will come again.
I’m mostly looking forward to the spot ETF. We know there are tens of trillions of dollars in other investments, and some (much?) of this money is legally not allowed to enter bitcoin, but an ETF is technically not bitcoin. In other words, the spot ETF will allow trillions of brand new money to flow indirectly into bitcoin. I can barely imagine how this level of demand will affect the price 🤯.
Until next time,
Salvatore Norge
P.S. — Eat more fruits and vegetables, especially during flu season!
“Keep falsehood and lies far from me; give me neither poverty nor riches, but give me only my daily bread. Otherwise, I may have too much and disown you and say, ‘Who is the Lord?’ Or I may become poor and steal, and so dishonor the name of my God.” -PROVERBS 30:8-9
I’m not very wise. Never financial advice. Do your research.
Nice rolling! The TRUTH always comes out in both jiu-jitsu and Bitcoin. You going to Pacific Bitcoin next week?