With the financial markets in turmoil, will Bitcoin benefit?
Unprecedented times with credit unwinding increase market volatility. Bitcoin will eventually benefit, but it won’t be easy.
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The larger macro image
Last night Dylan shared a extensive thread on Twitter covering the current macro picture of stocks, bonds and market volatility. In today’s Deep Dive, we expand on some of these ideas and charts in greater depth as these are some of the most important market dynamics that will affect all markets in 2022, bitcoin included.
The general philosophy of the thread and a thesis we have discussed many times in Deep Dive is that we live in unprecedented times with over a decade of negative real rates contributing to the everything bubble we find ourselves in today . The market now has to deal with second-order effects.
Second-order effects, such as periods of higher volatility, have been more frequent in recent months. Higher volatility is the direct result of lower credit market liquidity. Thinking back to a period of extreme volatility in March 2020, markets sold off violently in the face of a credit unwind. Like most risky assets, bitcoin is severely affected in times of high market volatility and a rising US dollar, as the VIX relationship shows. We are likely due for more market volatility in the future.
Yet, in the aftermath, this is an opportunity for bitcoin. Is bitcoin profiting from the huge credit bubble in the world? Undoubtedly. If credit markets continue to ease, will bitcoin price face headwinds? Almost certainly.
Corn here is the kick:
“At the end of the day, policymakers always print. It’s because austerity causes more pain than good, big restructuring wipes out too much wealth too quickly, and transfers of wealth from the haves to the have-nots do not occur in sufficient quantity without revolutions.” -Ray Dalio
Bitcoin is the answer to the conclusion of the long-term debt cycle.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.