2024 Bull Fuel: Bitcoin's Next Cycle (Pt. 2)

Five reasons why I am tremendously bullish on bitcoin (Pt. 2)

Last week, I published “2024 Bull Fuel: Bitcoin’s Next Cycle.” Today’s article is a follow-on piece to share another reason why I am tremendously bullish on bitcoin.

If you missed it, I’d encourage you to go back and read the first part, as it will only take five minutes and complements the ideas here nicely.

Before getting into it, I want to thank you for being here. I hope you find my work valuable, as writing is a time commitment. If so, consider sharing it with a friend.

I’ll release a follow-on piece next week to round out this series, subscribe to have it delivered straight to your inbox.

Now, it's time for the bull fuel. I challenge you to find a reason to be bearish after reading this piece. If you can think of one, drop it in the comments below.

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#3 The Return of Easy Money

The Federal Reserve has fought heroically against inflation since March 2022.

Wait… Please don’t unsubscribe. That was a joke. Of course, the Federal Reserve and the Government are the exact reason we are in this mess to begin with… I digress.

A significant tailwind for bitcoin’s next cycle is the return of easy money - Zero Interest Rate Policy and Quantitative Easing - a continuation of nearly a fifteen-year trend following the Great Financial Crisis.

The period of easy money culminated in 2020 and 2021, with the Fed and US Government blasting the global economy with trillions of dollars and dropping rates to 0%.

This resulted in a nearly double-digit Consumer Price Index (CPI).

Do I need to state the obvious? I’ll do it anyway. CPI is a manufactured and doctored metric that understates inflation to the benefit of the government. I heard someone call it the “Changing Propaganda Index” once, and that truly is the best descriptor.

The academic and bureaucratic classes were shocked to see inflation materialize in a big way - the highest inflation reading since the 1970s. No one seemed to understand that creating trillions of dollars would result in substantially higher prices.

After calling inflation transitory for months, the Fed quickly changed their tune and embarked on the fastest rate hike cycle starting March 2022. Inflation was once again in the mainstream American vocabulary for the first time in decades, and the Fed had to hike rates to maintain any remaining amount of credibility.

Federal Funds Rate is now at 5.5%, but this chart does the best job of illustrating the magnitude of rate hikes. Source

Although the latest CPI reading of 3.7% remains above their official and arbitrary target of 2% - we are nearing the end of the tightening cycle. The propaganda machines once again commend the Fed for their brave action to hike rates and reduce the Changing Propaganda Index.

As the unproductive class and their mainstream media puppets applaud themselves for their ability to reduce inflation, the rate hikes have brought another issue into the spotlight - the US Government is insolvent. 

Since the last Bitcoin cycle, the US Government’s fiscal position has deteriorated significantly. Right before the previous Bitcoin halving in May 2020, the Federal Debt was $23 trillion.

Drumroll please…. in September 2023, the Federal Debt is now at $32.9 trillion.

In three years the US Government added $10 trillion of national debt. The previous $10 trillion took a decade to add - from Q1 2010 to Q1 2020.

Government debt issuance is accelerating, and there’s no end in sight. The deterioration of the balance sheet jeopardizes the US Treasury as a global store of value and will force investors to find a new way to preserve wealth.

Source - The Congressional Budget Office.

Unfortunately, for the unproductive class, rate hikes to quell inflation have severely damaged the health of the US balance sheet (not that it was good to begin with).

Why is that? Well, because the US Government is a Ponzi Scheme. It can only pay its obligations (debts) by issuing more obligations (debts).

As debt matures and the US Government is obligated to pay the principal on the debt, they issue new debt, and with the Federal Funds Rate at 5.5% (compared to 0% for a decade), that results in higher interest expense on new debt issuance.

Interest payments alone are expected to rise from approximately $500 billion in FY 2022 to $1.4 trillion in FY 2032. And that’s with conservative estimates.

Source

To further highlight the mounting interest expense, let’s look at a recent chart from Apollo Asset Management, which states that $7.6 trillion of interest-bearing public debt is coming due in the next year - so $7.6 trillion rolled over at 5.5%? Oh boy.

Remember the Debt Ceiling debate in the spring? Federal Debt was capped at $31.4 trillion at that time. In a few months, $1.5 trillion was added to the federal debt, and the US Treasury expects another  ~ $1.5 trillion before the EOY.

Not only are the US Government’s expenses rising dramatically, but their revenues (taxes) are declining precipitously. The result of increased expenses and decreasing revenues is a larger deficit. If the money to pay their obligations does not come from direct taxation, it will come from indirect taxation (inflation).

So how will the horrid health of the US balance sheet be resolved?

It won’t. Policymakers have backed themselves into a corner, leaving the only feasible option to be a return to easy money. The June debt ceiling deal suspended the borrowing limit until Jan 1. 2025. And we all know the “ceiling” will be raised and the limit suspended once again at that point.

My base case is that the Fed will begin to lower interest rates and resume easy money policies such as QE in 2024, coinciding with the Bitcoin halving anticipated in April 2024. Because that’s all they can do.

At least lowering interest rates will reduce the interest expense on rolled-over debt. Still, it will do nothing to fix the exponentially growing debt burden that can only be financed by money printing. The Debt Spiral is here and investors can no longer ignore the precarious situation and its implications on their portfolios.

In the coming cycle, we will see a fall from grace for the US Treasury as the preferred safe haven for individual investors and institutions. A search is underway for a new store of value that’s accessible to all - bitcoin.

The timing couldn’t be better. Bitcoin’s increasing scarcity will starkly contrast with the excess of the US Dollar, printed into oblivion to bail out the insolvent US Gov.

At this stage in the debt cycle, Government bonds are Ponzi schemes. And more people will realize this in 2024 as it becomes increasingly apparent that the only action the Fed and US Government can take is debasing the dollar.

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That’s all for today folks. Be sure to subscribe to The Fiat Cave and share with your friends and family as I’ll be releasing the follow-on piece to round out my five reasons why the next bitcoin cycle will be tremendously bullish.