Bitcoin Price Dips Amid War Fears; Gold vs Bitcoin; Hong Kong Approves ETFs; Inflation Running Hot
News Block #33 (4/16/2024)
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Bitcoin Price Crashes Amid Fears of War
Over the weekend, Bitcoin’s price crashed about 10% as the conflict in the Middle East escalated when Iran attacked Israel.
Markets hate uncertainty, and when geopolitical tensions rise, this can spook investors, resulting in sharp sell-offs like the one we just experienced. And when major global shockwaves hit on a weekend, Bitcoin is the only macro asset you can trade 24/7/365.
This makes Bitcoin available to sell at any moment. When markets experience stress, investors sell what’s liquid to hedge against other asset classes, so it’s no surprise that we saw Bitcoin react first to the drone strikes over the weekend. As I said on FOX Business Monday, the fast money trades these events while the smart money, and the permanent capital, is here to stay because it is seeking shelter in Bitcoin as a flight to safety long-term.
As expected, this price drop had some Bitcoin skeptics coming out of the woodwork like CNBC’s Andrew Ross Sorkin.
I have a ton of thoughts on this, but the first one that popped in my mind was actually a quote from best-selling author Morgan Housel who said, “Every investor is making a bet on the future. It’s only called speculation when you disagree with someone else’s bet or time horizon.”
What I would say to Andrew Ross Sorkin is, WTF: What Time Frame? You should lengthen your time horizon – zoom out – and consider how these developments can bolster or undermine Bitcoin’s long-term value proposition.
Historically, Bitcoin has sold off immediately on news of war breaking out, only to sharply rebound in the coming months.
Last year, when Hamas attacked Israel, Bitcoin immediately dropped in the wake of the news only to shoot up more than 25% in the coming month.
Globally, it feels like we’re on the brink of another world war. Geopolitical conflict is accelerating, and war is always inflationary. It offers the perfect excuse for printing more money without asking any of us for consent.
Wars are expensive. A common theme of all wars is a sharp rise in government spending. During times like this, you don’t want to own cash, which will be devalued, and bonds, which the government will flood with new supply as it borrows money for its war efforts.
The data proves this too. The CFA Institute published data that showed that during World War II, Treasury bonds returned double-digit losses for investors when taking into account inflation.
And if you hold cash, you’re definitely going to have a bad time. Don’t believe me? Well – just listen to what Warren Buffett had to say about it in 2014:
In times of war, investors want to own hard, scarce assets like Bitcoin that can’t be devalued and will outpace the rising inflation.
It’s one of the reasons we’ve seen a surge in the price of gold - which we should acknowledge. Gold has historically functioned as a safe haven asset that investors flee to during times of geopolitical or economic upheaval. Central banks have been buying record amounts of gold over the last couple of years and gold has outperformed Bitcoin over the last month, but when you zoom out, the scoreboard is clear – Bitcoin shines.
On Monday, I was surprised by an impromptu Bitcoin vs Gold debate with Peter Schiff on FOX Business.
The reality is, both gold and Bitcoin are poised to do well if the traditional system grows increasingly unstable, and inflationary pressures continue to mount, but in the long run, only Bitcoin has all the properties that will enable it to become the foundation of new monetary system. We already tried it with gold – which because of its defects – led to fiat and a system built on IOUs and leverage. It’s Bitcoin’s time now.
And unlike gold…which people will be trying to mine on asteroids if it were to somehow hit $100,000 an ounce…no Bitcoin price and level of demand can increase the supply. As Jack Mallers said – you can always direct more energy to mine gold out of the ground. You can’t travel in time to mine more Bitcoin.
And on the topic of rising geopolitical tensions – we’re witnessing the world become more fragmented and multipolar, and Bitcoin has no stake in any of this – it’s a neutral place to store wealth without having to worry about who wins or loses in any conflict. Bitcoin is peaceful, and it’s really the only thing certain during times of chaos. It’s the only thing predictable. Wars are political. The dollar is political. Bitcoin is apolitical and incorruptible – it just keeps going like clockwork. The halving won’t be delayed or postponed due to any outbreak of violence. It will arrive, as scheduled at block 840,000.
