Research Summary
This report discusses the potential for a significant breakout in Bitcoin prices, influenced by various macroeconomic factors. These include the quantitative easing (QE) policies of Western Central Banks, the US debt-to-GDP ratio, and the actions of foreign central banks. The report also compares the performance of Bitcoin with the iShares 20 Plus Year Treasury Bond ETF and discusses the potential impact of the PCE price index on Bitcoin prices.
Key Takeaways
Impact of Quantitative Easing on Bitcoin
- Bitcoin’s Birth Amid QE: Bitcoin was created during the period of quantitative easing following the 2008 Global Financial Crisis. This monetary experiment indirectly led to lower interest rates on sovereign bonds for over a decade.
- Macro Events and Bitcoin: Major macroeconomic events, such as the US debt-to-GDP ratio crossing 100% for the first time since WW2 in 2012, the Greek debt crisis in 2013, and capital flight from China, significantly impacted Bitcoin prices.
- Alternative Store of Value: With fiscal and monetary policies adding a massive amount of debt, the case for Bitcoin as an alternative store of value has become stronger.
Comparison of Bitcoin and Bonds
- Decline of Bond ETF: The iShares 20 Plus Year Treasury Bond ETF has declined by -12.6% year-to-date and -50% since 2020, while Bitcoin has rallied by +62% year-to-date.
- Bitcoin’s Finite Supply: Bitcoin’s finite supply of 21 million coins has made it a better risk/reward trade-off over the last decade compared to bonds.
- Potential Bitcoin Price Explosion: If central banks capitulate from their hawkish stance, Bitcoin prices could explode higher.
Impact of Inflation on Bitcoin
- PCE Price Index: The Fed’s favorite inflation measure, the PCE price index, could influence Bitcoin prices. If the PCE surprises lower, below 3.0%, a strong rally for Bitcoin is expected.
- Bitcoin and Inflation Expectations: Expectations that the Fed would have finished its interest rate hiking cycle could be re-priced into the market, with Bitcoin being the main beneficiary.
- Bitcoin’s Breakout: Bitcoin has broken the downtrend since the July 2023 high, and there could be a snap-back rally towards $29,000 if US inflation data comes in lower.
Actionable Insights
- Monitor Inflation Data: Keep a close eye on the PCE price index and other inflation data, as these could significantly impact Bitcoin prices.
- Consider Bitcoin’s Role: Evaluate the role of Bitcoin as an alternative store of value in the context of current fiscal and monetary policies.
- Assess Bitcoin’s Performance: Regularly assess Bitcoin’s performance against other investment options, such as bonds, to understand its risk/reward trade-off.
