Powell’s Jackson Hole Speech Will Leave Bitcoin More Bullish As Ever

Bitcoin price came in the middle of uncertainty this week as investors waited for Jerome Powell, the Federal Reserve chairman, to deliver his keynote address at this year’s Jackson Hole Symposium, an annual retreat that sees global central bankers breaking bread over high-profile economic table-talks.

Mr. Powell’s speech is set to become a benchmark of its own. The dovish dude will shed more light on how the Fed thinks about inflation. Meanwhile, he expects to clarify whether or not his office is willing to push the inflation target above their preferred annual limit of two percent.

Don’t Worry Be Dovish

Economists believe that Mr. Powell will push for higher inflation as an only remaining strategy to save the US economy from the further impact of the coronavirus-led financial crisis. It means that the chief would probably tell the markets, “don’t you dare worry about the money, honey! Daddy will print’em for y’all.”

At least that is what the Fed has done so far to create a false sense of security. Everyone remembers the March 2020’s global market rout, wherein every asset, be it Bitcoin, bonds, gold, or stocks, reported huge losses.

It happened because of the coronavirus pandemic and how it pushed the global economy into a lockdown-enabled limbo. But then came the Fed with its open-ended stimulus program and near-zero interest rates. As a result, more dollar-liquidity entered the market in six months than in the last six years.

Have a look at this M2 Money supply chart, for a change. Uncle Investopedia calls it “a measure of the money supply that includes cash, checking deposits, and easily convertible near money.”

M2 Money Supply is at $18.32 trillion. Source: FRED

What did the markets do with the new money? They rerouted them to riskier assets. As a result, stock market rallied despite lower corporate earnings, US bonds surged despite poor yields, and safe-haven assets like gold and Bitcoin logged record bull runs.

At the same time, the US dollar crashed to its 27-month low. In short, the savers expected losses as everything around them warned about getting more expensive. That is where the idea of higher inflation kicked-in among traders and investors.

Bitcoin is up by more than 200 percent since March 2020 on weaker dollar sentiments. Source: CoinStats

That Wealth Gap

Bitcoin bro Anthony Pompliano discussed the nature of inflation and how it impacts an average Joe–impeccably–in his latest newsletter. The Morgan Creek co-founder said that “interventionism economics” would create additional tax burden simply because the Fed is borrowing money from the future.

While the wealthy class may find a way out of it by reinvesting their depreciated dollars into real estates, gold, bitcoin, stocks, and whatnot, the middle and lower class will bear the consequences, eventually.

“The constant manipulation of the US economy through monetary policy is only weakening the efficacy of central bankers’ tools in the long run. This virus-related, government-induced economic slowdown is painful, but our inability to endure short-term pain for long-term gain is going to serve as a serious problem down the road.”

said Mr. Pompliano.

On Thursday, Mr. Powell may go ahead with the plans of breaking above their annual inflation targets. If not, the Fed chair might wait for the release of their FOMC minutes in mid-September to deliver the said future guidance.

Whenever the word comes out, the US dollar will have to bear further downside pressure. And it would lead to another bullish cycle in riskier assets. Of course, Bitcoin, with its inherent scarcity, will appeal to investors as an ideal hedging asset. It has already become a part of the reserves of MicroStrategy, Paul Tudor Jones, and Snappa.

Therefore, short-term uncertainty is just a mild crackle. The Fed would need to roll back its monetary aids and push interest rates higher if it wants to save the US dollar. But against the economic aftermath of the coronavirus, and US presidential elections ahead, it is less likely the central bank will cut-off its aid.

That explains why Mr. Powell’s speech could leave Bitcoin in an extremely bullish state down the road.

Just a Little Bitcoin Note

BTC/USD was up 58 percent on its year-to-date timeframe, according to data fetched by CoinStats.

Since you’re here, do check out the CoinStats cryptocurrency portfolio management app to manage all your crypto traders right from one place.

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What Warren Buffett Turning to Gold Means for Bitcoin

Warren Buffett is the same person who once loathed the idea of owning gold or Bitcoin. The legendary investor trashed the precious metal back in 2000 by calling it an unproductive asset. He had a similar opinion about Bitcoin, a presumed digital gold that he called a “rat poison squared.”

