CPI inflation was 1.3% if we remember correctly, when we began writing these blogs in August/ September 2020. Now it is 8.5% and real inflation is likely over 15% to 20% depending on geography. This will keep going up, there is no end in sight to this inflation. Here is a Charlie Bilello tweet about inflation in goods and services just to survive, click here to view on twitter.
This next chart comes from Pomp. Fertilizer prices are exponentially higher this year, because Ukraine is where a lot of fertilizer comes from. This will create massive food inflation throughout 2022. Hard to know how long this would last. Here is that chart:
Inflation on a CPI basis is tracked going back three years below. What we believe, is that most of America does not know, or understand, that CPI inflation will go much higher over the next year or three. Inflation is just getting warmed up:
There are only so many rate hikes the Fed can issue, until they have to stop and eventually reverse course on Quantitative Tightening. Once QE comes back, Bitcoin will run again. That is how we see it playing out.
This next chart compares 10 year bond yields now to 1987. Almost identical. The huge difference is CPI is now 8.5%, highest since 1981 and the Fed has no way to catch up to inflation! It stands to reason that 2023 to 2025 may be the years when inflation really runs up! Of course, we know there was a major crash in 1987 and stocks are becoming consolidated closely with Bitcoin right now. Highest consolidation they have ever had with each other. Here is the 10 year bond yield comparison chart below:
We have been off and on bullish on Bitcoin since March 2020. But we agnowledge after every bull market a bear market ensues. We know this and have talked about it in our blogs. The war in Ukraine will likely give way to a war in Taiwan. We know China will invade Taiwan. The geopolitical environment is nothing but black swans this year. Historically, Bitcoin has three green years and then a red year. We 100% expected Bitcoin to hit $135K to $190K by late 2021, early 2022. We did NOT expect the war in Ukraine back then (2020).
When observing the strong coorelation with stocks and the looming stock market crash we have been writing about for 6 months now. It is hard not to admit, Bitcoin may not break out like we all thought in 2022. It still can, but there are so many issues of the geo political nature that it is hard to overcome that. See this double top formation that came up since the gausian channel mid line rejection last week:
There is still a chance Bitcoin can come out of this slump. But this mid line rejection and strong dump to $39K on Monday puts a damper on that! We will NOT sell our main Bitcoin holding going back to March 2020. We will be watching Bitcoin closely to find a dip, or a bottom, we feel confident enough in to buy it. Until then we will sit on the sidelines and wait! If, and it’s more of a when than an if, inflation begins to break out, and the 10 year bond rates are topped out at about 2.5%. At that point, Bitcoin will head towards the median green line in this chart below, which is the stock to flow. We don’t know if that is November, December, or January 2023? We just know, when inflation does break out, Bitcoin will be the flight to safety asset. 8.5% CPI is not the break out point. Perhaps double digit is? Here is a chart of the stock to flow model and the green median line to keep in mind: