The financial system has never been under so much pressure before, with so many countries and cities needing aid due to the lockdown measures. Things have surely changed as we move into a new phase of economic recovery or rather a stimulus. Governments are desperate to get this corpse that was mortally wounded in 1971 and killed in 2008.
Each time a piece of the financial plumbing implodes, be it the real estate market, bond market, repo market or stock market, governments around the world move towards quantities easing! Since many of the words currencies, despite the abuse, seem well off hyperinflation territory, governments feel they can continue this course of action to drive growth.
This printing and rolling over debt have seen bond markets absorb most of that newly created capital and created a 40-year bull market in US bonds.
As bonds became a crowded trade, Eventually, that capital slosh found its way to real estate and, of course, equity, both private and public and additionally commodities.
When peak insanity?
As capital becomes cheaper and money is created freely, it looks for a home! Every investment opportunity as an equilibrium it cannot cross, or so I’ve been lead to believe. Eventually, a home can only reach so much in value before it runs out of buyers who can meet that value and prices come down.
Eventually, stocks reach a PE ratio where value investors would never touch it, and once speculators and short-sellers leave the market, the floor is anyone’s guess.
Eventually, bonds reach a coupon rate of 0% and then what is the point of holding an asset with zero yields.
You can paper over this with things like yield curve control and flooding markets with cash through special purpose vehicles, but I think every asset has a limit bar one.
Bitcoin is a black hole for cash
It’s no secret that assets are overvalued, or rather fiat is being devalued, and more wage earners cannot accumulate enough cash to become an asset holder. The fact that you can now trade slices of stocks speaks volumes.
One asset of Bitcoin that many don’t consider is its near-infinite divisibility. Currently, 1 Bitcoin can be split up into 100 million Satoshis, and with the lightning network, it can be done on a sub satoshi level while the main chain could accommodate smaller units with a hard fork.
As the world’s capital needs a home and there’s already so much of what I think is overvalued assets in traditional markets, Bitcoin becomes a black hole that can suck up as much capital as it can come into contact with as GDP and purchasing power is divided up with more money printing.
Bitcoin can provide the release valve and a place for capital reallocation while allowing other assets to reprice back to a fair value based on the fundamentals of that asset.
Number go up
Bitcoins NGU number go up technology is more than just a bubble or millennial speculation! Yes, it is that too in the short term. Still, in the long term, I see a new numerator and measuring stick to properly allocate capital based on the returns it can bring rather than trying to do all this guesswork based on suppressed interest rates and following where inflation finds a home.
Despite what we may think, there is so much underlying scaring and inefficiencies due to our fiscal and monetary policy. It needs a natural force to correct it, which I think is Bitcoin.