Vision of Disorder
And a Plan B to Plan B?
I’ve been quite anxious lately, but, as I was thinking through things during a swim earlier today, something clicked in my brain, and some of the pressure on my shoulders and in my gut started to lift.
I wrote a piece a few months back entitled “Here’s What Keeps Me up at Night” in which I shared data featured in Jeff Booth’s brilliant book, The Price of Tomorrow. The data points to the fact that at even pre-COVID levels of U.S. national debt, we had to print money just to service the interest on the debt. No amount of income from taxation would suffice to cover the interest payments, much less the debt itself. At post-COVID levels, this is even more true. And so now do we just do the following dance until a downward economic spiral likely ensues?
What came to me post-swim was a timeline. It looked like this in my mind:
Late-2021/Early-2022 - Market goes down a bit more; people start to lose faith, the Fed steps in with some fiscal policy to stimulate the economy; we melt-up (crypto benefits most from this; keep it mind that while Bitcoin and crypto experience similar VaR shocks as traditional markets, Bitcoin and crypto tend to rebound in a more extreme fashion. In other words, the value of the S&P 500 has doubled since the low of March 2020 while $BTC has done a 15x since then. If that same math applies as the S&P 500 rises another 20% before peaking, then $BTC could do another 3-4x or so.)
(The Tweet above is quite reminiscent of the Soviet Union pre-break up, no?)
Early-mid 2022 - At peak euphoria, market begins to experience violent convulsions; market makes big moves to the downside; Fed can do little to remedy the situation because inflation as per CPI is so high
Mid-late 2022-2023 - Biden’s presidency begins to resemble Jimmy Carter’s; I’m not sure we get to stagflation, but it is possible
(Hard to imagine that the Tweet above wasn’t just a troll of some sort.)
2023 - Trump starts speaking up about how Biden ruined the “beautiful economy that he [Trump] built”; Boomer Trump supporters begin to get really upset about the declining value of their 401K portfolios (which were artificially inflated by Trump in the first place) right before retirement; Trump now has even more anger to capitalize on; Trump announces his candidacy; he likely runs with someone like Ron DeSantis as his VP
2024 - Trump takes back the White House and the U.S. begins to fragment; both U.S. citizens and citizens of the world begin to really lose faith in the U.S. (sadly), and the U.S. potentially begins to break up; money pours into Bitcoin because of global economic uncertainty (and the prospect of “getting rich”)
2024 and beyond - maybe U.S. war with China (possibly WWIII); a macro global economic restructuring ensues and a multi-polar world comes into existence; maybe the decentralized West vs. China
Post-crash/apocalyptic U.S. - Paul Krugman is still writing about MMT and how it has nothing to do with the mess we are in
-
Now, let me say here that I hope things don’t play out like this. Nobody knows what the future holds, and there is little point in speculating about what might happen, but I write to share this partially because I feel like, as I mentioned, something unwound inside of me today as I thought through this. I’m in the process of reading The Fourth Turning: What the Cycles of History Tell Us about America’s Next Rendezvous with Destiny, and it has connected some of the dots that I have been trying to connect as of late. Oddly enough, in connecting them, I’m no longer as angry as I have been about what I’m seeing play out in our economy. What’s happening now has happened before, and none of what’s happening is in my or anyone else’s control. I just didn’t totally grasp that before. We’ve been through these cycles and we’re currently in what has been termed the “fourth turning”, or the “crisis stage”, of an approximately 80-100 year cycle. The last crisis stage culminated in WWII. I hope this one doesn’t culminate in WWIII, but there will likely have to be a peak crisis point before we return to some sort of order and principles as we move forward. Maybe that order and those principles are related to crypto and financial transparency, or maybe not.
What I do know, though, is that America lost touch with its economic principles when it violated the agreement that we entered into at Bretton Woods, as we left the gold standard in 1973 under Nixon to print money for the Vietnam War. (I’m not so much arguing in favor of the gold standard here as much as I am arguing in favor of having principles.) Oddly enough, this was also the beginning of an America that was so blindingly arrogant that it thought it could win any war in which it involved itself. This culminated in our recent 20+ years of war in Afghanistan, where we hemorrhaged trillions of dollars for little to no actual gain for either ourselves, our allies, or the Afghan people. Truly sad. America has hit peak arrogance just as it is peaking in indebtedness. Not a good combo.
I’ll cut this little spiel here for now, but I’ll likely keep thinking through the topics above in future editions of the newsletter.
A Plan B to Plan B’s Model?
Many are starting to question Plan B’s Stock to Flow model for Bitcoin’s price. I’m not one of those many. I just think the cycle is extending.
If you look at the chart in the bottom right corner, you can see that we are still just about within one standard deviation of the model.
I also think both Bitcoin (and Ethereum) are beginning to behave more like the NASDAQ or the S&P 500 as they begin to be adopted by the mainstream, though, I do think we will still see a blow off top some time in Q1 or Q2 of 2022.
In 2021, the real alpha was in Layer-1s as well as in gaming and metaverse cryptos. This will probably remain true in at least the first half of 2022. Check out what my brain crush predicts 2022 will have in store for crypto:
So, yeah, the market is currently bleeding out. It will likely bleed out a bit more - maybe $BTC back to $42K and $ETH to $3.3K - before the overall uptrend continues. But, as always, I don’t know what will happen, and that isn’t financial advice.
People seem to be pumped up - cocaine style - though on Messari’s 2022 crypto report, so please consider reading it and sharing your thoughts on it in the comments section.
That’s all for now. Regarding the first portion of this edition of the newsletter, I’d like to state again that I hope I am wrong. Deep down, I am an optimist. And though I tend to simultaneously be a catastrophist, I do believe that while there may be some short term pain, we humans will work things out in the long(er) run. Plus, yesterday, I almost choked to death on a veggie burger, so I’d like to say here that I’m happy to simply be alive to write this today. All we have is the present moment, so there’s no point to worrying too much about what we think the future holds. Let’s take it one step at a time, and let’s work on being more decent to each other. I’ll start by easing up on Paul Krugman (maybe).
Big Love,
Frank
Twitter: @frankcorva
the Messari report is a must read! For the folks who don't want to read the whole thing, I highly suggest sections 5-9