https://ecoinometrics.substack.com/p/bitcoin-is-back-but-it-never-really

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:

1. Bitcoin is back in business.

2. The gold bugs forget to zoom out.

3. 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:

• Don’t bet on the Federal Reserve cutting rates early.

• How would you go about rebalancing Bitcoin vs Ethereum in your portfolio.

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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.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

Armed with those insights you can make better investment decisions. 

Are you a serious investor? Do you want to get the big picture to get on the big trades? Then click on the button below.

Make Knowledge Your Asset

https://ecoinometrics.substack.com/p/bitcoin-is-building-momentum

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:

1. Bitcoin is building momentum.

2. Dangerous correlations between stocks and bonds.

3. The Bitcoin mining industry is small and what that tells you about the market.

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:

• Bitcoin offers lots of opportunities, even without the volatility.

• The Bitcoin miners are negatively affected by the ETF narrative.

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Bitcoin is building momentum

Do you know when was the last time Bitcoin got six consecutive months of green candles? That was during the bull run which started in October 2020. 

We aren’t there yet. Only three consecutive months of positive returns so far. But already that’s pretty good. Happens about 12% of the time historically. 

The flip side to this stat is that most likely it isn’t going to be only up and to the right between now and the halving. So manage your expectations.

Dangerous correlations between stocks and bonds

The 60/40 portfolio has been hugely popular for decades. The idea is that you split your allocation 60% towards stocks and 40% towards bonds. Stocks provide you growth. Bonds provide you with stability. And since those two asset classes are anti correlated mixing them up helps manage risk.

Now that’s the theory.

Because in practice bonds have been very volatile since 2020. And on top of that the correlation between stocks and bonds has changed from typically anti correlated to reaching a 20 years high in correlation.

It should be clear by now that the financial markets are not operating in their standard regime. The sequence of QE followed by inflation followed by QT with inflation has changed the deal.

Beware not to get stuck operating on old principles.

The Bitcoin mining industry is still very small

The top 10 Bitcoin mining companies are worth a combined $8.6 billion. Meanwhile the top 10 gold mining companies are worth a combined $189 billion. That’s a 20x difference.

Now I’m not saying to argue that the economics of the gold miners are comparable to that of the Bitcoin miners. 

What I want to illustrate is that the “Bitcoin space” and more largely crypto is still a young industry. If you are investing in this space now your best bet is to take the long term view. We are still in the early part of the adoption phase. 

If you can make bold bets now and sit on them for 5 to 10 years then the odds are on your side. 

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

Armed with those insights you can make better investment decisions. 

Are you a serious investor? Do you want to get the big picture to get on the big trades? Then click on the button below.

Make Knowledge Your Asset

https://ecoinometrics.substack.com/p/is-the-etf-narrative-hurting-the

The launch of spot Bitcoin ETFs in the US is the number one threat to the bull case for the miners. 

We don’t have any ETF yet. But Bitcoin’s price action has been mostly driven by the ETF narrative in the past six weeks.

That’s a great test for our Bitcoin miners thesis. We can see how the miners are reacting to an ETF narrative driven market. That’s giving us a glimpse at the future.

The Ecoinometrics newsletter gives you insights from crypto and macro data to help you make better investment decisions. 

We spend hours every day gathering data, creating metrics and bringing them to life with data visualizations that allow you to quickly get to the heart of things.

We then distill all that knowledge in each issue of the newsletter with less words and more charts so that you get insights, direct to the point, in five minutes or less.

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Done? Thanks! That’s great! Now let’s dive in.

P.S. Checkout our latest tracker of MicroStrategy Bitcoin holdings at https://www.ecoinometrics.com/microstrategy-bitcoin-holdings-with-charts/.

Is the ETF narrative hurting the Bitcoin miners?

The Bitcoin miners stocks are tracking BTC pretty closely, with small market caps and a big pool of institutional buyers wanting exposure to Bitcoin. That makes them good asymmetric bets for when Bitcoin is on the rise. This is the investment thesis we track every month in the Bitcoin miners report.

The takeaway

Our bullish case for the Bitcoin miners relies on the expectation of money flowing to the miners stocks as a proxy for getting exposure to Bitcoin.

If investors have the possibility of get direct exposure to Bitcoin via a spot ETF, they have less incentives to buy the miners. 

Now investors don’t have this possibility yet. But Bitcoin’s price action over the last six weeks has been mostly driven by expectations they will be able to in the bear future.

The result is that Bitcoin has found renewed strength, pushing to $38k as I write those lines. But only some of the miners have followed this move. And overall the difference between Bitcoin’s performance and that of the miners is shrinking.

From the point of view of our bull case that’s a bit tricky to interpret. But there are at least two lessons to learn from this:

• With the ETFs in the picture, it is less likely now that all the miners will benefit from the next bull run.

• That lowers the expected value of the Bitcoin miners bet.

