In a new report, Capriole Investments has posited that Bitcoin will outperform all other assets in the coming year due to three key reasons. One of those reasons, perhaps unsurprisingly to many, will be the currently all-defining U.S. Federal Reserve (FED).
According to the company, the market is currently experiencing the most aggressive monetary policy since the 1980s. The annual rate of change in the M2 money supply is now negative for the first time ever, as shown by analyst Dylan LeClair yesterday.
Uh guys, the money printer got jammed. pic.twitter.com/IimHwaoEaX
— Dylan LeClair (@DylanLeClair_) December 28, 2022
As Capriole Investments founder Charles Edwards explained, the Federal Reserve has always lowered the federal funds rate in subsequent years when inflation exceeded 5% and then declined by more than 20%, as has been seen recently.
Although in all cases, the inflation peak persisted for several more years. In 4 out of 5 cases, inflation normalized to the 2-3% range in the following years, while the FED fund rates declined there on out, as the chart below shows.
“I expect this will be the golden decade for hard money,” Edwards continued and said that history suggests that further monetary tightening is not necessary, making it very likely that the Fed will pivot within the next six months. This would also be in line with the FED’s latest assessment, which forecasts an increase in rates by another 75 basis points, which could mean two steps (50 and 25 bps) or three steps (three times 25 bps).
Capriole Investments argues that the need for the FED to pivot in the next year will be due to a number of reasons. On the one hand, pressure on the economy is increasing, as evidenced by declining indexes, mass layoffs at tech companies, and sentiment in the housing market; on the other hand, debt will be a major driver:
Higher rates for longer puts significant stress on the US Government to fund its liabilities. From the Government’s point of view, it’s much better to have a higher baseline inflation rate (say 2-4%) which helps to deplete relative debt burden over time.
Capriole Investments compares today’s inflation spike to those in 1970 and 1975. “Both periods sparked huge gold bull-runs. From 1971-1975, gold rallied 450% and between 1977-1980 it shot up 800%,” as the firm notes.
There are “compelling parallels” between today’s and the 1970s in terms of inflation trends. With Bitcoin being the “harder money” compared to gold, plus other advantages, Capriole Investments expects BTC to outperform its older competitor.
Accordingly, a second key reason for Bitcoin’s massive strength in 2023 will be its upcoming halving in early 2024. Currently, BTC’s market capitalization is only 2.5% of gold’s market capitalization, which means upside potential of 3,739%.
“In just over a year, Bitcoin will become the hardest asset in the world, with a programmed inflation rate less than half that of gold. […] Every Bitcoin halving has kick started a cyclical bull-market in digital assets. Yet every halving people expect that to be priced in,” Capriole Investment says.
Looking at the fundamentals, Edwards notes that Bitcoin is trading within $100 of the Bitcoin bottom signals he gave in November. The all-important chart according to Edwards is that of Bitcoin’s cost of production, “Bitcoin continues to trade at the bottom of the cost of electricity. Incredibly rare, low value.”
In conclusion, the investment firm predicts the 2020s will be the decade of hard money, similar to the 1970s. “For stock market investors, this could be called “a lost decade.”
“If you agree, the only question left is which hard money will prevail,” Capriole says, going on to say that Bitcoin is poised to outperform gold because of three major advantages: It’s harder, it’s digital, and it’s 1/40 the size of gold, making it predestined for greater appreciation.
At press time, the BTC price was still struggling to gain momentum, trading at $16,584.
In a new report, Capriole Investments has posited that Bitcoin will outperform all other assets in the coming year due to three key reasons. One of those reasons, perhaps unsurprisingly to many, will be the currently all-defining U.S. Federal Reserve (FED).
According to the company, the market is currently experiencing the most aggressive monetary policy since the 1980s. The annual rate of change in the M2 money supply is now negative for the first time ever, as shown by analyst Dylan LeClair yesterday.
As Capriole Investments founder Charles Edwards explained, the Federal Reserve has always lowered the federal funds rate in subsequent years when inflation exceeded 5% and then declined by more than 20%, as has been seen recently.
Although in all cases, the inflation peak persisted for several more years. In 4 out of 5 cases, inflation normalized to the 2-3% range in the following years, while the FED fund rates declined there on out, as the chart below shows.
FED pivot
“I expect this will be the golden decade for hard money,” Edwards continued and said that history suggests that further monetary tightening is not necessary, making it very likely that the Fed will pivot within the next six months. This would also be in line with the FED’s latest assessment, which forecasts an increase in rates by another 75 basis points, which could mean two steps (50 and 25 bps) or three steps (three times 25 bps).
Related Reading: Institutional Crypto Predictions For 2023: Ethereum, BTC, L2s, NFTs
Capriole Investments argues that the need for the FED to pivot in the next year will be due to a number of reasons. On the one hand, pressure on the economy is increasing, as evidenced by declining indexes, mass layoffs at tech companies, and sentiment in the housing market; on the other hand, debt will be a major driver:
Higher rates for longer puts significant stress on the US Government to fund its liabilities. From the Government’s point of view, it’s much better to have a higher baseline inflation rate (say 2-4%) which helps to deplete relative debt burden over time.
Capriole Investments compares today’s inflation spike to those in 1970 and 1975. “Both periods sparked huge gold bull-runs. From 1971-1975, gold rallied 450% and between 1977-1980 it shot up 800%,” as the firm notes.
There are “compelling parallels” between today’s and the 1970s in terms of inflation trends. With Bitcoin being the “harder money” compared to gold, plus other advantages, Capriole Investments expects BTC to outperform its older competitor.
Related Reading: Bitcoin Price Grinds Lower, More Losses Seem Imminent
Accordingly, a second key reason for Bitcoin’s massive strength in 2023 will be its upcoming halving in early 2024. Currently, BTC’s market capitalization is only 2.5% of gold’s market capitalization, which means upside potential of 3,739%.
Bitcoin Vs. Gold
“In just over a year, Bitcoin will become the hardest asset in the world, with a programmed inflation rate less than half that of gold. […] Every Bitcoin halving has kick started a cyclical bull-market in digital assets. Yet every halving people expect that to be priced in,” Capriole Investment says.
Looking at the fundamentals, Edwards notes that Bitcoin is trading within $100 of the Bitcoin bottom signals he gave in November. The all-important chart according to Edwards is that of Bitcoin’s cost of production, “Bitcoin continues to trade at the bottom of the cost of electricity. Incredibly rare, low value.”
In conclusion, the investment firm predicts the 2020s will be the decade of hard money, similar to the 1970s. “For stock market investors, this could be called “a lost decade.”
“If you agree, the only question left is which hard money will prevail,” Capriole says, going on to say that Bitcoin is poised to outperform gold because of three major advantages: It’s harder, it’s digital, and it’s 1/40 the size of gold, making it predestined for greater appreciation.
At press time, the BTC price was still struggling to gain momentum, trading at $16,584.
Bitcoin price, 1-day chart
Featured image from Kanchanara / Unsplash, Charts from Capriole Investments and TradingView.com
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