Buffett Turns Gold Bull

On August 14, news dropped that Mr. Buffett’s Berkshire Hathaway purchased 20.9 million shares in Barrick Gold, a Toronto-based gold mining firm, for about $563.6 million. Meanwhile, the conglomerate dumped its bank shares en masse, selling 26 percent, 60 percent, and 100 percent of its ownership in Wells Fargo, JP Morgan, and Goldman Sachs, respectively.

The decision made a bold statement about Berkshire Hathaway: It prioritized a gold-focused company over a bank when it came to allocating funds. That marked a swift U-turn for the firm, whose founders repeatedly criticized gold on multiple global platforms. In the process of rejecting the precious metal, they might have also kept many potential copycat investors from owning it.

But entering 2020, the dynamics have changed. It started with the coronavirus pandemic that forced a majority of global economies into a state of lockdown. Governments responded by imposing lockdown to contain the virus from spreading. The money flow slowed down as businesses shut doors. Unemployment rose.

Then, the governments intervened with trillions of dollars of stimulus programs. The fears of inflation surged. That led to an increase in the price of gold, a perceivable safe-haven asset. The same fundamentals also helped Bitcoin to rise higher.

Losses

As the gold rate surged, so did the stock value of the companies that mine them. Barrick Gold’s share price rose by more than 60 percent on the increase in bids for the precious metal. That appeared attractive to Berkshire Hathaway, whose portfolio plunged around 13 percent thanks to Mr. Buffett’s old-school approach of staying invested in banking and airline stocks.

Let’s see what those investments looked like as of August 10.

Apple $1.89T 54.4% 

Bank of America $236.5B -23.6% 

Coca-Cola (NYSE:KO) $206.4B -12.3% 

American Express (NYSE:AXP) $84.0B -17.3% 

Kraft Heinz (NASDAQ:KHC) $42.6B 10.8% 

Wells Fargo (NYSE:WFC) $105.3B -52.0% 

Moody’s (NYSE:MCO) $51.6B 14.7% 

JPMorgan (NYSE:JPM) $318.7B -25.9% 

U.S. Bancorp (NYSE:USB) $57.8B -35.4% 

Bank of New York Mellon (NYSE:BK) $33.9B -22.8%

Anthony Pompliano, the co-founder of Morgan Creek Digital, stated in his newsletter that Warren Buffett’s investment team had to dump their traditional beliefs after suffering the losses mentioned above. He wrote:

“I do not doubt that the investment team at Berkshire Hathaway has been discussing what they can do to mitigate the potential risk from high inflation in the coming years. If that conversation has been occurring, the natural conclusion in Wall Street’s conservative world is to gain exposure to gold.”

Bitcoin

That leaves Bitcoin in a similar bullish spell. The cryptocurrency’s gains this year surpasses even that logged by gold. In June, billionaire hedge fund investor Paul Tudor Jones allocated 1-3 percent of his $22.5 billion-portfolio to Bitcoin futures. And just this month, MicroStrategy, a public-traded firm, bought $250 million worth of Bitcoin for its reserves.

Both of them gave the same reason for their high-profile cryptocurrency exposure: inflation. Mr. Tudor Jones called Bitcoin the “fastest horse” in the global market. And MicroStrategy noted that the cryptocurrency could protect their reserves from a falling US dollar.

Bitcoin price performance over the last six months. Source: CoinStats

Mr. Buffett did not make such calls for Bitcoin. He vowed never to get involved with the cryptocurrency that has “zero intrinsic value.” But his firm’s latest inclination towards gold cleared at least one thing: Mr. Buffett is prone to change his basic strategies in the face of an unseen financial threat.

Why? Because Bitcoin is better than gold. The cryptocurrency is scarcer with a 21 million hard cap. It is easily movable across borders, unlike the heavy, precious metal. And it has better divisibility being a digital token.

There is a higher likelihood now that people would invest in scarcer assets. Bitcoin is a clear beneficiary should such a trend picks momentum.

Since you’re here, do check out the CoinStats cryptocurrency portfolio management app to manage all your crypto traders right from one place.

