2023 Opening Thoughts On Bitcoin, Recession, and Stimulus
We begin our year explaining what we'll be watching for as the US economy heads into recession, the Fed remains desperate to prove it can be hawkish, and bitcoin waits for signs of stimulus.
Dear readers,
Happy New Year! I sincerely wish everyone had at least a few days away from it all—markets, socials, newswires, and all the world’s drama were hopefully paused for friends, family, and a reset.
Time away can lead to fresh hypotheses, and the turn of the calendar also brings an opportunity to make grand predictions for the coming 12 months. But instead of calling the next thousand points on S&P or timing the first rate cut, we settle back to what we are here for: understanding the global macroeconomy and how it affects asset classes, bitcoin most importantly. Studying all that goes on across rates, Fed, China, energy, trade, and banking is indeed daunting, but if you can juggle a dozen or two frameworks, you might just gain that edge—signal amidst the noise.
Here’s what has me occupied as we start 2023.
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Bitcoin is the future, but the geopolitical obsession remains
As investment researchers, we are often recipients of an information onslaught. How to filter? I’m friends with one of the world’s experts on credit research of the gaming industry. He knows every chief executive in Vegas and Macau. He has to be certain about debt coverage, and strives to learn every detail about each hotel/casino that will get him there. Where, alternatively, must a bitcoin analyst search for the informational backdrop to assess potential performance?
Is it within the halls of bitcoin mining warehouses? Or what about the group chats of Bahamian crypto exchange execs or the emails of Barry Silbert’s legal team? Or is it instead what is happening with cyclical and perhaps secular inflation and subsequent monetary policy?
The range of subject matter experts for a fully fleshed-out bitcoin thesis could fill a Boeing, but we’ll settle for our most thorough approach to understanding what we believe are the major components, including the economic cycle, long-term trends of fiscal and monetary policy around the world, and bitcoin’s technological breakthrough and newfound position as the world’s only digital, apolitical money.
Regarding the economic cycle, we could devise many thoughts. And we do. The economy is either slightly or drastically slowing, depending on where you look. This should affect the short-term response from central banks. This is crucially important for the direction of asset prices across bonds, stocks, and bitcoin, but it is far from interesting when opening the year with a big-picture outlook for readers.
Bitcoin’s position as the world’s only digital, apolitical money makes it a fascinating social experiment, one which we are eager to cover at every turn. We’ll have on our first guests from the African and Asian continents to broaden our perspective on bitcoin usage outside the Western world. But this also remains, personally, out of reach until we receive those first-hand accounts.
What remains? Long-term trends made by governments and central banks. For most of you, this is why you own bitcoin. The US government and Federal Reserve, in tandem, whether as one or a nightmarish duo, have left confidence in the dollar shattered. While dominating the relative game considering other foreign currencies, the dollar is suffering a lack of confidence in its long-term viability.
I’m left trying to understand the balance between US relative dominance and long-term mathematical precipices. Whether the US takes a more modest role on the world stage over the next five years, 20 years, or not at all has a tremendous impact on how we are to invest in assets such as US Treasuries, real estate, stocks, gold, and bitcoin. And therein lies the problem—the most important question is empirically impossible to answer over any short time horizon. Therein also lies the geopolitical obsession—how much does China move the needle, and how much longer does the rest of the world play the US Treasuries reserve asset and US dollar reserve currency game? If they continue to play, the can gets kicked for decades. If they stop playing, debt bubbles start bursting.