Now we only have a very small time window to judge this effect. But over this short period:

• 2 stocks are really following BTC.

• 2 stocks are kind of following BTC but without the kind of multiplier effect you’d hope to see.

• 9 stocks are no really following the BTC trend.

That doesn’t square well with our thesis. 

Read more

https://ecoinometrics.substack.com/p/this-is-the-year-of-the-recovery

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:

1. This is the year of the recovery for the Bitcoin miners.

2. Warren Buffet is consistently beating the stock market for 40 years.

3. Your monthly reminder that the yield curve is still inverted.

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:

• The number one reason why the Federal Reserve won’t cut rates.

• Bitcoin’s price is up, but you wouldn’t know by looking at the on-chain data.

If you aren’t subscribed yet, hit the subscribe button, to receive this email every week directly in your inbox:

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This is the year of the recovery for the Bitcoin miners

If you are looking to make a bet that’s highly correlated to the Bitcoin but with potentially much more growth attached to it then the Bitcoin miners are for you (read this for our thinking process).

But of course this is not a smooth sailing, up only bet. The miners are more volatile than Bitcoin itself. That’s good when the market goes up. However when the market goes down the corrections are more violent.

The good news though is that the market is going up now. 

Take the example of Marathon. The stock was down as much as -95% from its all-time high at the bottom of the bear market.

But of course, if you have a long term view, down a lot means bigger recovery when the recovery happens.

And year-to-date MARA is up 219%, compared to +125% for Bitcoin over the same period. That a 1.8x multiplier. Expect more when the real bull market arrives.

Marathon is just an example of course. Most of the Bitcoin miners are showing the same pattern. There is real potential for asymmetric upside.

Warren Buffet is consistently beating the stock market for 40 years

The funny thing with Warren Buffet is that if you ask him where to invest your money he will likely tell you to put it in the SP500.

“No fund manager can bear the stock market consistently. You better just index the whole market.”

Meanwhile, since 1985, Berkshire-Hathaway is out performing the SP500 on almost every time frame. Which goes on to show that yes, you can beat the market consistently.

To be fair that’s not inconsistent with Warren Buffet’s advice. Most fund manager don’t do better than the stock market itself over long enough time periods. But that doesn’t mean some fund managers do outperform over the long term.

Your monthly reminder that the yield curve is still inverted

Since we are in the last quarter of 2023, I am once more reminding you that the US is at a high risk of a recession. 

Yes the yield curve has been normalizing a little bit. Compared to six months ago the inversion isn’t as deep. That’s the consequence of the rising yield at the long end of the curve.

But regardless of this dynamic the yield curve is still inverted. And it has been like that for five quarters. 

The US economic data does show clearly that we are in a recession yet. But the danger remains. So let’s see where that leads us.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

Armed with those insights you can make better investment decisions. 

Are you a serious investor? Do you want to get the big picture to get on the big trades? Then click on the button below.

Make Knowledge Your Asset

https://ecoinometrics.substack.com/p/bitcoin-is-falling-behind-on-the

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:

1. Bitcoin is falling behind on the halving cycles.

2. Remember the liquidity crisis.

3. Tightening canceled.

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:

• Sizing up the Bitcoin ETFs.

• Bitcoin is in a pure ETF correlation regime.

Those research notes are for paid subscribers only. If you aren’t a paid member, now is a great time to upgrade. You just have to click on the button below.

Upgrade and Make Knowledge Your Asset

Bitcoin is falling behind on the halving cycles

Around the time of the last halving in 2020 I started tracking how Bitcoin’s growth trajectory post-halving compared to the past cycles.

Remember May 2020:

• The Federal Reserve is in full QE mode to compensate for the COVID crisis.

• The narrative around the stock-to-flow model is in full force.

• Bitcoiners are already talking about the risk of inflation.

Based on that it is reasonable to think that the environment is right for Bitcoin to deliver as much return as it did in the past couple of cycles. 

Target? Anywhere between $100,000 and $300,000 per Bitcoin by the the end of the cycle. 

For a while everything was well on track. But a few months in, the top was pretty much already in. And Bitcoin ended far below $100k. 

Another cycle, another round of diminishing returns…

Now maybe that’s the correct interpretation. Or maybe not. But I want to point out that diminishing returns aren’t a curse. The largest tech companies such as Apple are pretty much immune to it at this point. And Bitcoin is large enough that diminishing returns should stop being a concern.

What that means is that for the upcoming cycle, while the top of the range of historical returns is unlikely, the bottom of the range is realistic. That still push BTC at $100k+ per coin over the next ~4 years.

Don’t forget the liquidity crisis

Making long term macro bets is much easier than day trading. You figure out a big trend, you seek out how to benefit from it as much as possible, you invest. After that macro bets are like watching paint dry.

