There are many signs in favor of bitcoin, including the surprise rise in US borrowing rates.
Rates are rising instead of falling!
The US 10-year borrowing rate rose this Monday to 4.30% while we were at 3.65% just before the Fed lowered its key rate. We have returned to the level at the end of July, when rates began to fall in anticipation of the Fed's decisions.
The American presidential election explains this strange situation. But before giving the reason, let us remember that the American debt reaches 68,000 billion dollars (government, businesses and households).
Currently, the 30-year mortgage rate is close to 7%. The government's 10-year borrowing rate is 4.30% while that of multinationals is close to 5%. Which roughly gives us an average annual rate of 6% that Americans pay on the entire money supply in circulation.
It's a lot. These painful rates signal that banks do not believe inflation is truly under control. They say: “we will only lend at a rate above inflation”.
However, official inflation has returned to 2.4%, which suggests that markets are expecting a return of high inflation soon.
Trump and customs taxes
It is undoubtedly the American presidential election which is at the origin of the tensions on rates. Polls suggest that Donald Trump will win on November 5.
A victory for the Republican camp would be inflationary due to the fact that customs taxes are at the heart of their economic program. Donald Trump wants a universal tax of 20% as well as a tax of 60% on Chinese imports.
The former president even promises a 100% tax to countries that abandon the dollar as a reserve currency. The BRICS are therefore on the front line, having once again reiterated their ambition to favor their national currencies during the Kazan summit.
These extreme tariffs would interrupt the disinflation process, in turn forcing the Fed to reassess its monetary policy. This is essentially the opinion of the director of the Institute of International Finance (IIF). “The assumption is that inflation and interest rates will be higher than in the absence of these customs duties”declared Tim Adams at the microphone of CNBC.
Donald Trump defended his strategy by arguing that “These tariffs will likely encourage companies to build their factories in the United States so as not to have to pay them.”
Regardless, it is certain that such a policy would be inflationary in the short term. The United States is in fact the world's largest importer (~$4,000 billion per year).
Quantitative Easing?
The inflationary risk largely explains the reluctance that private banks have to reduce their rates. Perhaps they are also signaling their appetite for Quantitative Easing (QE)…
QE means that a central bank creates money ex nihilo to buy government bonds. This results in an increase in liquidity which encourages banks to lend more.
However, QE seems to be slowly returning to the debate. The head of macroeconomic research at BNP Paribas Richard Barwell wrote earlier this month that “Central banks will have to decide whether or not to relaunch Quantitative Easing policies during the next recession.”
The prospect of QE is also in vogue in China. Our article on the subject: “China – QE in the pipeline? “.
We must not forget that QE significantly relieves public finances. The reason being that central banks return the interest collected on the bonds they buy through QE to their governments.
This is very important when we know that debt interest represents 18% of American tax revenue:
The budget situation is such that Elon Musk has proposed cutting public spending by $2 trillion. Almost the equivalent of the US budget deficit.
Bitcoin in ambush
It's not just interest rates that have been rising lately. Bitcoin is being lifted by the likely election of Mr. Trump. The reason being that he is committed to creating a “strategic bitcoin reserve”.
This will mainly consist of not selling the 200,000 BTC held by the US government even if the possibility of acquiring some is also on the table. Republican senators have put together a bill providing for the purchase of one million BTC…
Such an outcome, after dragging bitcoin through the mud for so many years, would have global repercussions. How many countries will also start accumulating bitcoins if the United States makes it their reserve currency?
All this to say that a revival of inflation combined with the return of money printing to alleviate the debt burden would be bullish for bitcoin. Much will depend on the geopolitical negotiations that await Donald Trump in 2025. Negotiations promise to be difficult with the BRICS.
In the meantime, multinationals are starting to smell the right thing. After Microstrategy and Tesla, Microsoft could be the next multinational to invest its cash in bitcoin. Shareholders will vote on this in December. Knowing that BlackRock is Microsoft's second largest shareholder…
2025 will be a very interesting year for bitcoin. The $100,000 finally in sight?
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