Welcome to the Friday edition of the Ecoinometrics newsletter.
Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets.
Today we’ll cover:
Bitcoin is back in business.
The gold bugs forget to zoom out.
Piling losses at the banks, but that’s not their problem.
Each topic comes with a small explanation and one big chart. So let’s dive in.
In case you missed it, here are the other topics we covered this week:
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Bitcoin is back in business
There is nothing like higher prices to make Bitcoin more desirable… go figure. There have been plenty of times to buy coins on the cheap during the bear market. But investors are really waking up now.
You have reflexivity to thank for that.
But the point is that with the recent rally, crypto as a whole and Bitcoin in particular, is a major asset class:
$850 billion market cap for Bitcoin.
$280 billion market cap for Ethereum.
$1.5 trillion market cap for crypto overall. That’s larger than Berkshire Hathaway, Nvidia, Tesla. Same size as Amazon.
Investors can’t simply ignore an asset class of this size.
Until we get a recession to slow everything down, the narrative is strong with this one.
The gold bugs forgot to zoom out
Earlier this week gold managed to reach a new all-time high. That was the occasion for the gold bugs such as Peter Schiff to come out of the wood to brag about it and declare that Bitcoin has failed since it is still down like 40% while gold is pushing above $2,000.
Look, if I didn’t know that Peter Schiff says outrageous stuff like that for publicities sake, that would be pretty sad. Thank god I’m pretty sure he knows himself what’s really going on.
Because you just have to zoom out a little bit to see how: one Bitcoin is not dead and two it has gained so much against gold in just a few years that it isn’t even funny.
Maybe gold would survive the complete breakdown of modern technology. But honestly if this is what you are expecting better invest in canned beans and survival skills. Will probably be more useful.
If you are aiming for serious returns over a long time frame, look at Bitcoin and digital assets instead.
Piling losses at the banks
The US banks are piling up some unprecedented unrealized losses. As of Q3 2023, they are losing about $700bn on the securities they hold. And most of those losses come from the bond market.
A lot of cash entered the system during the QE sequence after COVID. That cash found its way into deposits at commercial banks. And those banks turned around to buy bonds with this cash when interest rates were near zero.
Then came inflation and QT. Suddenly the bond market is going down in flames. And as a result the banks are in a tough position.
If only they can hold on to those bonds to maturity then those unrealized losses will just stay unrealized. If they are forced to sell, e.g. in case of a bank run, then…. well then it is the Federal Reserve’s problem.
Because the Fed is is guaranteeing those bonds at face value. So if something goes wrong, those unrealized bank losses will just be transfered to the Fed’s balance sheet.
That’s not really something they want to see in the middle of a QT sequence though. So let’s see how that plays out.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.
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