That being said it isn’t like you have nothing to do at all. As a matter of fact your number one goal is to give your portfolio enough room to survive and benefits from your long term view.

For that I recommend keeping in mind that when the market moves into a liquidity crisis all assets become correlated. Last time that happened for in 2020. 

When everyone is trying to get cash, all assets are for sale. That includes Bitcoin. So don’t make the mistake of thinking your are diversified. That won’t matter in this situation. What matters is that you only have liquid positions. 

Tightening canceled

But is the US really moving towards a recession? Because, maybe you haven’t heard, but the Federal Reserve tightening is canceled…

I’m talking about the credit conditions specifically. 

The National Financial Conditions Index tracks the state of the financial conditions in the US relative to its average over the past 50 years. 

A positive value indicates conditions tighter than the average. A negative value indicates conditions looser than average.

Focusing on the credit part of the NFCI index the Quantitative Tightening sequence the Federal Reserve is running since 2022 has brought the credit conditions from looser than average to tighter than average.

The idea is that with credit harder to come by the US economy should start slowing down enough to get inflation under control. With the Federal Reserve maintaining pressure with its “higher for longer” rates policy that’s guaranteed to happen.

Except… Well except that since the Federal Reserve has been showing sign that they are close to the terminal rate of this rate hike sequence the credit component of the NFCI has been trending back down towards average credit conditions. 

Give it a couple of weeks and it should be there. We are already back to credit conditions similar to that of 2022. A few more months of that trend and the credit conditions will be classified as loose again… 

This is not what the Federal Reserve is trying to achieve. If the US isn’t already entering a recession by then the FOMC might decide to tighten the screw again. 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.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

Armed with those insights you can make better investment decisions. 

Are you a serious investor? Do you want to get the big picture to get on the big trades? Then click on the button below.

Make Knowledge Your Asset

https://ecoinometrics.substack.com/p/how-big-is-the-grayscale-bitcoin

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:

1. The Grayscale Bitcoin Trust is huge.

2. The stocks vs bonds correlation is making a comeback.

3. MicroStrategy is winning.

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:

• Bond yields aren’t rolling over.

• Is it the end of diminishing returns for Bitcoin?

Those research notes are for paid subscribers only. If you aren’t a paid member, now is a great time to upgrade. You just have to click on the button below.

Upgrade and Make Knowledge Your Asset

The Grayscale Bitcoin Trust is huge

If you follow the Bitcoin ETF news you have seen some good development this week. The SEC is in discussion with Grayscale on the conversion of their trust, the Grayscale Bitcoin Trust (GBTC), into a bona fide ETF.

But in case you didn’t know, GBTC is already a huge pseudo-ETF product.

How huge? Two stats:

• It has ~$25 billion in assets under management. For reference that’s half of the size of the GLD gold ETF.

• It controls ~620k Bitcoins. That’s more than half of what Satoshi Nakamoto is thought to control.

So good luck to the other ETF providers who will try to catch up with them. First mover advantage.

The stocks vs bonds correlation is making a comeback

The 60/40 portfolio is in part built on the premise that stocks and bonds tend to be anti-correlated. The problem is that they aren’t anti-correlated all the time.

Tough luck for those who have been stuck with the portfolio in the post-COVID world.

Because for the most part after the end of the zero interest rate era bonds and stocks have been in free fall together.

At least until April this year. That’s when stocks and bonds started to diverge again. Despite the Federal Reserve pumping the brake of the economy stocks started to defy gravity.

This rally was so large than it almost looked like we were going to see a new all-time high. 

Except that only lasted one quarter. And now stocks and bonds are once more following the same path, reacting the way to the same events.

Rest in peace 60/40 portfolio.

MicroStrategy is winning

Only a month ago we were talking about MicroStrategy being back to the break even point on their Bitcoin holdings.

Well now they are up ~25% on it. And for the size at which they operate, 25% is already no pocket change. We are talking about being $1 billion in the green.

But of course that’s not enough for Michael Saylor.

So what is he doing right as Bitcoin is pumping? He is “dollar cost averaging” more coins into the MSTR coffers. You have to admit the man is consistent. 

I think there is an investing lesson here:

1. Make bold bets.

2. Give them time to play out.

3. Be consistent about your execution.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

Armed with those insights you can make better investment decisions. 

Are you a serious investor? Do you want to get the big picture to get on the big trades? Then click on the button below.

Make Knowledge Your Asset

https://ecoinometrics.substack.com/p/when-size-matters-how-bitcoins-market

When Bitcoin was small, people worried it would not survive. Now that Bitcoin is worth hundreds of billions of dollars people are worried about diminishing returns. 

The journey between these two sentiment has been extremely quick. So what is the current situation really and how did we get there?

Let’s look at this from the perspective of volatility.

The Ecoinometrics newsletter gives you insights from crypto and macro data to help you make better investment decisions. 

We spend hours every day gathering data, creating metrics and bringing them to life with data visualizations that allow you to quickly get to the heart of things.

We then distill all that knowledge in each issue of the newsletter with less words and more charts so that you get insights, direct to the point, in five minutes or less.

Join more than 20,000 investors here:

Subscribe now

Done? Thanks! That’s great! Now let’s dive in.

P.S. Checkout our latest tracker of MicroStrategy Bitcoin holdings at https://www.ecoinometrics.com/microstrategy-bitcoin-holdings-with-charts/.

When size matters: how Bitcoin’s market cap is affecting volatility

The takeaway

Bitcoin’s volatility plummeted on its way to a $100bn market cap. The long tail of extreme events has completely disappeared. And even the median volatility has started to move lower. 

I guess that’s what you expect from a maturing asset.

However looking at it from a different angle you can make the case that Bitcoin’s volatility is unlikely to move much lower on the road to a $10 trillion market cap.

Looking at the evolution of Bitcoin’s volatility by market capitalization the trend shows that the days of quickly diminishing volatility are over. And it is more likely than not that BTC will stay continue behaving like a large cap, high growth tech stocks for a while. Think Tesla. Think NVIDIA.

But this is a good news. Volatility rhymes with opportunity. And if the volatilty stays where it is BTC is also less likely to experience further diminishing returns.

Let’s unpack that.

Why care about volatility

Read more

https://ecoinometrics.substack.com/p/everyone-is-front-running-bitcoin

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:

1. Everyone is front running Bitcoin.

2. Inflation isn’t evenly distributed.

3. What’s up with multiple job holders.

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:

• Services inflation is a major problem for the Federal Reserve.

• Having doubt about getting long BTC? Trust the momentum.

If you aren’t subscribed yet, hit the subscribe button, to receive this email every week directly in your inbox:

Subscribe now

Everyone is front running Bitcoin: that’s a double edged sword

Let me paint you some picture (warning, hopium ahead):

• The year is 2024.

• The fourth Bitcoin halving is around the corner.

• Multiple spot Bitcoin ETF are just approved by the SEC. 

• The US government is running always larger deficits. So much that the Fed is monetizing the debt.

In those conditions we are combining the halving narrative, together with inflows from the ETFs and looser financial conditions as the Federal Reserve needs to print money in order to finance a spendthrift government.

If anything like that happen, I’ll be pumping my fists while watching green candles all year for sure.

Now the problem is that right now I see many investors front running those events.

But what if the SEC finds new tactics to delay the ETFs? What if those ETFs get launched without attracting a massive wave of capital? What if inflation remains so sticky that the Federal Reserve has to continue running the QT playbook? What if there is a severe recession that drags down all assets, including Bitcoin for a few years?

I know that pessimists get to sound smart while optimists make money. But still, there are plenty of reasons why the planets won’t be aligned next year. Just ignoring those risks isn’t wise. Especially if the trend is pricing Bitcoin for perfection.

But for now… For now Bitcoin is still on the classic pre-halving recovery track.

Inflation isn’t evenly distributed

With the inflation spike that followed the COVID crisis, we are focusing on the short term inflation metrics. Year-on-year change in the CPI. Month-on-month change in the PCE. Things like that. 

But if you want to see the real damages of inflation it is better to zoom out. 

And when you zoom out over the past 20 years, the first thing you’ll observe is that the median wage in the US is keeping up with the growth of the CPI index over the same period, +69%.

Looking at this you might think, well that’s nice, half of the workers are completely unaffected by inflation. Except that’s a bit more complicated. 

You see if the median wage is growing roughly at the same rate as the CPI over that period, subcategories of the index are growing much, much faster. And I’m not talking about luxury items here.

Do you know by how much hospital costs have jumped in 20 years? That’s 200%! College tuitions? Plus 175%. Childcare? Plus 125%.

And you wonder why people hesitate having kids…

My point is that when you look below the average, key expenses that touch pretty much everyone at one point in their life have become extremely expensive in just two decades. 

 But don’t tell that to Nobel laureates in economics…

What’s up with multiple job holders?

You might have seen this headline recently. The number of people working multiple jobs in the US is at an all time high and climbing. 

From which it is easy to extrapolate that probably the US workers are doing so well if they need to do multiple jobs to make ends meet. And that probably means the US economy is in trouble if we are really seeing this trend explode. 

But hold on. Is that really the proper way of looking at it?

I mean focusing on the absolute number of multiple job holders and this short term trend. Maybe not, because that fails to account for the fact that there has probably always been some amount of people working two jobs. So what really matters is there proportion as part of the total job holders.

Looking at it this way paints  a very different picture.

About 5% of job holders are doing multiple jobs. That’s up big time from 4% right after COVID. But zoom out…

Actually COVID was a blip down. The lockdowns made it much harder to have multiple jobs and that has lead to a big crash in the multiple job holders. But 5% is actually the average proportion of multiple job holders since the Great Recession. 

And on top of that, 5% is still markedly below the 6% of people doing multiple jobs we had in the 1990s. 

The moral of the story is that how you frame your data really matters.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

That’s the kind of knowledge you need to make confident investment decisions. The kind that deliver returns.

In any given year the difference between the lowest and the highest Bitcoin price is more than 100%. If you just follow the price action blindly you are unlikely to profit from that. 

Placing crypto in the macroeconomic context give you confidence that you are not missing the big picture.

Looking at what the data is really telling us guarantees you aren’t falling for false narratives.

Both aspects are essential parts of the toolkit of the crypto investor. 

If you want access to all of it upgrade to a paid membership right now.

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https://ecoinometrics.substack.com/p/bitcoin-never-goes-up-in-a-straight

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:

1. Bitcoin won’t emerge from a bear market by simply moving up and to the right.

2. $1 trillion down, $7 trillion more to go on the Fed balance sheet.

3. What the inversion of the yield curve tell us about the months to come.

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:

• Higher rates or debasement? These are the choices to deal with the US deficit.

• Spot Bitcoin ETFs are getting closer. What does that mean for the Bitcoin miners?

If you aren’t subscribed yet, hit the subscribe button, to receive this email every week directly in your inbox:

Subscribe now

Bitcoin won’t emerge from a bear market by simply moving up and to the right

There is only one thing that gets Bitcoin investors more excited than the halving: the launch of a spot Bitcoin ETF in the US.

The idea is that an ETF would lead to the large amount of institutional flow the Bitcoin market has been waiting for years. Large and possibly ongoing if your average pension fund decides to get a small exposure to BTC. 

Remember that at the moment a large portion of institutional money cannot touch Bitcoin due to its unusual nature as investment. But wrapped inside an ETF it suddenly becomes more accessible.

Now we have been talking about that for month. Looking at what kind of impact this could have on Bitcoin’s price. Trying to understand whether or not it will disturb the Bitcoin miners stocks (which are proxies for BTC investments for institutions). And trying to guess whether or not we’ll get those ETFs sooner or later.

I’m not going to explain that today.

What I want to talk about is this Bitcoin pump. BlackRock gets a ticker for their Bitcoin ETF. BTC is up 20% in a week… This is a large move, but nothing we haven’t seen before.

And people are already talking about the fact the bear market is over. 

To that I want to give a word of caution. 

Even if the bear market is over, Bitcoin never goes up and to the right without some violent correction along the way. If you have forgotten that, look at the chart below which shows the trajectory of BTC during the drawdowns of the major bear markets. 

So be cautious out there. Don’t be surprised if we end up with a retracement at some point.  

$1 trillion down, $7 trillion more to go on the Fed balance sheet

The Federal Reserve means business. When they say they are running a Quantitative Tightening playbook, they are really doing the work. 

Since the start of QT in April 2022 they have managed to shed $1 trillion worjth of US Treasury bonds and MBS from the balance sheet. 

Relative to the QE expansion post-COVID that’s a 19% reduction. And they managed to achieve that despite $391 billion “wasted” on averting a banking crisis earlier this year.

So Jerome Powell is really trying to get inflation spike (which to be fair he contributed in creating) under control.

Now $1 trillion might seem like a lot. But we are still $4.2 trillion higher than before COVID and $7 trillion higher than before the Great Recession. So quite a long road if the Fed is ever to normalize the situation.

What the inversion of the yield curve tell us about the months to come

I am once again asking you not to ignore the inversion of the yield curve. 

The yield curve first inverted 15 months ago. Historically most recessions happen within two years of this inversion event. And on average a recession starts 18 months after the first inversion. 

That means if the US is going to enter a recession, then the next 6 months are the most likely period for this to happen. 

If we do not see a recession before July 2024 then we’ll have an outlier. That has happened once before. The inversion event that preceded the recession of 1969-1970 occured a whole 50 months prior.  But if you are playing the odds then now is the time to take this risk seriously.

Recessions aren’t good for any kind of investment. That includes Bitcoin. So I don’t advise you decide to play with leverage or highly illiquid assets in the next couple of quarters.

Your call.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

That’s the kind of knowledge you need to make confident investment decisions. The kind that deliver returns.

In any given year the difference between the lowest and the highest Bitcoin price is more than 100%. If you just follow the price action blindly you are unlikely to profit from that. 

Placing crypto in the macroeconomic context give you confidence that you are not missing the big picture.

Looking at what the data is really telling us guarantees you aren’t falling for false narratives.

Both aspects are essential parts of the toolkit of the crypto investor. 

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https://ecoinometrics.substack.com/p/microstrategy-is-ready-to-profit

Welcome to the Friday edition of the Ecoinometrics newsletter.

Every week we bring you the three most important charts (and tables) on the topics of macroeconomics, Bitcoin and digital assets.

Today we’ll cover:

1. MicroStrategy is ready to profit from its Bitcoin bet. 

2. Wages have been keeping up with inflation. That’s a problem.

3. Worldwide inflation levels are concerning.

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:

• To keep up with inflation acting fast is key.

• The small fish have stopped buying Bitcoin.

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MicroStrategy is ready to profit from its Bitcoin bet

If there is someone who surfed on the Bitcoin wave in 2020 that’s certainly Michael Saylor. He didn’t only did his best to try to hype Bitcoin in the business and investment community, he is also holding a very large bag of coins with his company, MicroStrategy.

As of today MicroStrategy owns about $4 billion worth of Bitcoins. They are on their way to control 1% of the total supply of Bitcoins. And in the middle of the bear market, they have a return on this investment of 0%. 

Now there are three ways MicroStrategy could benefit from its Bitcoin bet:

• It could just wait for the next bull market and cash out. With Bitcoin just getting back to the previous all-time high they stand to pocket a $5 bn profit on this investment. That’s probably more than any free cash flow they can generate with the business in a reasonable amount of time.

• It could sell stocks. Right now the company is valued at the same level as its Bitcoin treasury. And it seems that investors are ready to buy on the promise they will reinvest the cash into BTC. At least until there is a Bitcoin ETF.

• It could convert MSTR into a Bitcoin ETF. I’m joking. Or am I? I don’t think the software business they have is doing fantastically well. Being an ETF operator with so many coins under management would probably be more profitable. 

The point is MicroStrategy has a lot of options thanks to those Bitcoin holdings. But I don’t think the particular situation they are in can be reproduced by any other company.

Wages have been keeping up with inflation, that’s a problem

Are you wondering why the Federal Reserve is so bent on keeping interest rates high to slow the economy and take down the jobs market? I have a chart for you.

The Federal Reserve wants to tackle inflation. Prices have spiked a lot over the past couple of years. 

But you know what else has spiked a lot? US wages.

Actually wages have been following the same path as inflation. On the surface that’s a good thing. Inflation makes your savings lose purchasing power. But you can somehow keep up with your current expenses with the increased wages.

Well that’s the problem.

Higher wages also fuel higher prices. Prices need to increase to maintain the same margin if you pay your employees more. And as long as people can afford those higher prices with those higher wages there is no pressure on the price coming from a lack of demand.

This is a wage-inflation spiral that isn’t helping the Federal Reserve get a grip on the inflation rate.

Hence why the Fed is looking closely at the tightness of the jobs market. A recession would certainly help them on that front.

Worldwide inflation levels are concerning

If you average the inflation rate over all the countries in world (for which there is data) you come up with a 7% rate in 2023.

That’s lower than the peak at 8.7% in 2022. But that’s twice as high as before COVID. To put things in perspective, if inflation averages at 7% per year then the purchasing power of your savings is divided by two in ten short years.

And this is the only the worldwide average. 

Europe, Asia and North America don’t have it so bad if you can believe that. But the Middle East, Latin America and Africa have inflation rates at over 12%. In those regions it then take less than 5 years to see the purchasing power of your savings evaporate.

Nothing short of a global recession will really help with that. Lose-lose situation.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

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https://ecoinometrics.substack.com/p/bitcoin-is-beating-inflation-if-you

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:

1. Bitcoin vs inflation over a multi-year time horizon.

2. Banks have stopped bleeding depositors money.

3. Managing perception: the only thing banks needs to do right now.

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:

• Central banks liquidity isn’t helping Bitcoin.

• Bitcoin is not crypto. But crypto is Bitcoin.

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Bitcoin is beating inflation (if you hold on to it long enough)

Is Bitcoin a hedge against inflation? The answer depend on what you mean by that.

Some people think that to be a hedge against inflation Bitcoin’s price should rise when inflation is rising and fall when inflation is falling. But honestly that’s asking a bit much. There is no reason for Bitcoin to track the speed at which the Consumer Price Index changes. Even gold (usually accepted as an inflation hedge) doesn’t do that.

A better definition is this one.

Bitcoin is a hedge against inflation over a given time period if it is growing faster than the CPI during the same time window. 

Said differently, if Bitcoin’s real return (return adjusted for inflation) over a time period is positive then it is effectively a hedge against inflation. 

Now if you play the game of picking a random date in Bitcoin’s history and looking forward to see if it has been growing faster than the CPI then you’ll observe (chart below) that as long as you are considering time periods of at least 4 years then Bitcoin is winning over inflation (sea of blue on the chart).

That should settle the debate: historically Bitcoin is a good hedge against inflation over multi-year time periods.

Banks have stopped bleeding depositors money

Arbitrage. That’s what banks do with depositors money. You put money in your bank account. The bank turns around and takes that cash to buy US Treasury bonds. They earn whatever the interest is on those bonds. As a depositor you get a small fraction of that back if you are lucky.

