Flight to Quality
First they ignore you. Then they laugh at you. Then they fight you. Then you win.
“Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is.”
— Larry Fink: Friday October 13, 20171 (BTC/USD: $5,800)
“We are hearing from clients around the world about the need for crypto. I think the rally today is about a flight to quality.”
— Larry Fink: October 17, 20232 (BTC/USD: $28,500)
BTC flips TLT
First they ignore you. Then they laugh at you. Then they fight you. Then you win.
Or so the saying goes, anyways.
Over the weekend, I wrote about the possibility that within 1-2 weeks bitcoin could be outperforming bonds this cycle, and the potential for this flippening to be a catalyst to get a lot of mainstream media attention and for a bullish narrative to take hold. At the time BTC was trading just above $30k.
Well, it only took three days:
If you top-ticked US treasury bonds this cycle, the global “risk-free,” “safe-haven,” “flight to safety” asset, you are now down more than if you top-ticked bitcoin at $69k.
Even as other risk assets and bonds break down further, BTC has continued its rally to $35k, with market pundits and CEOs alike now calling it a “flight to quality.”
Denominated in US treasury bonds, bitcoin is surging toward all-time highs:
So what the hell is going on?
Crosscurrents
The short answer is I’m not positive, as there a few crosscurrents in the market idiosyncratic to bitcoin right now that could be degrading the signal the market is giving us.
I wish there was no spot bitcoin ETF approval on the come, nor Binance/Tether blow-up fears, and we could read this rally as a pure signal of imminent central bank liquidity.
The market is latching on to a couple incremental pieces of information out this week regarding BlackRock’s spot bitcoin ETF application to help explain the rally. One is that they secured a CUSIP for the ETF. The other is that they are seeding the fund this month. These are things you probably don’t do in anticipation of not launching a new product.
So, possibly the market is simply front-running the ETF.
Possibly someone somewhere knows something with respect to Binance and/or Tether, and is exiting BNB/USDT for BTC as fast as they can without dumping the market.
I think, though, that the most likely is what I have been saying is coming and waiting for all along: a return to money printer go brrr.
War. What Is It Good For?
Inflation, for one.
“America can certainly afford to stand with Israel and to support Israel's military needs, and we also can and must support Ukraine in its struggle against Russia. The American economy is doing extremely well.”
— Janet Yellen, US Treasury Secretary: October 16, 20233
I’ll take things you hear former central bankers say right before shit hits the fan for $105 billion, Alex.
$105 billion is the spending package President Joe Biden asked congress for in the wake of Hamas’ terrorist attacks on Israel. In the package, c/o Arthur Hayes:
$60 billion in funding for Ukraine
$14 billion to Israel
$10 billion in humanitarian aid to Ukraine and around the world
$14 billion for border funding to address drug trafficking and fentanyl
$7 billion for the Indo-Pacific and Taiwan
I will not express any opinion on whether this spending is “worth it.” I am only here to interpret what it means for financial markets.
And while another $105 billion certainly doesn’t help matters, the truth is we’ve already piled another $1.5 trillion onto the national debt this year before this past month. If anything, another $100 billion is just another snowball on top of a slow-motion avalanche.
It’s a very visible one though. And when the market is worried about the potential for an avalanche, even the smallest snowball can precipitate the fall.
Perhaps more than this next round of $105 billion, the bond market is seeing us already engaged in one proxy war, potentially engaging in another, the potential for oil to go higher, fiscal deficits spiraling due to higher interest costs, and the Fed pausing, and saying: this is an inflationary environment, and rates need to go higher.
And the higher rates go, the further those bonds are underwater, the more likely “something breaks” and the Fed needs to step in and buy the bonds to put a cap on yields. Money printer go brrrr.
I think this is why bitcoin is rallying in the face of a wider risk sell-off. I think it’s telling us we’re near the breaking point. But, I could be wrong, and the rally could be due to other factors mentioned above.
As such I think it’s important to look to boomer bitcoin for confirmation. Gold should trade as a debasement hedge and a safety trade during geopolitical conflict, like I anticipate bitcoin will prove to over time (I think it already has, but there are still doubters). The shiny yellow metal is amidst a three-week rally and bumping against the $2,000/oz level which has been a ceiling for the asset in the post-covid era.
If gold continues its rally and breaks out to new highs, I think that’s a strong signal that both it and bitcoin are rallying in anticipation of further central bank liquidity.
If it fails, and/or the bitcoin rally peters out, I’d be more inclined to thing we’ve reached a short-term top in rates, and be open to stock/bond rally to end the year.
As it stands, the current price action in bitcoin and gold, coupled with the carnage in the bond market (leaking into the stock market), is all confirming of my long standing thesis that the Fed is going to have its hand forced back into QE at the end of this cycle, and when that becomes obvious to the market, risk assets — led by bitcoin, and finally the stock market — are going to moon.
But the stock and bond markets have to squeal before the Fed will give in.
The Fed tells the market when its doing QT.
The market tells the Fed when its doing QE.
I think the odds of a significant volatility event in markets in the near-term are heightened, and am prepared accordingly.
Then They Fight Us. Then We Win.
While the bond market and BlackRock have moved squarely into the “then we win” quadrant, certain members of congress are still in the “then they fight us” quadrant.
Yes, Lizzy is up to her old tricks:
Senator Warren is using false reporting from the WSJ that Hamas has raised substantial sums in crypto to fund their terrorist activities, and calling for a further crackdown on the industry based on such claims. Over 100 members of congress have signed the letter.
The crypto research firm cited in the WSJ’s article, Elliptic, has issued a statement to correct the record, saying “there is no evidence to support the assertion that Hamas has received significant volumes of crypto donations.”
As of now, the WSJ has not retracted their article, and Lizzy has not retracted her letter.
The final two asks of the Warren letter are:
6. What additional statutory tools does the Administration need to address the national security threats posed by illicit use of crypto by terrorist organizations?
7. What additional resources does the Administration need to address the national security threats posed by illicit use of crypto by terrorist organizations?
Ah, national security. The veil behind which our civil liberties are pierced.
As Nic Carter conveys, this is existential, and it is imperative that the truth is brought to light and the public does not swallow the “terrorism financing” crypto narrative.
We cannot allow the Wall Street Journal and our congress to openly lie about crypto to push their control agenda.
“Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”
— Benjamin Franklin