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We have had vacation time this week, thus the delay in getting blogs out this week. We have seen global macro (in 2022) control Bitcoin price action. It has not been too good so far. However, we see reason for optimism on a longer term basis. As the Ukraine crisis comes to an end, (We do not believe any kind of WWIII narrative), and after the FOMC meeting in March or June. Bitcoin will get a hit from Quantitative Easing coming back, after any rate hikes in March, or possibly in June. Rate hike threats and narratives from the Fed, have held down Bitcoin. The Fed balance sheet is 36% of GDP compared to Japan, who has a BOJ balance sheet 126% of GDP. Japan has seen demographic changes (aging population) and their currency has survived with extremely high debt to GDP ratios. Therefore, high inflation and high debt to GDP ratios in the US could track like Japan, and stay high for decades while the currency remains. This inflation and high debt to GDP we see in the US, could extend longer than we perceive it will. See this podcast with Plan B and Jurrien Timmer for more information. Bottom line is, the USD may have more legs than Bitcoiners think. This applies to us, we have been and will remain Dollar bears. However, stagflation simply means high unemployment (aging population), and high debt to GDP ratios at the Fed. If rates must be kept low, then inflation will continue and asset inflation will also continue. This funds the government (asset inflation). Considering that this inflation will likely continue, a scarce asset like Bitcoin, also has legs. Below is a simple supply shock chart:
As Bitcoin gets closer to the 2024 miner reward halving, the supply on futures open interest, gets priced in. At some point, as demand increases, supply will drop to a point that there is not enough Bitcoin to supply demand. This is the parabolic curve up in price action, that we have not yet seen! It may be more subdued than in past bull runs. Yet, we still expect it. Click here to view the Jurrien Timmer/ Plan B podcast.
We will go heavy on Will Clemente on chain analysis charts from here on. Here is the first one, comparing futures open interest perpetual to BTC:
Bitcoin price action coorelates to futures open interest. Imagine what will happen when a spot ETF is approved by the SEC. So far, all Bitcoin has had in terms of ETF’s, are futures ETF’s. These future’s traders have quite possibly affected price action this bull run. However, with a sharpe ratio of 1, and another miner reward halving coming up in 2 years or less. It is next to impossible to believe Bitcoin will not have that parabolic run up BEFORE the next halving. Now, let’s look at the next chart from Will Clemente. Perpetual open interest to market cap. This chart proves perpetual open interest rising has historically, pulled Bitcoin price way up. It is near record highs right now as Bitcoin price languishes. We therefore, expect rising prices:
Dry powder, or cash waiting on the sideline to invest at the right price. Dry powder being high while price action is low, further predicts rising prices:
Dry powder relates to dormancy flow. This chart shows how entity adjusted dormancy flow droping into the green band and coming out of it, is bullish. We still see that happening, later in 2022: