The Economic Cycle: Painting The Full Picture.
Updated
This is a very complex topic but I will try to keep it as simple as possible.
This whole story began when the US government printed money to help the economy going and the reserve bank infused money into the market by buying back bonds. These actions did help for a while and the stock market recovered from March 2020 mini-crash, but that printed money caused the dollar index to drop significantly. Consequently, the price of commodities kept rising.
[They have an inverse relationship that you can learn about here: shorturl.at/mnC12]
After a while, people started to worry that all those printed money are going to cause huge inflation. Therefore, they started dropping bonds showing their lack of confidence in the economy causing the yields to go up. They instead bought Bitcoin to maintain the value of their money and hedge against a possible crash. That was a good choice because with a limited supply and a high demand Bitcoin acted like gold and went straight up beating other asset classes in returns.
After the election and reopening of the economy, the feds persisted that this inflation is transitory. There are many reasons why they say that including stable inflation expectations, disinflationary technologies, and so on. Due to a phenomenon called “cultural lag” investors believed the feds after a while and when June’s CPI report came out, they almost didn’t react to a whopping 3.5% inflation rate.
This week at the FOMC meeting everyone expects to hear the same thing because Jerome Powell has been pretty consistent with what the feds are going to do in the case inflation got out of hand. They see economic growth in such good health that they are going to start tapering. Unlike, 2013, this tapering is expected to be a relief and lead to a massive bull market.
[Learn about “Taper Tandurum” here: shorturl.at/zFHJP]
That said, inflation is going to be around for a couple of years but in the long run, it should go down. And feds are going to stay consistent with their plan to help the economy stabilize over the tapering period.
But what does it all have to do with Bitcoin? A stable economy doesn’t need gold or bitcoin because people would rather have a stable ROI in a productive economy than having their funds held in a volatile asset with a risk of losing 40% of it in a matter of a month.
Of course, the economy won’t stay stable forever and new struggles will come along our way. Whether it’s due to presidential cycles or bitcoin halving or other events, there will be a day that bitcoin will worth 400k.
There is still much to be discussed here, so please feel free to share your thoughts and comment your analysis.
How do you think FOMC meeting is going to affect the market? Are we going to have another Taper Tantrum?
Thanks
This whole story began when the US government printed money to help the economy going and the reserve bank infused money into the market by buying back bonds. These actions did help for a while and the stock market recovered from March 2020 mini-crash, but that printed money caused the dollar index to drop significantly. Consequently, the price of commodities kept rising.
[They have an inverse relationship that you can learn about here: shorturl.at/mnC12]
After a while, people started to worry that all those printed money are going to cause huge inflation. Therefore, they started dropping bonds showing their lack of confidence in the economy causing the yields to go up. They instead bought Bitcoin to maintain the value of their money and hedge against a possible crash. That was a good choice because with a limited supply and a high demand Bitcoin acted like gold and went straight up beating other asset classes in returns.
After the election and reopening of the economy, the feds persisted that this inflation is transitory. There are many reasons why they say that including stable inflation expectations, disinflationary technologies, and so on. Due to a phenomenon called “cultural lag” investors believed the feds after a while and when June’s CPI report came out, they almost didn’t react to a whopping 3.5% inflation rate.
This week at the FOMC meeting everyone expects to hear the same thing because Jerome Powell has been pretty consistent with what the feds are going to do in the case inflation got out of hand. They see economic growth in such good health that they are going to start tapering. Unlike, 2013, this tapering is expected to be a relief and lead to a massive bull market.
[Learn about “Taper Tandurum” here: shorturl.at/zFHJP]
That said, inflation is going to be around for a couple of years but in the long run, it should go down. And feds are going to stay consistent with their plan to help the economy stabilize over the tapering period.
But what does it all have to do with Bitcoin? A stable economy doesn’t need gold or bitcoin because people would rather have a stable ROI in a productive economy than having their funds held in a volatile asset with a risk of losing 40% of it in a matter of a month.
Of course, the economy won’t stay stable forever and new struggles will come along our way. Whether it’s due to presidential cycles or bitcoin halving or other events, there will be a day that bitcoin will worth 400k.
There is still much to be discussed here, so please feel free to share your thoughts and comment your analysis.
How do you think FOMC meeting is going to affect the market? Are we going to have another Taper Tantrum?
Thanks
Note
I had a couple of links that for some reason they don't show up. Those links explained how weaker dollar is inversely correlated with higher commodities and how that could be conceived as a risk of higher inflation. Make sure to look this up for a better understanding of what's going on.Note
In summary: Less stable economy --> more money printed --> weaker dollar --> higher commodities --> higher risk of inflation --> lower bonds --> higher yields --> higher Bitcoin. So more stable economy --> lower Bitcoin.Note
(apologies for the typo) *yield
Market Maven: Never Miss a Move.
Disclaimer: This is not a financial advice and all posts are for educational purposes only.
Disclaimer: This is not a financial advice and all posts are for educational purposes only.
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