Market Commentary #50

Published as part of Issue #50 of the Bitcoin Pulse on 4/16/2020. Join for full commentary on technical and fundamental analysis.

The L-shaped Non-recovery

Legacy markets are beginning to roll back over as the crisis continues. The dollar ($DXY) is breaking 100 again, gold is hitting cycle highs, US 10Y yields are falling, oil broke $20/bbl again, and bitcoin is having a strong green day, with elevated volume. Even stocks are looking droopy.

The V-shaped recovery that is supposed to happen when the market opens back up is a myth. It won’t happen. Much more likely is an L-shaped non-recovery that will take the form of a year or two time period, during which they will fight dollar deflation, struggling to boost growth with more and more stimulus. They won’t be successful.

Demand and wealth have been thoroughly destroyed. When people get their helicopter money, they will either pay off debt, or pay their bills. They won’t go out and buy a new car or hire new employees. Growth is dead. The fiscal helicopter money will have increase 50-100x than at current. Which is politically impossible and lead to not only the dollar being destroyed but the global political order as well.

A point on correlation. It’s my firm belief, backed by data, that bitcoin is uncorrelated to other assets and there is no reason to think, with fundamental events unique to bitcoin coming up, like the halving, that any more than a temporary correlation to develop. Humans demand scarce things, so the demand for bitcoin can only grow as it becomes more and more scarce.

Bitcoin will also benefit from the search for a new system. People and businesses will turn to bitcoin first as collateral. Gold is tier one collateral so that’s bitcoin’s next step. Custody and escrow solutions have come a long way in the last few years, but they will need to be built out with ultra-high values in mind. An example would be using bitcoin as collateral for a $100M import/export deal. You can’t use gold, because gold is hard to settle and secure.