For Patient Accumulators, Economic Liquidity Issues Present a Massive Bitcoin Opportunity

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For patient bitcoin hoarders, the current and potential future bitcoin price action should be seen as a huge opportunity.

The text below is from a recent edition of Deep Dive, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive this information and other on-chain bitcoin market analysis straight to your inbox, Subscribe now.

The crash in equity and credit markets is occurring as the yield curve (10-year US Treasury yield minus 2-year US Treasury yield) flattens dramatically:

The yield curve is of great importance in the financial system because of the way loans are made. Most creditors borrow short-term to lend long-term (i.e. they accept short-term liabilities and acquire long-term assets), so when the yield curve inverts, it means that creditors have more incentive to hold short-term government securities than they have to lend. out for the duration. The implications of higher short-term yields than long-term ones mean that it is also less risky to hold cash than to invest in risky assets (even with negative real yields) that sell with economic activity. weak.

This leads to liquidity problems in the economic system and is why an inversion of the yield curve has preceded every recession in the United States since the 1960s.

Yield curve inversion has preceded every US recession since the 1960s. Source: Business View.

The most shocking aspect of the current environment is the reality that the fed funds rate is still close to 0%, with recession indicators flashing bright red.

Recession indicators are flashing. Source: commercial view.
The SPX increases as the percentage yield spread decreases. Source: commercial view.

It would be wise to warn our readers that despite being extremely optimistic about bitcoin’s long-term prospects, the current macroeconomic outlook looks extremely weak. Any excessive leverage present in your portfolio should be evaluated.

Bitcoin in your cold room is perfectly safe, unlike market leverage. For willing and patient bitcoin hoarders, the current and potential future price action should be seen as a huge opportunity.

If a liquidity crisis should occur, the blind selling of bitcoins will occur (along with all other assets) in a dollar rush. What happens during this time is basically a short squeeze of dollars.

The answer will be a deflationary cascade in financial markets and a global recession if that should happen.

This is why we prefer to maintain a multi-year (or even multi-decade) outlook on bitcoin, as we believe that the response to this event will be only one viable “solution”: more stimulus.

This will likely take the form of yield curve control, where the Federal Reserve monetizes any amount of debt securities over different durations at a certain level of yield.

Quantitative easing is a fixed amount of money printing at any price. Yield curve control is in theory an unlimited amount of impressions to maintain a certain price. This is where the system is heading in our view.

And that’s why we own bitcoin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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