Today’s Market Madness Means Big Things for Crypto’s Future

By Juan Villaverde

Bitcoin (BTC, Tech/Adoption Grade "A-") was founded in the depths of the 2008 global financial crisis. And on the first block of the blockchain (the Genesis block), a headline from that year was engraved for posterity:

"Chancellor on Brink of Second Bailout for Banks."

This inscription provides a peek into the mind of Bitcoin's pseudonymous creator by pointing to what motivated him.

Bitcoin was created in response to decades of relentless abuse — by governments and central banks — of a key foundation of human society: money.

Today's Money Is a Top-Down System

It emanates from central banks. And while they are far from the only actors in the global monetary system, they are by far the most influential.

During the 2008 financial crisis, central bankers did something never previously done on a global scale. They printed money in quantities large enough to refloat a bankrupt banking system on a rising tide of fresh cash to prevent systemic collapse.

And it worked — at least as far as staving off collapse. And the economic rebound that followed was swift, albeit anemic.

But before long, unintended consequences began to raise their heads.

Easy money flowed abundantly into certain sectors of society, particularly financial asset owners. But not very much of it ever got to the population at large — which caused domestic political tensions to rise steeply.

Freshly printed money also benefited governments, the original targets of monetary intervention. Governments bailed out the banking system by borrowing money. And central banks acted as lenders by printing the cash.

In this way, central banks gradually became the main buyers of government paper. Across the developed world today, you'll find that central banks own the lion's share of government debt.

It's old-fashioned debt monetization, under a new name.

Then Came 2020's Pandemic Panic

Global lockdowns made it impossible for millions to make a living. Bills went unpaid, and eventually food ran out.

So, to prevent a cascade of defaults — and massive riots — central bankers figured to use the same tools that had been working for over a decade.

Only this time, they doubled down, printing trillions on top of trillions of dollars, euros and yen in the greatest monetary expansion in modern history.

Bitcoin underwent its third halving in 2020, at which point another emblematic message was written engraved on the blockchain. It read:

"With $2.3 Trillion Injection, Fed's Plan Far Exceeds 2008 Rescue."

This was a stark reminder that what started in 2008 was still relevant and playing out more than a decade later: massive money printing enabling governments to borrow in the trillions. And boosting inequality as asset prices continued to surge.

Then in 2021, the unexpected occurred. Inflation finally emerged.

Fearing they'd be forced to atone for their sins, central bankers fell into full panic mode. In 2022, they threw the book at inflation, embarking on the fastest, most aggressive monetary-tightening policy in history.

The result was seismic dislocation across all asset classes. The U.S. dollar rose sharply around the world. Bonds plunged, suffering one of their worst years ever.

Inflation, however, appears to have peaked … at least for now.

But this is likely the result of an economy so badly damaged that demand for goods and services has fallen through the floor.

Or at least diminished enough to offset shortages stemming from supply-chain disruptions, international economic sanctions and lingering aftereffects of COVID-19 lockdowns.

With inflation well off recent highs …

Expect a Self-Congratulatory Victory Dance from the Federal Reserve in Early 2023

And as Fed officials take their foot off the gas, asset classes will celebrate. Accordingly, I foresee a good first half for investment markets, including crypto.

But eventually, inflation will come roaring back as nothing has fundamentally changed. That will force central banks to react again. But this time, their tools will prove ineffective.

As more investors realize Fed officials aren't nearly as in control of the economy as they like to pretend, all hell is going to break loose in the bond market.

As prices crash and burn, what they do next is predictable. They'll backstop the bond market … by buying it whole.

Sound far-fetched? Nope. This is already happening in Japan. You're likely going to see it spread to Europe sometime this year. Then, it will be America's turn.

However, interest rates are eventually going to spike up again, no matter how many bonds the Fed buys with freshly printed money.

But this time, the driving forces will be a wholesale loss of confidence in — and exodus of capital from — all forms of government-issued paper, including fiat currencies!

At this point, crypto will be a bright light piercing the darkness and chaos of a dying global financial system. Because it's likely going to be the only sound money alternative still standing.

Obviously, this is a long-term, end-of-an-era scenario. And no one can say for sure precisely when it when and how it's going to play out.

But one thing is certain. The danger is both real and not so distant that you can safely ignore it.

So, the prudent thing to do is stock up on crypto ahead of time. Especially now … before the next bull market begins.

When will that be?

Well, after almost falling asleep over the holidays, crypto markets began 2023 in NEUTRAL.

One reason to welcome the new year with open arms is that it is very unlikely indeed to be anything like the persistently bearish 2022.

On the contrary, we are very likely to witness a powerful rally at some point — which will put an end to crypto winter and usher in the early stages of a new bull cycle.

That said, at current levels, there still is a heightened risk of downside that we can't discount for the medium-term. So, while preparing for the next bull market, execute caution to avoid near-term missteps.

Such steps can include utilizing strategies such as dollar-cost averaging to increase your exposure to top cryptos and moving long-term investments to hardware wallets to increase security.

And, of course, keep checking in with us here at Weiss Crypto Daily for your timely updates.

Best,

Juan