Bitcoin Observations
This is NOT investment advice.
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Tariffs, Uninsured International Deposits, QE, and the C Signal?
Let's see how it unfolds, but looks like the Trump Administration used the last few weeks to fiddle with tariffs, prepare the markets, and eventually move towards a blanket tariff structure. Why? China.
First, Reserves held at the Fed:
Historically, Reserves held at the Fed weren't that big of a deal, but look at the absolute explosion since the GFC!
Let's think through the tariffs logically. China is the big target in my humble view along with the EU (and Canada and Mexico to some extent). China knows this and has been shifting things around and finding ways to move products indirectly through other nations if feasible. They have also been trying to reduce exposure to the US and USD in terms of the banking plumbing and infrastructure and otherwise.
Powell just told you at the March Fed Meeting that they are "monitoring reserves" as he was emphasizing that the QT draw down was NOT monetary policy (meaning not an attempt to stick save stocks with liquidity). Let's check out the level of reserves currently:
Inside that Red Zone exists some type of threshold inside Powell's head perhaps where it has become more than apparent under which the Fed does not want the level of reserves to slide. What is the magic number? Who cares. The fact that for decades it was nothing and now it appears to be close to $3T should tell you more than you need to know to understand the implications.
A broad tariff can choke off USD flow to China - and perhaps that is the true goal here. Why has China been enjoying robust USD flow for the last few decades? Because America keeps buying stuff from China and sending USD to China.
Broad tariffs that directly slow down USD flow to China can also slow down indirect flow by blocking China from re-exporting through other conduit nations. So where will China go if it needs more USD liquidity? It has already been setting up shop in Honk Kong for years now and elsewhere to better prepare for a true Trade War (and ultimately perhaps a kinetic one).
Ok - so who cares? Let's see who China does business with in Hong Kong:
Interestingly, as of 12/2024 Citi shows 88% of total deposits as uninsured with 43% of those being foreign. Looking above, for some reason the total deposits at these American banks in HK by China have been rising since the SVB collapse in early 2023. Hmmmm.
Where will Chinese banks go if they have urgent needs to get more USD? If the tariffs choke off USD flow to China over time, then perhaps there will be no choice other than to in effect make a run on these four banks in HK, one of which is in a rough position with their deposit base:
Here is a rundown of the Fed's FX Swap Lines, and if you recall 2019 there was major action taken by the Fed on this front even before the COVID scam hit:
In a nutshell:
- if the tariffs are broadly based then watch to see if/how much China starts to become "choked off" from USD
- if China needs USD urgently and the tariffs are working (meaning blocking the MAIN flow of USD to China which is simply paying for product), then presumably Chinese Banks would tap what they have established in HK
- if Chinese Banks start a run on American banks in HK, C might be the most vulnerable and perhaps a useful signal
- if this were to proliferate then we have a global meltdown unfolding perhaps to add fuel to the very obvious surge in yields and other risk factors across the globe
- JPow money printer go brrrrrrrr?
Risk On vs Risk Off
Got the bounce we hinted at and more volatility, never ignore higher time frames. Will update more this weekend, but from this last Sunday's post:
2YR
According to Goldman Sachs, and courtesy of ZeroHedge.com, all eyes on that 2YR in terms of any Powell Put or other easing Fed action:
Game Theory and Brazil
Brazil apparently is increasing the focus on adding Bitcoin as a strategic reserve. Brazil needs to hustle up perhaps? Yields on the 10YR up about 50% since the Fed's 50BPS cut to the 15% level (not a typo).
Mastercard Seeks Tether to Bitcoin
This "news" is rather bland considering we already know essentially the entire financial ecosystem is aware of Bitcoin at this point. However - like the Tether and USDT news this is quite significant. Once Mastercard adopts and integrates Lightning Network, which they will even if after a few ill-advised detours along the way, then we have yet again another very major player involved with infrastructure integrating Bitcoin.
BitBonds Proposal
BTCPolicy.org recently published their proposal for so called 'BitBonds' and I finally got a small window to take a little bit of a look. 'Bitcoin Enhanced Treasury Bonds' as they are coined in the proposal are in fact intriguing, though I see them solving a lot of long term problems while abandoning a huge chunk of the current problems (leaving these other issues at the altar if you will). Here's a snapshot:
In my view what is presented above would create very strong demand from institutions, governments, businesses, and households that are already convinced by Bitcoin. They (which I use very loosely here) would simply look at "locking in" a minimum level of gains with the potential to generate much more upside.
However - this is future issuance. What about all the bonds outstanding at various levels of maturity across the curve? If this were an option, who would want the "crappy old bonds" that are tied 100% to fiat loss of purchasing power? Sure, the refis could be "paid off" with some of these new bonds, but it strikes me as somewhat farfetched that the entire curve or pile of debt outstanding would just magically roll over into 'BitBonds'. During this transition - can you convince me "the other bonds" would not plummet sending yields sky high causing all sorts of challenges and problems? Aren't these "crappy old bonds" also littered across various balance sheets being ignored by firms that can escape MTM? Yes, indeed.
This brings me back to that Magic Wand Bond - the 100YR Zero Coupon. I understand this is not for households. I understand why a Nation State would value "military and diplomatic" assistance. I don't get why, even if 'protection' is guaranteed for a century, a Nation State would be willing to redeem said bonds for a fiat only payoff after 100 years MORE of purchasing power evisceration. So, what's the catch? They redeem in fiat and BTC?
Manufacturing Jobs
Not a ton of data, but the impulse directionally looks to already be there (from Bloomberg and ZeroHedge.com):
Bessent Wallet
DePIN
DePIN intrigues me. A16Z published a useful article on DePIN - a look at not just the hyped up potential but also the realities of trying to pull it off. I'm intrigued for a few reasons - the primary one being that it is potentially attacking real stuff. Decentralizing a communications network like the telecom networks is a movement that goes right at something that is real in society and impacting life right now on a minute by minute basis. It's not abstract like a lot of the "innovation" we see in "crypto". Nonetheless - as the article points out it's easier said than done. I'm intrigued by individuals and businesses being able to monetize themselves, their movement, and their equipment and tools.
Plebwork
Plebwork is a cool platform helping people find work and helping entities get work done and of course paying in Bitcoin. Very cool.
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Matthew Wong
The Watcher
