UASF. Segwit battle. Charlatans trying to co-opt Bitcoin during the "block size wars". Been there, done that. Ever since our entry in 2013, there has always been some sort of ongoing drama and/or attempt to destroy, co-opt, delay, derail, or otherwise impede the progress of Bitcoin and its ability to help humanity break free and progress.
As we look at the landscape here in late March of 2022, we can't help but wonder if we have ever seen a better setup for Bitcoin from a FA standpoint? TA aside (though should be noted we do use TA for entry/exit and timing decisions), there appears to be quite a few things lining up in favor of Bitcoin at the moment.
Here are a couple of other BTC related recent pieces we published on this platform before diving in:
Fed Wants Inflation
Hard default. Soft default. Those are the options at the end of the day. Depending on who does the math, the United States is facing $250+ Trillion in unfunded liabilities, annual deficits of $3+ Trillion, and that pesky $31+ Trillion in outstanding debt. Feel free to show us the math behind an easy way out. A hard default is when the bondholders get paid back, but with a major haircut. Hard defaults are very ugly and very messy. Think collapse of everything related to UST and USD (if you recall perhaps, USD is also the liability of a third party - i.e. the Federal Reserve Note is the Fed's obligation). A soft default gets bondholders paid, but when the holder does receive the principal amount the native fiat currency has substantially less purchasing power. A soft default is more palatable politically.
Russia and China are well underway in moving away from buying more UST. Russia stopped altogether. Congress keeps spending with no attempt to rein in deficits. How will the government fund this spending? Who is paying off bondholders when outstanding UST reaches maturity? Inflation is raging in America and globally. The Fed may stomp its feet now about rate hikes and inflation, but let's see how the bills get paid.
Reading this you may think it is insane. There is this counterintuitive reality of where the bigger the debt problem and unfunded liabilities present, the more likely interest rates will be forced lower rather than higher. Why? When the numbers are this large we can easily see a scenario where interest payments on the debt itself eats up the entire federal budget with rates at higher levels. The population won't accept that.
Solution? Fed jawbones a tough guy act and hikes a few times to the point where certain risk assets create political pressure for the pain to stop. This allows the Fed to talk and act "against inflation" knowing damn well they will return to easing - which is precisely what forward swaps are projecting at this time. The markets are discounting easing in 2023 and 2024, so perhaps we see hikes for the remainder of 2022 plus or minus a Fed meeting or two. This is followed by QE (Quantitative Easing) and YCC (Yield Curve Control). The Fed inflates away the debt by struggling to maintain YCC without tipping off too many participants to its ultimate goal which is the soft default.
Speaking of soft defaults and this precise balancing act, let's check in with ZH on how Japan is trying to manage this situation right here and right now. We are talking about mathematics here folks, not so called "conspiracy theories" Government parasites try to point towards to deflect attention away from the actual problems.
Recent data looking at January of 2022 shows that GameFi accounts for about half of total Dapp transaction activity. This caught our attention. Apparently there are more than a couple billion gamers globally, and they are well conditioned to purchasing things in game, competing, and what have been in effect training tools for GameFi economics. NFTs play a big role here of course, but the Lightning Network is and will be more involved over time as well. Bullish for crypto in a big way since it shows something relatively new eating up most of the transactions. People want it. Good for the industry is good for Bitcoin.
Traditional financial tools haven't paid interest on savings or checking accounts above 1% in years. BlockFi pays you about 8%ish to sit on a stablecoin and 4%ish or so to sit in Bitcoin. People like making their money work for them. GameFi adds sizzle to this as well with games like Tezotopia. These tools are reaching more and more people and they are becoming easier to use, even to where you can download an app and earn free Bitcoin for walking.
Apparently more people want to stack sats and hold as well, as seen below by the near vertical ramping in the Illiquid Supply Shock Ratio recently courtesy of Glassnode. In fact, HODLers have been picking up steam since May of 2021.
Russian Sanctions FX
FX reserves are no longer safe. Russia saw its reserves in effect locked away and stolen. Regardless of any political opinion in one way or another, the fact is a sovereign nation deleted, locked, erased, stole the FX reserves of another sovereign nation. How does a country avoid this? Gold or Bitcoin with complete control of storage. Gold is not pragmatic. Bullish for Bitcoin.
Russian Crude Oil for Bitcoin
A high ranking Russian finance official recently laid out that Russia is open to accepting Bitcoin as payment for natural gas. This may not happen tomorrow or have a huge impact in the near term either, but this is a monumental moment. A major nation is willing to swap a hard commodity with tangible value for something else that is a hard asset with tangible value. Game changer.
Saudi Yuan Oil
Recently Saudi Arabia expressed intent to accept yuan as payment for oil sent to China. We toss this into the big "Game Theory" bucket that is playing out before our eyes with this Saudi news and others like the aforementioned Russian FX Reserves sanctions. Bullish for Bitcoin in an extremely big way.
Collectibles are one thing. Telling a musician/creator they can use NFTs to sell their next work with a tiered royalty and price structure while also turning it into a membership club that hands out rewards and perks . . . . that's a game changer. Add in GameFi completely relying on NFTs. Bullish for crypto. Bullish for Bitcoin.
El Salvador Bitcoin Bond
Critics state the bond offering isn't going well while others praise it. It's happening. The IMF is acting very irritated about it as is the United States. That's the part to watch. El Salvador is raising money without having to beg the IMF. Big news.
Exxon Mobil is expanding it's program to mine Bitcoin using excess gas it would normally flare off. Does Sen. Liz Warren care to comment on this? As Nic Carter brilliantly lays out, the Climate Change zealots have it all wrong with BTC and many other realities vis a vis fossil fuels. Bitcoin is and will be a major net positive for the environment. Come and find us when you have a technology that can literally convert wasted and excess energy into value while helping the environment.
Correlations and Allocations
The more the Street got involved the more BTC became aligned to the QQQ. Maybe. Since late Fall of 2021 there has been a strong correlation between risk assets and BTC. Very recently this seems to be possibly shaking free. Something to monitor.
One of the big factors in expanding PE ratios over the last handful of decades was the proliferation of 401Ks and other retirement products. People began to allocate on autopilot and this kept pumping juice into the markets. Look for more use of similar tools for Bitcoin on an ongoing basis.
We'll leave it with this last chart. More and more of the coins have been held for longer and longer. The Bitcoiners aren't budging.