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Bitcoin Correction Last Week Shows What’s Wrong with Inflation Narrative

Bitcoin lately surged back towards $12,000, a mighty level that last reacted very violently to the cryptocurrency’s bullish advances and crashed its price by $1,500.

Last week, Bitcoin attempted to break the level all over again. It briefly managed to do so before plunging all over again. Only this time, the correction was less severe, finding a stable support level at around $11,500.

Bitcoin is finding it hard to break above $12,000. Image Source: CoinStats

These price actions appear natural. Of course, Bitcoin remains one of the most profitable assets of this year. The cryptocurrency is trading more than 50 percent higher on a year-to-date timeframe. Meanwhile, its net recovery following the infamous March 2020 crash has topped 214 percent.

But behind the supersonic rallies are narratives. Earlier, it was the “halving,” an event that effectively reduced Bitcoin’s supply by half, which sent its prices upward towards $10,500. And past the May 11 phenomenon, the narrative shifted to “fears of inflation” caused by the US Federal Reserve’s open-ended stimulus programs, lower interest rates, and a knack for doing whatever it can to aid American people and businesses through the coronavirus-induced recession.

But then one has to understand what inflation means. A simple definition explains it as a rising cost of goods and services over a specific period. It means a unit of currency starts buying them lesser than it did previously.

Coffee, Gold, Bitcoin

The most common example of inflation is a cup of coffee. Back in the 1970s, you would only pay 25 cents for it. But in 2020, you are at least paying a dollar and a half to stay awake for the dirty bean water.

In some countries where inflation has gone out of control, you must pay even $250 for the same coffee cup. That means that individual central banks printed more local notes than their dollar reserves could represent, thereby pushing their currencies to collapse.

A Cup of Coffee against inflation. Source: Investopedia

But then, we are talking about a foreign central bank, not the US Federal Reserve. The American central bank is a de facto supplier of the US dollar in the US and the rest of the world. It responds to demand. Therefore, if the Fed issues more US dollar than required, it leads the greenback lower. Similarly, an undersupplied dollar makes it more valuable against foreign currencies.

Bitcoin bulls call the Federal Reserve for its monopoly over the global currency market. They pitch the cryptocurrency as their alternatives because 1) it has a supply cap of 21 million, and 2) people can transfer it across borders without needing an intermediary to confirm, record, and maintain the transaction.

So their narrative goes like this: the Federal Reserve prints more US dollars => the greenback’s value falls => it hurts savers (Americans, other central banks) => they purchase Bitcoin instead against the dollar-led inflation => Bitcoin’s value rises.

Gold Mine

Anyone who holds Bitcoin today should be sitting atop a gold mine, at least according to the narrative. It sees the price of the cryptocurrency hitting as high as a million dollars.

But the narrative is built on a promise of complete migration, not a cyclical run. Bitcoin bulls believe that people would dump the US dollar entire to join the cryptocurrency bandwagon. There will be no Federal Reserve in the future. People will own a part of the Bitcoin network without having to worry about inflation anymore.

A cyclical setup meanwhile sees a reshuffling of capital. People would indeed sell part of their assets to buy Bitcoin. But they would also sell those Bitcoin units to purchase something else: maybe the US dollar itself, because it would remain the go-to currency for decades to come.

That is how gold has worked so far. An ounce of the precious metal is up 2,000 percent during its lifetime as a tradable asset. But come to think of it, it was just $38 back in the 1970s, right when our parents were paying 25 cents (or 0.06578947368-ounce gold) for a cup of coffee. 

From then till now, the cost of that cuppa increased by 500 percent in dollar terms. Simultaneously, you are practically paying 0.0075 ounces of gold for the same – an 88 percent inflation just for one single product: coffee.

Supply-Demand

That proves that inflation is a game of supply and demand. The reason why the Federal Reserve can maintain it below its 2 percent benchmark is the same metric. If they increase the money supply, and the dollar falls, it means wages also go up to maintain the higher cost of living.

In a way, that makes Bitcoin stronger. But the cryptocurrency gets measured in terms of dollar only. That means whether it may help reduce the cost of living for an average citizen depends on the prices of the goods and services themselves. If the demand for coffee falls, so does its prices–be it in Bitcoin or the US dollar.

