Bitcoin is regaining height and four factors allow us to be very optimistic for the coming months.
BlackRock still a fan of bitcoin
The world's largest investment fund continues to reinforce bullish sentiment. Its latest report “Bitcoin: A unique diversifier” recalls that it has done significantly better than all major asset classes in seven of the last ten years. Its annualized return has been more than 100% per year.
And after a very good vintage in 2023 (+147%), the 2024 “Halving” vintage looks promising. BTC is indeed up 56% since January 1.
The report argues that bitcoin is a safe haven in the face of disruptive geopolitical events. This is fitting since we are on the brink of a nuclear war…
BlackRock believes that “Bitcoin, the first finite-quantity, decentralized and stateless monetary alternative to be widely adopted worldwide, has no counterparty risk, is not dependent on any centralized system and is not dependent on the fate of any particular country.”
For the fund, the trajectory of bitcoin adoption is linked to growing concerns about global monetary instability and geopolitical disagreements. US monetary hegemony will be a major factor in the equation:
“Growing concerns in the United States and abroad about the state of deficits and public debt have increased the appeal of alternative reserve assets as a potential hedge against potential dollar setbacks.”
The fund believes bitcoin is “an emerging technology that is still in its infancy and could become an international payment currency as well as a store of value.”
Banks want bitcoin
Last week, America's oldest bank, BNY Mellon, was granted an exemption from the SEC's (SEC) murder rules.AB 121) in terms of bitcoin custody. The end of the banking anathema bodes well for the millions of individuals who, scalded by FTX-type scandals, prefer to wait for their bank to offer it to them.
For Michael Saylor, multinationals like Google, Microsoft, Amazon and Apple are also waiting for large banks to be allowed to hold bitcoins on behalf of their clients.
“Multinationals will not adopt bitcoin as a treasury asset until they can transfer a billion dollars a month to the City, to Bank of America or to JP Morgan”he told the microphone by Saifedean Ammous.
Michael Saylor is redefining corporate finance through his company Microstrategy. His thinking is this:
“Meta is about to buy back $55 billion of its stock. What if they bought bitcoin instead? The stock then becomes a derivative of bitcoin. Some will say that the $55 billion goes to bitcoin and is withdrawn at the value of Meta’s stock. But that’s not true. Professional investors will wonder what percentage of the stock’s value is backed by bitcoin. If Meta buys bitcoin, its market cap will likely increase by $200 billion.
Apple would be worth a trillion dollars more if they had bought $20-30 billion worth of bitcoin per year instead of buying back their stock. They would be buying an asset that appreciates over 40% per year instead of minus 4% per year. [Bons du Trésor dont le rendement est inférieur à l’inflation]. This strategy would give a boost to the S&P as well as the NASDAQ.”
Trump Card
The US presidential election in November could be another bullish catalyst. Standard Chartered analyst Geoff Kendrick predicts a “Bitcoin to $200,000 by the end of next year, regardless of who is in the White House next” :
Like Saylor, Mr. Kendrick expects the arrival of American banks to mark a turning point. He predicts that ETFs will attract substantial capital again after a relatively quiet summer.
For him, a Trump victory would be the most bullish scenario. Indeed, let us recall that the Republican candidate promised to create a strategic reserve of bitcoins on the occasion of the Bitcoin conference in Nashville.
In fact, he has mostly committed to not selling the 200,000 BTC that the US government already holds. However, he has hinted that he might also buy more. In this regard, Senator Cynthia Lummis has prepared a bill to buy one million bitcoins.
It is not certain that the senator will succeed in convincing the US Congress, nor that Donald Trump will win in November. Nevertheless, what a long way she has come…
As Vaneck CEO stated, “If bitcoin becomes part of the monetary system as an international reserve currency, a single BTC will be worth millions. […] It will exceed $350,000 as soon as it reaches half of the capitalization of gold.”
Vaneck analysts also believe that a victory by Democrat Kamala Harris could ultimately be positive for bitcoin due to higher inflation.
Both presidential candidates are likely to maintain large budget deficits that could lead to further quantitative easing (QE).
Money printing press
Speaking of QE, the Fed just cut its key rate by 0.50%. This is the first cut since 2020. According to the central bank's projections, rates should fall by another 0.50% before the end of the year. And by another 1% in 2025.
The impact on money creation will be major. When interest rates rise, the cost of borrowing discourages potential borrowers. The quantity of new loans does not compensate for repayments and leads to a reduction in the money supply.
Conversely, lowering rates allows a larger portion of the population to borrow, which increases the money supply.
The monetary aggregate M2 effectively measures the liquid quantity of money that can increase demand. It is a good proxy for anticipating inflation in consumer prices and asset prices:
The fiat system is a ponzi by definition. For reasons explained in this article, the quantity of money must constantly increase for the system to hold together.
This system is neither good nor bad. It is simply that the size of the economy absolutely has to be increased so that wages can follow and the standard of living can increase. That is to say, it takes energy to transform matter and transport it to supermarkets.
Unfortunately, cheap fossil fuel resources are drying up, making it increasingly difficult to generate the growth and productivity needed to raise wages.
Here is the trend for the old continent:
-Maximum energy import: 2007
-Maximum weight loaded in trucks: 2007
-Maximum number of m2 built per year: 2007
-Maximum disposable income: 2010
What happened in 2007? Peak conventional oil. In 2023, the European Union consumed 17% less energy than in 2006. Hence the inflation that is seriously starting to bite on the old continent.
The double-digit inflation of the past two years is a reminder that you shouldn't let your savings sit in the bank. Bitcoin, a currency that exists in a fixed quantity, is a much better store of value.
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