Bitcoin: Your Best Bet Against DebasementAlso MicroStrategy, the Bitcoin Effect and The Labor Market Is Holding Up
Welcome to the Friday edition of the Ecoinometrics newsletter. Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets. Today we'll cover:
Each topic comes with a small explanation and one big chart. So let’s dive in. In case you missed it, here are the other topics we covered this week:
If you aren’t subscribed yet, hit the subscribe button, to receive this email every week directly in your inbox: Bitcoin: Your Best Bet Against DebasementBitcoin often goes through long periods where nothing seems to happen. The price feels trapped. There's no catalyst. No event. That's basically the situation we've lived through over the last six months. When this happens, you see the usual reactions. "Bitcoin is dead." "This or that asset is better than Bitcoin." "Bitcoin has peaked." "Diminishing returns." And so on. This is when people start to despair and leave. This is also when you need to remember why you're investing in Bitcoin. You're in it because when governments run constant deficits and always need to issue more debt to make ends meet, it's almost guaranteed that at some point the money supply will expand rapidly to save the system. And when that happens, there's no better hedge than Bitcoin. Want proof? Look at 2020. Between March 2020 and January 2022, the U.S. M2 money supply expanded by $6 trillion. Over the same period, Bitcoin's compound annual growth rate hit about 150%. That's almost 4 times the CAGR of the NASDAQ 100 and 20 times that of gold during this exceptional period of monetary expansion. So don't be fooled by the lack of trend in recent months. When the macro conditions are right, Bitcoin will prove its worth.
MicroStrategy And The Bitcoin EffectHere's the recipe: Take your company. Add some Bitcoins (a couple hundred thousand will do) to its balance sheet. Stir and see what happens. Side effects may include volatility, parabolic moves, and outsized returns. At least that's what happened to MicroStrategy. The chart below shows you the evolution of MicroStrategy's stock price before and after it adopted the Bitcoin strategy. It's a stark illustration of Bitcoin's impact on MSTR. This is just another example showing that investing in Bitcoin isn't like investing in any other asset. Is this a sustainable path for MSTR? It has been for four years, despite the ups and downs. They're in the green on their Bitcoin holdings. This simple strategy has allowed them to attract capital to acquire more Bitcoins, creating a flywheel effect. Will MicroStrategy become a Bitcoin bank? Who knows. We're probably still a bit early for that. But as long as they don't change their fundamental strategy, they'll be at least as valuable as the Bitcoins they hold.
The Labor Market Is Holding UpEarlier this year, I was concerned about an increased likelihood of a US recession. A recession is bad news for most assets (unless your whole strategy is betting on black swans). You'd expect to see a significant correction in Bitcoin's price if the US entered a recession. My main worry was the significant degradation of labor market data from April to July. We saw a sustained rise in initial unemployment claims, continued unemployment claims, and the unemployment rate. This pattern typically occurs when an economy transitions from normal conditions to a recession. It's happened in every recession as far back as we have data. The good news? The uptrend in all these labor metrics has finally broken down. For now, the situation seems to be stabilizing. Even better, it's stabilizing at a level that's still very good compared to the past 30 years. This means two things:
The first is good news for Bitcoin. The second is less positive, but at least it's not a negative outlook.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts. Cheers, Nick P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics. Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets. Armed with those insights you can make better investment decisions. Are you a serious investor? Do you want to get the big picture to get on the big trades? Then click on the button below. You're currently a free subscriber to Ecoinometrics. For the full experience, upgrade your subscription.
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Friday, October 18, 2024
Bitcoin: Your Best Bet Against Debasement
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