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The Ultimate FUD Post:There Fundamentally is No Bottom due to QT
Bitcoin was born January 2009, which is an important time in the global financial markets. The economy was tanking and to get money flowing the several central banks of the world undertook an economic experiment of global and historical proportions. We will focus on the Fed because ‘Murica. If you read a terms you don’t understand please look it up in Wikipedia or Investopedia or elsewhere, as I want to keep this tight. Additional terms and concepts to look up are fractional reserve banking, the quantity theory of money, the velocity of money, and the reserve ratio.
The Fed pumped liquidity into the system with three rounds of Quantitative Easing (QE). QE1 was announced in 2008, QE2 in 2010, and QE3 in 2012. The final QE3 purchase was in…. 2014. From there the money sloshed around, providing liquidity about an extra $12-14T in global liquidity (bloomberg.com/news/articles/2018-07-09/after-years-of-easing-meet-quantitative-tightening-quicktake). The Fed announced Quantitative Tightening (QT, and the opposite of QE) would begin in….2017. These years and dates seem familiar when we look at the price of bitcoin. In 2014 it became clear the expansion of the global money supply would end and in 2017 it was clear the global money supply would be contracting.
Lets look at fiat alternatives, first gold. Gold is probably the number one fiat alternative and when it became clear money would be cheap the price of gold soared. QE3 was uncertain and hotly debated so there is little surprise that gold peaked between QE2 and QE3. Since the word that QT will be implemented gold has failed to beat the high established in 2016. As the dollar becomes more expensive it takes less money to buy the same amount of gold.
Next will be real estate. Many people thought real estate and the housing market will never go down. To track the housing market broadly we can look at Vanguards Real Estate ETF as a proxy. We see that it crashed deeper than gold and had a longer, shallower recover. The orange oval shows a tweezer top and we are ending this month on a potential reversal spinning top with a slight decrease in volume. That isn’t enough by itself to call a full reversal but things are looking bearish with this looking like a higher low. The low we established to begin this uptrend matches the low from September 2015. As there are less dollars the housing bubbles will deflate, and the cities with the greatest amount of foreign investment will deflate the most (read this or get a more current listing jll.com/Research/Investment-Intensity-Index-2017.pdf)
We have lost 1.4T of global liquidity. We have over 10T to go and things are going to get grizzly. For those of you guys going for a masters or Phd in economics you could make it a career to study how one of the single greatest efforts in macroeconomics affects the price fiat interacts with the price of crypto, gold, real-estate and other fiat alternatives. While I have the fundamental understanding of what’s going on I don’t have the toolset to set a bottom. But we could land anywhere. Metcalf’s law relates to how the price of bitcoin is related to the adoption of bitcoin (technologyreview.com/s/610614/how-network-theory-predicts-the-value-of-bitcoin/). Another hypothesis to test is how quantitative tightening changes or influences the adoption of bitcoin. You could guess I think it will reduce adoption or adoption will increase at a slower rate.
We have no precedent to judge how this will pay out. Not only is BTC subject to normal TA that suggest we are going down (see my linked hidden bearish divergence post) but now the global money supply is contracting.
The Fed pumped liquidity into the system with three rounds of Quantitative Easing (QE). QE1 was announced in 2008, QE2 in 2010, and QE3 in 2012. The final QE3 purchase was in…. 2014. From there the money sloshed around, providing liquidity about an extra $12-14T in global liquidity (bloomberg.com/news/articles/2018-07-09/after-years-of-easing-meet-quantitative-tightening-quicktake). The Fed announced Quantitative Tightening (QT, and the opposite of QE) would begin in….2017. These years and dates seem familiar when we look at the price of bitcoin. In 2014 it became clear the expansion of the global money supply would end and in 2017 it was clear the global money supply would be contracting.
Lets look at fiat alternatives, first gold. Gold is probably the number one fiat alternative and when it became clear money would be cheap the price of gold soared. QE3 was uncertain and hotly debated so there is little surprise that gold peaked between QE2 and QE3. Since the word that QT will be implemented gold has failed to beat the high established in 2016. As the dollar becomes more expensive it takes less money to buy the same amount of gold.
Next will be real estate. Many people thought real estate and the housing market will never go down. To track the housing market broadly we can look at Vanguards Real Estate ETF as a proxy. We see that it crashed deeper than gold and had a longer, shallower recover. The orange oval shows a tweezer top and we are ending this month on a potential reversal spinning top with a slight decrease in volume. That isn’t enough by itself to call a full reversal but things are looking bearish with this looking like a higher low. The low we established to begin this uptrend matches the low from September 2015. As there are less dollars the housing bubbles will deflate, and the cities with the greatest amount of foreign investment will deflate the most (read this or get a more current listing jll.com/Research/Investment-Intensity-Index-2017.pdf)
We have lost 1.4T of global liquidity. We have over 10T to go and things are going to get grizzly. For those of you guys going for a masters or Phd in economics you could make it a career to study how one of the single greatest efforts in macroeconomics affects the price fiat interacts with the price of crypto, gold, real-estate and other fiat alternatives. While I have the fundamental understanding of what’s going on I don’t have the toolset to set a bottom. But we could land anywhere. Metcalf’s law relates to how the price of bitcoin is related to the adoption of bitcoin (technologyreview.com/s/610614/how-network-theory-predicts-the-value-of-bitcoin/). Another hypothesis to test is how quantitative tightening changes or influences the adoption of bitcoin. You could guess I think it will reduce adoption or adoption will increase at a slower rate.
We have no precedent to judge how this will pay out. Not only is BTC subject to normal TA that suggest we are going down (see my linked hidden bearish divergence post) but now the global money supply is contracting.
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