Apart from running casinos and peddling SPACs there is no cleaner business model than that.

Except when things go wrong. 

Say depositors want their money back. Say you are running a paper loss on your US Treasury bonds. And say you are forced to realize those losses to honour redemptions. Then you (the bank) are in deep trouble.

That’s exactly what happened to Silicon Valley Bank, First Republic and SBNY earlier this year.

Higher interest rate since the since the Federal Reserve raised the Fed Funds rate have driven cash out of banks deposits and into money market funds. That’s where depositors can actually get returns. That was draining out deposits and creating pressure on the banks.

Then in a few cases we had full blown panics (bank runs) like  SVB, FRB, SBNY. 

Tough times.

But look at the chart below. Banks have stopped the bleeding. Depositors have seen the Fed has their back. Banks are giving slightly more interests on those deposits. That was enough to keep it under control.

That being said the underlying issue of the bound rout persists.

Managing perception

Continuing on the same theme.

Banks have made a bad trade by getting heavy on US Treasury bonds just as the Federal Reserve was about to raise rates. 

But you don’t lose money until you sell (said every degenerate gambler I’ve ever known). 

In theory banks can just hold on to those bonds until they mature. Then they will have lost nothing. Zip. Nada. They get the principal plus the interest over that period. (Those interests are lower than they could be but you get my point). 

So the only thing that matters to the banks is that they do not face too many customers redemptions at once. Sit tight. Fingers crossed.

And control the public’s perception.

That’s about the only pro-active thing that banks can do. It works.

Because how many banks have been in real danger since March?

There is like $22 trillion worth of deposits in commercial banks in the US. And the Federal Reserve has put in place a special loan facility at which banks can swap US Treasury for cold hard cash for the value of the principal. How much did this special facility loan since SVB went down? About $100 billion. 

That’s not much in the grand scheme of things.

What it means is that the banks that really were in real danger of a bank run are really a handful. But the Fed is backing the banks. That’s the important part. The message it sent.

So yes banks will see their margin squeezed. Yes revenue will suck for a while. Yes they will need to dangle some carrots in front of the customer to keep them happy. But if that’s what it takes to maintain the perception that funds are safu. You got to do what you got to do.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

So if you liked this, please refer Ecoinometrics to your friends to help us grow. 

Refer a friend

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https://ecoinometrics.substack.com/p/bitcoin-is-not-crypto-but-based-on

Correlation isn’t causation. Still, there is a hierarchy in the correlations. Movements at the top of hierarchy are likely to cause effect down the chain. The opposite is less likely.

Macro heavy assets or larger assets are on top. And the smaller you go, the more niche it gets, the lower you end up on that hierarchy. 

Bitcoin isn’t at the bottom, but it isn’t particularly high either. But the rest of crypto is all downstream from Bitcoin…

The Ecoinometrics newsletter gives you insights from crypto and macro data to help you make better investment decisions. 

We spend hours every day gathering data, creating metrics and bringing them to life with data visualizations that allow you to quickly get to the heart of things.

We then distill all that knowledge in each issue of the newsletter with less words and more charts so that you get insights, direct to the point, in five minutes or less.

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Done? Thanks! That’s great! Now let’s dive in.

P.S. Checkout our latest tracker of MicroStrategy Bitcoin holdings at https://www.ecoinometrics.com/microstrategy-bitcoin-holdings-with-charts/.

Bitcoin correlation report, October 2023

Every month in the Bitcoin’s correlation report we examine a set of correlations and trend similarity metrics to understand what is driving Bitcoin’s price action and what you need to pay attention to. This is our report for October 2023.

Takeaway

Bitcoin is not crypto. But crypto is following Bitcoin’s trend more often than not. From a strategic perspective that means whatever big trend you bet on in crypto is a bet on Bitcoin with some extra leverage. Something good to remember. 

But the real news is that the stock market is getting correlated to Bitcoin… again. For now this correlation is not very strong. However the change over the past three months is significant.

The most likely reason for this new trend is that stocks can no longer escape the reality of macro. But that’s something to keep an eye on.

Crypto is Bitcoin

Read more

https://ecoinometrics.substack.com/p/central-banks-liquidity-headwind

Central banks liquidity is the money central banks around the world make available to grease the grooves of the financial system. 

This kind of liquidity can take different forms depending on the period and the country. But the common theme across all major central banks is the lowering of key interest rates and the expansion of the central banks balance sheet. Those are the two most powerful mechanisms central bankers can use to support the market.

Now it makes sense to think that Bitcoin as a global asset must be affected by central banks providing (or taking away) liquidity to the system. 

The question how is it affected and what are the current conditions.

The Ecoinometrics newsletter gives you insights from crypto and macro data to help you make better investment decisions. 