So…tick tock next block.
Hong Kong Approves Spot Bitcoin ETFs
Turning now to China where multiple asset managers announced that they have received conditional approvals from the Hong Kong Securities and Futures Commission to launch their spot Bitcoin ETFs.
These ETFs will help boost Bitcoin adoption in the long run as more ETF products around the globe just means more ways for investors to gain exposure.
Although this is undoubtedly good news, it’s important to remember that the Hong Kong stock market is only a fraction of the size of the US stock market.
Bloomberg Senior Analyst Eric Balchunas threw some cold water on the excitement when he said this:
But Balchunas also added, “Just to be clear, all this is clearly positive for Bitcoin as it opens up more avenues to invest.”
It’s always wise to listen to the experts when it comes to ETF developments, but I can’t help but be reminded of how the US ETFs blew expectations out of the water when it came to their inflows. So who knows? Perhaps we are about to see something similar unfold in Asia.
March CPI Inflation Comes in Hotter Than Expected
I can’t help but feel like everything is currently pointing towards a higher Bitcoin price. Whether that’s escalating geopolitical conflict, new ETF products hitting the market, the upcoming halving, and, of course, inflation continues to run hot.
Last week, CPI rose 3.5% YoY, above expectations. Shelter and energy costs drove the increase in the headline number.
The shelter component of CPI is particularly interesting because higher interest rates – meant to bring inflation down – could actually be contributing to rent and home prices remaining high.
It’s crazy to think how many people wouldn’t be able to afford the home they currently live in at current prices and mortgage rates.
Oppenheimer CIO John Stoltzfus recently argued that lower mortgage rates would prompt more people to sell their homes, leading to more supply and potentially softer prices.
But we haven’t seen home prices fall because no one is selling because people are locked into low 30-year mortgage rates. Who wants to move when their new mortgage rate will effectively double?
This has caused home prices to stay high, which has forced more people into renting. This keeps rent levels elevated, which ultimately leads to higher CPI prints.
The New York Times recently covered this when it found that about 70% of all US mortgage holders had rates more than three percentage points below what the market would offer them if they tried to take out a new loan.
Shelter is the largest component in calculating CPI, so its continued elevation should not surprise anyone.
One last point on inflation: I recently came across a chart showing how price increases at major fast-food restaurants have risen faster than CPI.
McDonald’s prices have more than doubled since 2014 despite CPI inflation only rising 31% over that time frame.
Traditionally, fast food is the cheap option for struggling families, but now feeding a family at Taco Bell or McDonalds has never been more expensive.
Coinbase recently released a great new ad on how holding Bitcoin has allowed a person to buy more pizza with each halving. Check it out:
Coinbase wrote, “Food for thought: What if money was designed to get you more over time, not less?”
Everything from pizza to homes are getting cheaper when priced in Bitcoin and as time goes on you can buy more goods and services…with fewer Bitcoin! This is why Bitcoin is the best solution to the pernicious theft of inflation.
UFC Fighter Asks to Be Paid in Bitcoin
The last story of the week is on the merge that’s happening between the sports world and Bitcoin. More evidence of this occurred on Saturday night when UFC fighter Renato Moicano won his fight at UFC 300 and in his post-victory speech he gave a shoutout to Austrian Economist Ludwig Von Mises and told everyone to read his lectures on inflation and capitalism.
He then tweeted that he wanted his bonus to be paid out in Bitcoin.
When professional athletes talk about Austrian economics and ask to be paid in Bitcoin, you know that Bitcoin is starting to reach people from all walks of life. That makes me optimistic because everyone needs Bitcoin, and Bitcoin is for everyone.
Until next week, keep stacking.
- N₿
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Fantastic update, thanks!