The Flight to Quality: Bitcoin and Hyperinflation
Why Bitcoin Shines Amidst Economic Shadows
It has been a rough couple of years. I am sure everyone can resonate with this sentiment. We all survived, but we are heavily battered. Credit card debt is at an all-time high. Food prices have witnessed an increase of 18.3%. Energy prices have surged by 37.2%. Housing costs are at a 42-year record high with an 8.8% year-over-year increase. Inflation has been above 4% for 29 months.
Not just at a personal level but at a country level and not just America. Most countries are still reeling from high inflation.
While this is global, I also think that Americans have the most to lose. So let’s discuss a few topic about the state of America
The Widening Gap
Amidst the financial chaos, there's another storm brewing, one that's been on the horizon for decades but is now impossible to ignore: wealth inequality. The average American can’t scrounge up 400 dollars. At the same time, 1% owns more than 55% of all American wealth. That is a significant discrepancy that is not going away.
Since the 80s growth of this gap has widened by 31%
Wen Printer?
We have raised interest rates by 5% in the shortest span in history. Total US Debt is now $33.649 trillion, up $58 billion in one day and up $604 billion in one month... up $20 billion every day, up $833 million every hour. At this rate, US debt will be $41 trillion in one year.
This also coincides with massive movement in bonds as billions of treasuries are being sold and rates continue to rise. This increase in bond yield is especially noticeable in short-term 2y and 5y treasuries due to the fact that of economic uncertainty with the US government threatening to shut down twice this year. One of the large factors for this rapid rise is BRICs nations selling bonds at the highest pace in decades as the de-dollarization continues.
Shift in Global Power Dynamics
The BRICS nations, a group once just an acronym, now stands tall, representing over 40% of the world's population. Their combined GDP? A whopping 31.5%, edging past the G7's 30.7%. Imagine a world where these nations trade amongst themselves, not giving a shit about the US dollar. China's already paving the way with its ambitious Belt and Road Initiative, connecting continents but notably excluding the US. If these countries continue reducing their dollar dependence, central banks might be offloading their dollar reserves. And the aftermath? Potential hyperinflation, skyrocketing interest rates, and plummeting asset prices in the US.
BUT
This goes back to my first-ever article and why I chose to write and help educate people.
This is a Financial Revolution
As we wade through the failing system, it’s hard not to want something better.
I called this article a flight to quality because where does value go in a world of bursting debt? We don’t know, but historically, commodities have been the benefactors. The price of spot gold at the time of spot gold ETF passing was $287 in 2004. It trades at $1947 and never went below its first-day sold price.
What commodity is about to be front and center for institutional investing?Bitcoin. The SEC is continuously delaying 8 companies who have applied for the Bitcoin spot ETF. They can’t delay forever, with the final deadlines in Q1 of 2024. The CEO of BlackRock said this about the fledgling currency
“think it’s just an example of the pent-up interest in crypto. We are hearing from clients around the world about the need for crypto.
I think some of this rally is way beyond the rumor. I think the rally [on Monday] is about a flight to quality with all the issues around the Israeli war now, global terrorism and I think there are more people running into a flight to quality whether that is in treasuries, gold or crypto – depending on how you think about it.
And I believe crypto will play that type of role as a flight to quality.”
The naysayers say what if Bitcoin doesn’t pass the scrutiny of the SEC? It just delays the inevitable. The subsequent supply reduction for Bitcoin is estimated to occur in April 2024, when the block reward will fall to 3.125 BTC from its current reward of 6.25 BTC per block. The clock is ticking for some of this value to find its way into Bitcoin.
So, If you believe there’s a high probability of these simultaneous economic crises causing a massive print, then you expect some default and a fiat crisis. You’ll want to be prepared, whatever that means to you.
Either way, you can’t deny things are changing. The financial landscape is shifting beneath our feet. Now more than ever, staying informed and prepared is crucial. Dive deeper into cryptocurrencies, educate yourself on the changing dynamics, and be part of this financial revolution. Don't just be a spectator; be a participant. The future of finance is in our hands, and together, we can shape it.
Please comment if you have any questions, and I can answer your questions further. As with all of my writing, this is not financial advice but my opinion. I cannot stress enough how important it is to do your own research on all financial endeavors. I hope these newsletters can help investors realize the current economic systems’ downfalls and usher in a more equitable system without intermediaries. Let’s build something together.
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