Author: TYLER DURDEN
Presented by Howard Wang, Co-founder of Convoy Investments and formerly at Bridgewater
December In 2017, I wrote an article “What leads toasset price inflation ”, it published the chart you see below. A couple of days later, Bitcoin prices peaked and fell 85% in a year. Bitcoin is back today. I believe we are in the midst of yet another bubble, but this time I'm not sure when it will climax. The graph below is an updated version of that graph.
Let's stop kidding ourselves.Bitcoin as it stands is not a viable candidate for a currency replacement. If we were to measure annual US inflation in bitcoins rather than dollars, then you would see inflation of 275% in 2018, -50% deflation in 2019, -75% deflation in 2020. A healthy society cannot function with such volatile prices. The currency must be stable enough so that if you get paid on Friday you know what kind of dinner to buy on Sunday. Bitcoin may one day mature, but now it is more of a speculative asset.
Bitcoin is almost certainly in the nextbubble, and its current growth rate is unstable. If 2021 turns out to be the same as 2020, Bitcoin's market capitalization will be larger than the entire US currency in circulation.
And yet this time I'm not sure if I canpredict the top. The world monetary system is in an even bigger bubble. Investors are forced to hold $ 18 trillion in negative-yield debt while trillions of dollars are printed around the world. Investors are drowning and grabbing onto cryptocurrency as a lifeline.
While consistently low profitabilitywill lead to higher prices and suppression of expected returns in all markets, many investors will prefer unknown expected returns on risky assets to guaranteed losses on bonds. Like panicked prey pursued by predators, investors prefer to hide in markets that lack fundamentals, or in assets that have grown rapidly and still have plenty of room for imagination, such as Tesla.
In the short term, there is stilla lot of incentive cash reserves, and some organizations are betting on the crypto space. This bitcoin party can continue as long as the stakes are low and the printing press is hot.
Bitcoin is the flip side of the same coin asand monetary currencies. Its long-term fate depends on the future of our monetary system. Since the 1980s, deflationary pressures have led to lower interest rates and eventually the need to print money around the world. As long as this trend continues, investors will avoid guaranteed losses on government bonds. Capital will run up the spectrum of risks, pushing prices higher and higher, lowering yields and creating “inflated” asset prices.
While the world is flooded with money and safe assetsoffer meager compensation, Bitcoin will be relevant. Volatility and asset bloat will become a reality. It will be difficult to predict the tops of these bubbles, because the core of the money currency with which we measure prices is itself in the bubble.
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