The Great Monetary Tragicomedy
 |
| By Juan Villaverde & Alex Benfield |
Once upon a time — or just 15 years ago following the Global Financial Crisis — the Federal Reserve and other central banks cut interest rates to near-zero.
Although they promised this move would be temporary, during the fascinating years that followed, everyone happily took advantage of near-zero interest rates.
Some geniuses even created far-fetched theories like the "Modern Monetary Theory." Because who needs consequences?
This new normal led to the "everything bubble," and we had Fed chairs like Ben Bernanke and Janet Yellen telling us not to worry. They could reverse this policy in a snap — they were in control!
News flash, they weren't.
Fast forward to 2020, the COVID-19 lockdowns, and the grand finale of monetary experiments: Lock people in their homes and print money to keep them content. What could possibly go wrong?
Spoiler alert: It was inflation.
As the proverbial chickens came home to roost, the bond market had its worst year ever, the Fed lost money for the first time and banking and financial systems started crumbling.
Every few months, something imploded, and central banks were forced to step in and buy government bonds to keep the systems afloat.
These events had one thing in common: Rising interest rates crashed the bond market, putting the whole world's financial architecture on the brink of collapse.
Debt piled up, so enormous that it couldn't be paid off. And it only rolled over year after year.
Central banks simply printed the difference when the debt game hit a snag.
Ingenious, right?
To be fair, the Fed did attempt to turn things around. But the raising of rates was an exercise in futility.
The moment things began going south — and debt became the primary concern — central banks went right back to printing money.
For example, the Fed just reversed months of quantitative tightening. Other banks, like China's, are already back to printing money like it's going out of style.
Do you think they learned from their mistakes? Not a chance!
Years of near-zero interest rates left the financial system unable to handle rapid rate hikes. And central banks, the valiant defenders of the legacy financial system, couldn't bear to watch bankruptcies intensify until they themselves drowned in the chaos.
History will remember near-zero interest rates as a one-way trip, unleashing unstoppable forces leading to the total debasement of government-backed currency.
So, what happens when the unstoppable force of zero interest rates smashes into high inflation? A catastrophic crisis in confidence, of course.
In the end, only one financial system will remain standing: the decentralized system built on public blockchains and backed by decentralized crypto assets.
That's why U.S. regulators have recently gone all "bad cop" on crypto. They see the writing on the wall and are frantically trying to stop it.
Good luck with that!
Their attempts to annihilate the crypto industry will be as pointless as raising interest rates amid the largest debt bubble ever.
Eventually, the walls will crumble, trap doors will open and a tidal wave of capital will flood into Bitcoin (BTC, “A-”), Ethereum (ETH, “B”) and the entire DeFi ecosystem.
That’s our long-term outlook. For near-term action, I’ll turn things over to Alex ...
Hold on to your hats, crypto enthusiasts! This year is turning into one wild roller-coaster ride, and we are loving every twist and turn.
Although the crypto market had been sleeping like a bear in hibernation in 2022, it's now awake and ready to roar.
Bitcoin, Ethereum and other blue-chip darlings are smashing through resistance levels like a wrecking ball, while altcoins and non-fungible tokens are making a comeback more impressive than a phoenix rising from the ashes.
Altcoins are starting to pop off again as more investors and capital have begun exploring projects deeper than the surface level of this market for the first time since the bear market started.
Even NFTs are waking up from their slumber as crypto investors have started to shuffle some profits into art and collectibles again.
That sentiment is evident at the NFT NYC event that took place this week in celebration of various NFT projects. Folks, the energy is downright electrifying, and it’s spreading like wildfire.
Even though the regulators are hot on Bitcoin's tail, the media and mainstream public are blissfully unaware of the crypto fiesta happening right under their noses. Sneaky, sneaky.
Now, with the next Federal Open Market Committee meeting looming in early May, everyone's biting their nails, wondering whether the Fed will raise, pause or cut interest rates.
But here's the thing: It doesn’t matter. At least not for the crypto market.
As Juan says, it's all about the liquidity. As long as the Fed keeps printing, crypto will keep climbing. The only question is how fast.
So, sure, the crypto market may get a little wobbly around the time of the Fed's decision, but let's not forget the bigger picture: Bitcoin is on a steady upward trend.
In fact, Bitcoin’s year-to-date chart looks flat out beautiful. There have been some pauses and some dips along the way — as is to be expected with this market — but there is a clear trend upward as BTC looks to establish itself above $30,000.
Frankly, I doubt $30,000 is the last big resistance level Bitcoin will smash through on its way up.
Ethereum has also had a hell of a week after the successful rollout of its Shanghai upgrade.
The fear that most stakers would withdraw their ETH now that they could — a narrative that we here at Weiss rebutted many times — proved to be empty.
On the contrary, there has been a large influx of deposits over the past 24 hours.
But that’s not to say there haven’t been any withdrawals: The entire lot of Kraken stakers have been forced to withdraw their ETH by the U.S. regulators.
But overall, the idea that the Shanghai upgrade would be a bearish event for the price of ETH has proven utterly ridiculous.
For the first time since last summer, ETH blasted through the big $2,000 resistance level. So far, ETH is up 10% in the past 72 hours and hit a high of about $2,130 earlier today.
If ETH can manage to stay above the $2,000 level over the weekend, that could provide an opportunity for the rally to extend even further. And a rallying ETH could open the doors for altcoins to surge.
Click here to see full-sized image.
Like I said earlier, things are getting exciting.
So, dear crypto aficionados, buckle up and get ready for a thrilling adventure. The crypto market's ramping up the excitement, and there's no telling how high it will soar.
As always, I suggest checking in with this newsletter to get your daily updates. And be sure to set alerts on your favorite assets to get notified of any price action or change in their Weiss ratings.
Just remember to enjoy the ride. We're in for one heck of a journey!
Best,
Juan & Alex
