Metamorphosis
Daily Ramble
I’ve either deluded myself into thinking it or been influenced into believing, we’re living through a historic moment. Not historic like “once in a generation” but historic like “a hundred-year storm”. It might even be “lifespan of a redwood tree” historic.
What am I talking about? This little innocuous transition point that we’re living through. It’s not just the pandemic that’s forcing the shift, but the reality that society itself is re-organizing. Institutions we’ve relied upon are failing and we’re looking to the internet to find like-minded individuals. Beyond the time-tested wisdom that our elders can impart to us, there is no analogous experience anyone living can use to guide us. As a result, the lessons of history are our best guide for what we’re experiencing.
Ok, you’ve dithered on enough, but what’s shifting? Money. The string that stitches social fabric together allowing for the exchange of goods and services. Currently, the ring that binds us is the USD, but that binding is wearing thin. It’s no coincidence that the USD gained its spotlight role in the 1940s — the last time the US debt exceeded GDP by 110%. Bretton Woods happened in 1944 when the USD became the kingpin to the world financial system. In 1946 US debt to GDP reached 118%. Last year US debt to GDP clocked in at 136%.
Why does that matter? Well, debt is how much the US owes, and GDP is a measure of how much it produces. The US is effectively underwater. And it did it to itself without a major war to justify the expenditure. Ignoring the moral implications of this, the last time the US found itself in such territory, the Federal Reserve stepped in to manage the bond market yield curve. It sounds complicated, but it just meant that no one wanted to buy bonds (debt) from the US government. So the Fed decided to do it. The problem is, the Fed lost any iota of independence it had because the US government could issue debt to spend however they chose, and the Fed had to buy it. No limits.
So, if history is any indicator of the future, and without living elders available to explain it to us, I suspect we see the same thing happen again. Cracks are forming in the US bond market as we speak, which is supposed to be the world's safest market. If it cracks, the stock market is likely to take a digger, the Federal Reserve is likely to step in to control the yield curve, and the Treasury issuing debt suddenly has a willing buyer for any debt they issue, i.e., the Fed. If anyone thinks there’s been a lot of money printing already, I can assure you, the party is just getting started.
This time around, we may not have the collective unity that comes from fighting a world war, but we do have a globally unifying force in the Bitcoin experience. Metamorphosis is rough, but we’re going to make it to butterfly land yet!
Favorite Thing on the Interwebs Today
Artists earning a living wage by using blockchain tech to cut out middlemen and find new revenue streams? Whoa… the times, they are a changin’.
Bitcoin Price Prediction
Yesterday: $48.6k - $52.7k
Today: $47.3k - $51.8k
Tomorrow: $45.5k - $54k
Sideways with a side of sideways. Bitcoin looks to be consolidating between $47k - $52k, and, barring some news to jolt the market to one direction or the other, it looks like we’re going to be doing the sideways game for a while. The price started pulling back right after the opening, and it continues to look like the bears are in charge. I don’t anticipate a massive selloff, but I also don’t see a major price pump either—more grinding through today. If we close the day below $48k, we could see a retest of the range lows around $42k again, but I suspect not. Bitcoin continues to flow out of exchanges, and bullish fundamental news continues having me believe the market is building strength for the next leg up. When $50k no longer sounds odd but fair value, the market will be ready for more upside.
Bitcoin Ed Bite
Q: What do Bitcoin miners do?
A: Bitcoin miners provide security in exchange for block rewards and fees.
Bitcoin miners first batch transactions into blocks. Next, they burn electricity solving a cryptographic puzzle. The miner who first solves the puzzle broadcasts the block to the network earning both the block reward (currently 6.25BTC) and transaction fees (approximately 1.05BTC at present). The reward and fees are earned as “proof of work” taken to solve the cryptographic puzzle.
Every four years, the block reward is cut in half. The last halving occurred in May of 2020. Each time a halving occurs, the incoming Bitcoin supply restriction leads to a surge in price over the following 18 months.
Thanks for reading,
Kent
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