We spend hours every day gathering data, creating metrics and bringing them to life with data visualizations that allow you to quickly get to the heart of things.

We then distill all that knowledge in each issue of the newsletter with less words and more charts so that you get insights, direct to the point, in five minutes or less.

Join more than 20,000 investors here:

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Done? Thanks! That’s great! Now let’s dive in.

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Central banks liquidity: headwind or tailwind for Bitcoin?

The takeaway 

Bitcoin hasn’t been a major asset for long enough for us to be able to tell with any certainty how it is supposed to behave when central banks engage in important policy changes.

But given the most recent history the safe bet is to say that:

• Looser monetary policies provide a tailwind to Bitcoin’s price action.

• Tighter monetary policies provide a headwind to Bitcoin’s price action.

• Neutral monetary policies allow for other factors to influence Bitcoin’s direction.

In aggregate the major central banks are still taking away liquidity from the market. 

Only China is doing something really different than usual due to economic problems at home. But that’s unlikely to cancel the combined tightening of the Federal, the European Central Bank and the Bank of Japan.

For that reason we don’t think the conditions are there for Bitcoin to start another bull market.

The real trial will come when we observe the response of the major central banks to the upcoming recession.

Bitcoin needs liquidity (probably)

Read more

https://ecoinometrics.substack.com/p/bear-market-or-bull-market-for-bitcoin

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:

1. Bear market or bull market? For Bitcoin and Ethereum it can be hard to tell.

2. Countries that are experiencing hyperinflation might as well try crypto.

3. Are we seeing a clear setup for the version 2 of a US housing bubble?

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:

• Early signs show that the US is moving into a recession.

• How is Ethereum doing in this bear market?

If you aren’t subscribed yet, hit the subscribe button, to receive this email every week directly in your inbox:

Subscribe now

Can you tell if Bitcoin (or Ethereum) is in a bull or a bear market? 

How easy is it to spot the transition between a bull market and a bear market for crypto? 

Turns out if you are looking only at the monthly returns this is really damn tough. You can visualize that in the chart below where we have plotted the distribution of the monthly returns of BTC and ETH during the bull and the bear markets.

The main difference between a bull and a bear is the ratio of positive months to negative months. 

Otherwise you can find bad months during bull market and great months during bear markets. Which means that if you only have a few months to work with it is not possible to decide with any certainty. 

So one lesson from that is the fact that the price action is not a great indicator of the market regime. You are better off looking at other metrics to try to figure this out.

The second less is that trying to time the bull market is probably a bad idea. By the time you have enough data to confirm that you really are in a bull market you have already missed the train.

The superior process is to assess the price at which Bitcoin or Ethereum offer a good reward to risk ratio according to your investment goals.

Then buy as soon as this price target is reached and wait for time to do its thing. 

Countries experiencing hyperinflation have nothing to lose

If your country is running on a monetary system that’s producing a consistent 35%+ inflation rate what do you have to lose by rebuilding it around crypto?

If you are based in a G20 country with a high single digit inflation rate you have already felt the pinch over the last couple of years. But when the inflation rate is at 35%+ the purchasing power of your savings is basically halved every 18 months.

This is what countries like Venezuela, Lebanon, Argentina or Turkey are experiencing. 

In that case what do the people really have to lose by experimenting with crypto based monetary systems. 

In theory:

• Cryptocurrencies can offer stability against hyperinflation.

• Crypto can enable financial inclusion for all.

• Crypto adoption can attract global investments.

Of course it isn’t that simple. The transition and experimentations that come with it might be difficult. But for these countries the fiat status quo clearly does not work.

Now the real challenge is that the people at the top in these countries benefit from this status quo. They have no incentive to change. But it is a good thing that the decentralized nature of crypto allow from movements to start from the ground up. Let’s see what will come out of it.

Housing bubble v2: the setup for a crash

Hear me out. The housing market in the US is in a bubble. And the setup for a crash is already there.

Here is my case.

The period of Quantitative Easing that followed the COVID crash has artificially pumped the value of residential real estate. Rates were too low. There was too much liquidity. Valuations got out of hands.

The Federal Reserve raising rates has put a stop to this unnatural growth. Basically the rate hike sequence marked the top of the bubble. But house prices haven’t yet come back down to earth.

At this point in time your 30-year fixed mortgage rate is at 7%+ which means that refinancing or getting a new mortgage is not viable.

The result is that new buyers cannot afford to buy and sellers cannot afford to take a hit on their properties. This is where we stand out right now.

If interest rates stay higher for longer then the sellers are the weak link. As soon as a few start to lower their prices everyone gets marked down and the residential real estate comes. This is bound to happen.

Maybe the correction won’t be as large as during the Great Recession. But just to get back to the historical trend line we are talking a 25%+ correction. If you add a recession on top of that it could be worse.

Definitely something to keep an eye on.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics.  

Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets.

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