I’m getting hated on by the bitcoin crowd, and it’s understandable. I am a sound money guy, and bitcoin, to me, is another form of fiat. My working theory here is that bitcoin is a RISK ON store of value which amplifies the NASDAQ/S&P moves up – very similar to how a NUGT may be played with gold in a RISK OFF scenario. It actually defies a store of value, at this point – but for the sake of argument, let’s just assume for a second it is a store of value in a RISK ON climate.
Over the last 7 months or so, we have seen a painful consolidation of gold. Our fiat overlords are trying to do the best they can to keep this beachball down. With every single tick of a point up with the 10 year, with every 1 basis point move with the DXY, at every turn these overlords then use these as excuses to fire paper contracts out to destroy the nominal value of gold. This all, despite proof of inflation every where you turn – only to be told we are only seeing 1.6% inflation with the CPI.
I’ll get into that in a bit, but for now, I want to posit a theory, that cannot be proven at this time – either way. What I feel I have observed is a 3x type of situation with the markets and BTC. It’s as if the markets go up, and BTC goes up the 3x. I don’t mean that number literally. What I mean is that it appears the value of this is going up, nominally, as markets go up – amplified. There is no doubt that the bitcoin bros want to establish this as a “store of value”, and many feel that this has overtaken gold. What I think every one of them fail to realize, by a wide margin, is that they appear to be engaging in rushing to a top of a balloon – which could also then crash 3x the value of the markets.
For this reason, I feel that this is an INSTRUMENT to capture an AMPLIFIED VALUE of stock markets. Not a true store of wealth. Let’s look at a few charts…
This is what I would consider a risk ON type of situation – and look how bitcoin reacts?
NASDAQ – 30% or so (ballpark) since August?
TSLA – 3x since August?
Bitcoin – 6x since August? 18x performance of NASDAQ?
This is what they call a “crack up boom” and this is where a lot of the inflation has gone – into speculative assets.
Once could make a STRONG argument – that this is where we are at with BTC.
On the flip side – my assets are in “defensive” stocks, which still have seen a double over the last year. What you see below is gold since August. This is a “risk off” asset. Down about $300 or about 15% since August.
Where NUGT is down more…about 100%, or about 6x down of gold itself.
Now – here is my working theory….
At some point soon, a correction of sorts is coming. Whether this is 10%, 20%, 50%…who knows. But the true test for bitcoin will be how it performs in a risk off scenario. As we have clearly seen above – it acts like an amplifier of a stock market in good times. In a sense, at THIS TIME, I would call it the NUGT of the SPY on steroids.
In turbulent times, we can have a a series of cliff drops like in March, or we can have a market that stalls…..goes sideways…then rolls over. Due to the Fed seeming to back everything, it appears doubtful cliff drops can happen in any meaningful way. This gives me some hope that most of the paper hands are out of gold and silver at the moment, and at some point when the markets do stall out and rollover – those with deep pockets will start to want to look for massive yields from their flailing stocks.
I wrote a piece discussing how there are 15 reasons I think silver is going to launch in April, but I do feel there are a series of things about to happen to have gold launch.
- Yield Curve Control. I feel with the yields rising, this has hurt gold in the short term, but it is also hurting the tech markets in that it is threatening cheap money for expansion. YCC is coming, and very soon. This has gold catching a bid – but only having equities going sideways.
- $1.9T stimulus, with $3T infrastructure deal right behind it. These heroin injections of fiat dollars are having less and less effect stimulating the economy, but are presenting more and more currency debasement.
- With currency debasement, DXY going down. If you hold assets in USD fiat currency (like BTC) the purchasing value of these things go down. Likewise, hard assets like gold and real estate go up in value because it takes more fiat dollars to buy them.
- REAL YIELDs will begin to be realized with inflation kicking in and YCC pegging interest rates artificially low.
Those scenarios, specifically, are good for gold – but not necessarily BTC. Why?
Let’s make an ASSUMPTION that this is a store of wealth that is more convenient than gold. What we are seeing is this STORE OF WEALTH increasing in a “risk on” scenario, by a LOT. To me, this screams speculative money chasing momentum. All of the hype machine is now in effect with – “more people to join”. This is a ponzi scheme, at this point. A STORE OF WEALTH is not meant to make you rich. The whole point of it is to store your “financial energy” into a form of “financial energy battery” that stores wealth during times of inflation. I used a scenario like this….assume today that $10,000 gets you a good used car. Maybe that’s about 5 oz of gold. If the USD fails and we go Weimar, then maybe a year or two down the road that used car may cost you $1m. However, the value of that gold would appreciate at the rate of inflation to then have you still use 5 oz of gold to buy that used car. THAT IS A STORE OF WEALTH.