Therefore, inflation cannot directly impact the price of Bitcoin. And the reason why the cryptocurrency is rising these days is based on an assumption, not practicality.

Since you’re here, do check out the CoinStats cryptocurrency portfolio management app to manage all your crypto traders right from one place.

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Jerome Powell is the Real Bitcoin Bull

Nothing changed in the message the Federal Reserve delivered after concluding its two-day policy meeting on Wednesday. Jerome Powell, the US central bank’s chairman, decided to maintain their benchmark interest rates near zero and pledged to offer more monetary support if necessary.

As he delivered his monthly press brief, the US dollar index was falling to its two-year low, while Treasurys yield was near the bottom of their range – with the benchmark 10-year note below 0.6 percent. Meanwhile, gold was surging towards its all-time high at $2,000.

Gold performance this year. Source: TradingView.com

Away from the traditional assets/indexes, Bitcoin was also celebrating Mr. Powell’s dovish touch on the economy. The cryptocurrency preconceived the policy outcome and surged above $11,000 – a level it has not touched in the last eleven months.

This week’s market moves clarified two things. First, the Fed will keep supporting the US economy as long as it suffers under the influence of the rising coronavirus pandemic. Second, the constant supply of the US dollar would hold investors under the fears of inflation.

That is already visible in the recent collapse in real yields – reflecting higher inflation expectations as Treasury yields take a dip. They fell into the negative area last week.

From here, it is not hard to guess what happens further in the third quarter. The dollar will keep losing its appeal as Fed’s supply rate goes haywire. Meanwhile, lower interest rates would keep Treasurys unattractive for their peanut-like yields.

As a result, investors would want to stay away from cash-based investment vehicles. Instead, they would do what they did following March’s infamous global market crash: get into riskier assets.

In the next months, one can expect gold, silver, palladium, Wall Street indices, and even Bitcoin to grow higher. It is because of a lack of attractive returns in safer markets such as Treasurys.

Forward Guidance

Mr. Powell also said in his statement that the Federal Open Market Committee’s review of its monetary framework is pending. They will release the minutes of the July meeting in three weeks. It will show how the Fed is planning future tightening of policy concerning inflation or unemployment target.

Marvin Loh, a senior macro strategist at State Street Global Markets, noted that the forward guidance should help the Fed keep targeted interest rates in check. 

The last time it happened was in 2011-13. As the 10-year Tips slipped below zero, the Fed’s explicit forward guidance helped it recover back into the positive area “before the taper tantrum shook things up.”

Forward guidance and their impact on 10-year TIPS

That is, again, bullish for riskier assets. Forward guidance that limits yields on Treasurys will trigger the so-called “TINA effect.” It stands for There-Is-No-Alternative, which signals investors’ focus towards buying equities, commodities, and other assets to seek better returns.

Bitcoin’s record so far in 2020 has been higher than its traditional peers. The cryptocurrency surged by more than 180 percent from its mid-March lows. In contrast, its safe-haven rival gold rose 31.79 percent.

Bitcoin performance over the last 4 weeks | Source: CoinStats

Therefore, it is likely that Bitcoin rises exponentially higher with even a smaller upside move in the traditional markets.

Decelerating Stimulus and Bitcoin

But even with a wild price rally, there lies a risk of an equally volatile correction.

One has to get used to the fact that Mr. Powell would one day tighten the stimulus program. He said that the FOMC is hoping for the best, which concerns a decline in coronavirus cases or a vaccine itself.

Paris-based asset management firm Amundi noted the same in its latest note. It said the financial markets will “price in the idea that there will be no further acceleration in monetary accommodation when the economy looks to be on the road to recovery.”

That means that bond yields will recover to the upside. As a result, all the markets that boomed on easing policies will correct lower.

That will put Bitcoin in a tough spot. However, the cryptocurrency has survived bear markets before. It may help it sustain the upward sentiment on a long-term basis.

Until then, Jerome Powell’s dovish speeches every month should help Bitcoin thrive. Many, including strategists at Bloomberg, believe that the cryptocurrency will rise to its all-time high – at $20,000 – by the end of this year.

Cover Image via HedgeEye

Since you’re here, do check out the CoinStats cryptocurrency portfolio management app to manage all your crypto traders right from one place.

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