A highlight from What an Increasingly Booming Economy Means for Bitcoin


This gets into the really key question. Does bitcoin only matter when things are bad are looking like they're going to get worse. Does bitcoin only matter when inflation is on the menu with so much of the bitcoin narrative tied up in the inflation hedge. Business over the last year. It's worth asking. Welcome back to the breakdown with me. And i'll w it's daily podcast on macro bitcoin and the big picture. Power shifts remaking. Our world breakdown is sponsored by next dot. Io and dot org and produced and distributed by coin dust. What's going on guys. It is thursday april twenty ninth and tenth day we are asking the question of what an increasingly booming economy means for bitcoin. So the setup for this. Is that obviously for. Bitcoin and bitcoin has always been a macro asset in the sense that it is fundamentally about reorganizing the global economy in some way when it comes to the rest of the world however it's really only been in the last year that that idea of bitcoin as a meaningful player on the macro stage has come to the fore. The connection was made first and most profoundly by. Paul tudor jones with his great monetary inflation thesis. And since then. Bitcoin has been tied up in its digital gold narrative as an inflation hedge. Right there's no way to deny looking at micro strategy getting in and michael sailor talking about the melting ice cube of cash as a treasury reserve asset and stanley druckenmiller seeing five to ten percent inflation over the next few years. There's no way to deny that bitcoins. Narrative has been tied up in the fear of looming inflation. The question then becomes. What if that starts to withdraw. What if the macro narrative shifts. Where does that leave bitcoin so today. That's what we're going explore. And i think the start. Let's start with this idea of it. Being a booming economy one of the wall street journal's lead headlines today is. Us economy appears to be lifting off. Economists are projecting a quote robust consumer led recovery. Gdp grew at six point. Four percent seasonally adjusted in q one which is almost exactly what economists had predicted. What's more consumer confidence is approaching pre pandemic levels. In fact it's the highest. It's been in fourteen months and it's done nothing but increase for months in a row in particular a low income band people and families earning between twenty five and thirty five thousand dollars. A year has increased dramatically in march. Nine hundred thousand new jobs created an unemployment went down six percent. Consumer spending was up something like ten point seven percent. And obviously all of this bodes well for that consumer spending increase continuing into the months to come then. The question becomes will. What will the policy response to this new booming economy. Be the risk of course that many people are keeping their eye on. Is this idea of overheating specifically a sharp consumer prices. There is some evidence of this starting to happen. Here's the anecdote. The wall street uses apparently restaurant in san. Diego has had a ton of trouble finding cooks because other industries like construction are paying more. It is now considering raising wages by about four dollars an hour to attract more people to come in and because of that it's going to have to increase prices to match while anecdotes are absolutely not the same as data. You're starting to see more. And more of these stories start to emerge which brings us to the analysts class which has wondered pretty openly about the fed's ability to actually keep up their accommodative policy every month. It seems we discussed this tension between markets and the fed where markets are effectively saying that. We don't believe you. Jay powell when you say that you're going to keep monetary policy so accommodative. We think that the inflation is going to rise too fast and you're going to have to fight it. Well the fed has had its latest meeting and reported back yesterday. It's a continuation of the same policy. They're keeping the benchmark. Us interest rate near zero. They're going to continue buying assets. At a rate of one hundred and twenty billion per month and here are a few things. They added for color in terms of their subjective interpretation of the market first they do acknowledge improvement in the labor market. That said they think it's still not perfect quote. The sectors most adversely affected by the pandemic remain weak but have shown improvement. What's more they see this remaining slack in the labor market as the counterweight against inflation. They think that until we're at full employment overall inflation is going to have a hard time taking holt. They do acknowledge. That inflation has risen. But they say quote largely reflects transitory factors. This is kind of the word of this quarter right now. Transitory we keep hearing this over and over there. Also absolutely dismissive of the labor market shortage. Talk we heard an anecdote. Above powell was very clear on this yesterday saying that if there were really labor market tightness we'd see faster wage growth what it comes to how finn twit for example is interpreting this effectively. They're seeing that by saying the same thing over and over and over again. The fed is slowly but surely convincing the market that they will have a ton of advance warning about any sort of taper in the policy conor sen tweeted. The fed is very clear about what they're doing right now and some people just absolutely will not listen to sum up. We have an increasingly booming economy but a fed which says it's not enough and we're not about to change the policy yet so let's talk about the potential implications and specifically with regard to bitcoin. Let's be a little bit reductive for the sake of the show and reduce it to two possible outcomes. The first is that the inflation callers are right. And i think that the key thing here to discuss is the velocity of money when people point to why inflation didn't happen for example last year is so much. New money was injected into the system. They point to a counterbalancing decrease in the velocity of money. Philosophy of money refers to how many times money exchanges hands. it's a measure of how much economic activity there is. Inflation is of course not just a vector of supply of money but also velocity of money you need not only an increase in supply but a corresponding increase in velocity. If the money supply goes way up but the velocity of money goes way down. You're in the same spot. What people are watching for this summer than is now. The consumer confidence is on the rise again. You're seeing like i said. ten point. seven percent increase in consumer spending the velocity of money is picking up commensurately with the increase in the supply of money. Will that create inflation if it does in that case. Let's assume that the bitcoin macro thesis started by people. Like paul tudor jones in san druckenmiller and the bitcoin party continues because people are still looking for an inflation hedge. That sort of easy to see how that plays out. But what if on the other hand we have another recovery like the great financial crisis where top line consumer inflation doesn't increase or at least the broad popular perception of inflation doesn't increase. And what i mean by. That is that i wanna hold aside for the sake of this. Discussion exclusively asset price inflation or alternative measures of inflation like the chop wood index and. That's not because. I don't think that those things are important to discuss. It's because i want to talk about the narrative of inflation in popular media. Of course this gets into the really key question. Does bitcoin only matter when things are bad or looking like they're going to get worse. Does bitcoin only matter when inflation is on the menu with so much of the bitcoin narrative tied up in the inflation hedge. Business over the last year. It's worth asking. But i think really. This is actually a different question. It becomes question of what role. Is bitcoin actually playing. What does it actually offer

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