If you take 5 seconds to look at the recruiting literature for bitcoin, it’s a hype machine now trying to get you to buy in at this top as a sucker – telling you it’s going to $100,000 or $1million. THAT IS NOT A STORE OF WEALTH, IT IS A SPECULATIVE GAMBLE. Let me give you an example. I bought a house in a bad neighborhood years ago. I speculated that the value of the property would go up because they were about to clean up the neighborhood. I WAS WRONG. I also bought in 2007, at the PEAK of the housing bubble. Just 7 years before, I bought a condo in a GREAT location and flipped it for 50% return in 2 years. I WAS RIGHT. The point is – THOSE PURCHASES WERE SPECULATIONS ON FUTURE VALUE.
And that is what bitcoin is, today. You are merely speculating on getting central banks to buy this. They are talking about gold and SDRs. Not bitcoin. You have people hyping the future value of it.
You see – in one case with the house, I was RIGHT. That went up 50% in value. I checked back, and several years later, in the bubble, it was up 2.5x from the time I had originally purchased it. It had continued to swell up.
Let me make a comparison. If you bought a lot of BTC at below $4000 – that was a GREAT speculation at buying a condo that did a massive appreciation. If you buy BTC at $50k chasing momentum, you are me chasing a property in a bad neighborhood at the PEAK of the bubble.
I saw one of the guys I follow post this yesterday:
This looks like it’s stalling out…and could rollover.
Meanwhile – you have TSLA at 1254x PE ratio at the moment, which was as high as 1749x a few weeks ago. Most people can see with their eyes that TSLA’s stock was one GME squeeze after another. At one point, there was $20B short on TSLA. This is not how a healthy company exists. At the same time, you have gold and silver miners with incredible numbers one quarter after another.
At the same time, the commodities are on fire with massive inflation, and silver is about to pop. I see banks having tremendous issues with this, and this could start a cascade of problems. Inflation is now here, and that $1500 stimmy check twice a year isn’t going to help you if your costs now are up $8000 per year. You are getting poorer by the day.
And with this, money will start to roll out of tech – and crypto – at an alarming rate.
The true test for bitcoin will be how it is viewed in a “risk off” scenario. The storm clouds are here. If BTC can hold it’s value and increase during a risk off event, it may start to take a mantle as a true store of wealth. Right now, it is digital NUGT.
King of money = gold
King of “analog fiat” = USD
King of “digital fiat” = bitcoin
So as long as people understand what exactly bitcoin is, and how it is currently a speculation increasing during a RISK ON period, and it may collapse at a rate 6x of the NASDAQ, then game on.
However, to compare a digital fiat to gold at this point is merely silly. I’m sorry. You see digits go up. No denying that. But the inherent value in whatever the hell that is didn’t go up, a dollar value went up.
I felt that BTC has a tremendous use case – specific. If I was a shop keeper in Turkey and seeing high inflation every month, I’m buying gold. However, if I want to flee the country and take my wealth with me to the USA to open a shop there, I cannot walk on the plane with hundreds of thousands of dollars in cash, gold, or silver. I can, however, store that financial energy temporarily in BTC as I move to a new location, then convert that financial energy into a local currency or back to gold. THAT IS A SUPREME USE CASE FOR BITCOIN.
However, until we see how it reacts during a significant downturn, NO ONE can predict how it will act, as it has only been around for 10 years and has never seen a recession, let alone a depression. China, Russia, India – these countries have been stockpiling gold for years and their countries have all seen failing fiat currencies. THEY ARE ABOUT TO DICTATE THE VALUE OF GOLD, AND MUCH HIGHER. The west may try to pull a fast one and go to digitial crypto fiat, but a good portion of the people on this planet believe in sound money in gold and will tell you to pound sand. At the same time, China is creating a digital yuan backed by GOLD. What is bitcoin backed by? India just made bitcoin illegal, and rumors had it being illegal in Russia.
So…..find me a lot more buyers at $50k-$60k and I will show you people that have disposable income they are merely speculating with.
HOWEVER – IF there is a grand downturn, and risk off money somehow goes to bitcoin, people who run budgets in the trillions may have to re-evaluate their philosophy on bitcoin. At the worst, I feel this would be a strong use-case for countries to adopt their own cryptos and perhaps follow the lead of India to make bitcoin illegal. I don’t think people that buy bitcoin realize how little the people with the power over money care about their hurt feelings of losing money on a bitcoin speculation. Gold is money in the constitution, ad FDR literally made it illegal in 1933 until 1975. You really think with trillions in debt today in a highly socialist system these people are going to let you have a crypto outside of their control? The point is – gold and silver have withstood the test of time for 5,000 years and ARE money. Bitcoin is nifty and has been around for 10 years. Speculate if you will with 2% of your liquid assets, but please……be CAREFUL. IT CAN GO TO ZERO.