Bitcoin Sideways on Resistance as Inflation Joggles with the Crypto Super Bowl

Bitcoin didn’t follow stocks however after resistance at $45,000, although it did briefly reach $46,000.

Suggesting its price movements are more due to technical analysis related crypto factors, rather than macro.

$45,000 has not been much of a resistance on its way up previously, but it has been huge support.

In addition just a few days hanging out here is not really big resistance, but it’s here where bulls and bears are scuffling a bit, presumably because bulls are not sure whether this is really going up, and bears are not sure whether this has a reason to go down, so they just eying each other.

Inflation hitting 7.5% gave a bit of small jitters on Thursday both for bitcoin and stocks, but both seemingly quickly ignored it because it’s not really bad news, it’s more unchanged news.

It’s also old news about last month. The up to date news is more about the current price of gas which is the primary driver of current inflation.

Gas seems to be testing support, with the worst of winter arguably over as we near Valentine’s day, although March is still potentially a cold month but not as much in most of Europe.

So that support may well break down which should ease inflation, but the data won’t reflect it until April.

We got a nice spike this month in gas prices so inflation might be even worse in March, but is this really inflation or is it geopolitics?

Supply chain issues are also the up to date news on inflation, and they appear to be easing with expectations they’ll be back to normal by June.

So it isn’t too clear whether a rate hike in March would even be followed thereafter if Fed really wants to shake the economy off deflation and to roughly 2% yearly inflation.

Because in the natural state, you’d expect the economy to deflate as sophistication in production increases. That’s especially an economy with a reserve currency, like the dollar or the euro.

Inflation Complexity

As a moving measurer of value, the supply of money is meant to increase as the supply of goods and services, or of value, increases. That’s if it is to keep prices stable.

Over the past decade from 2010 to 2020, the M1 money supply more than doubled from $1.8 trillion to four trillion, just as GDP did. That M1 then shot up in 2020 from that $4 trillion to now $20 trillion.

Inflation has also increased 4x from less than 2%, with the big problem being that this money isn’t printed, it is loaned, and that loan has to be paid back.

Where the government is concerned there’s no chance of that happening for the capital of the loan, the circa new $10 trillion. They will only pay the interest.

That’s a huge interest though, at circa $400 billion a year now, and that $400 billion becomes new permanent money.

The more interest rates rise, the more has to be paid in interest, and the more becomes permanent money. However there will be less demand for new loans, that is less demand for capital, which is temporary money, and so in theory money supply should contract but in practice as there is so much public and private debt, and thus so much in interest becomes banks profit and so permanent money, it isn’t too clear how that balance between permanent interest money and instant capital injection will play out.

Turkey or Argentina and many other countries have crazy high interest rates and still have crazy high inflation. Presumably that is because at a certain point the monetary system is thrown off the balance of interest payments being a small part of the money equation compared to capital loans.

They say the former Fed chair Paul Volcker, he hiked up rates and all great, but that was back in the 80s when big reforms were made to liberalize the economy and government debt was circa $2 trillion at just 30% of the GDP.

Private debt levels were also far lower, with that mess that began in 1979 solved more by the crash in exchange rates for goods as oil spiked to keep up with the crash in the dollar’s value after it was removed from the gold standard.

What Volcker did instead is bankrupt New York, which was then taken over by bankers, and so forced states to sell off assets in addition to layoffs which then crashed the economy which led to deflation with the spike in prices never addressed as oil never went back to what it was prior to the removal of the gold standard, and house prices have never quite deflated.

Had Volcker done nothing, who is to say the outcome would have not been the same? That’s because inflation is measured over last year. So it spiked to 15% in 1980 and then it took about four years for it to come down.

That is in 1981, and we’ll simplify, it increased 15% over the 15% that it increased in 1980. In 1982, it increased another 10% over the 30% it had already increased.

In just two years thus we have a 40% crash in the value of the dollar, with the next two years bringing it to the 70% crash that was due, and then it went back to normal as a new balance was found in non-gold backed USD.

Volcker then lowered interest rates and claimed he had tamed inflation. It’s not clear whether anyone pointed out that was after a permanent 70% crash in the value of money.

This generation therefore wouldn’t easily be able to accept the argument that Fed has the right to just crash the economy to bring inflation under control when debt levels are so high that it isn’t clear whether an increase in interest rates would cause a higher supply in money, rather than lower.

It must be crossing that tipping point is how you head to galloping and even hyper inflation, rather than esoteric ‘confidence’ feelings where people change behaviour.

This generation instead needs to know the answer to a very simple question: why can’t fed just cancel the debt owned by the government to it through loans it gave at pretty much zero interest?

It is afterall just a mutable database entry, though the money is real and in circulation. But, fed can cancel that loan when it’s paid back, so why can’t it cancel it manually?

There may be good reasons. One of it might be that all of it would become permanent money and instantly, but interest rate payments would also disappear so from a supply perspective they would cancel each other out.

There may be more slippery slope arguments as if you cancel this, why not the next one? Well, they’re not meant to loan them anything to begin with, so if they loaned it once why not again and thus we get to the same as cancelling it, although the interest payments would become bigger and bigger which comes at the expense of actual investment in schools and infrastructure as well as out of the pocket of taxpayers.

If the government is to loan money from the central bank, then the government should also owe nothing to the central bank, because the two at that point arguably have become one and the same.

Otherwise this is pretty much entrapment as the central bank can now bankrupt the government if it wants to by asking debt given out at no cost to be paid at a potentially huge cost.

If it was otherwise, would the government have given free checks to all, which itself is a paradox since the public funds the government, and that public has now to pay interest on that ‘free’ money they were given.

Where is that interest to come from if Fed is to cause a recession, when the only way out is the opposite, growth, and you can’t have growth when ‘free’ money now has to be paid back with interest.

It should instead just be cancelled. Fed erases $10 trillion, $10 trillion is removed from the bonds supply, and is there any reason why we’re not done on the matter?

All of which is why plenty bitcoin because the complexity is just too great for a committee to really manage well a moving measurer of value, and the temptation is always too big to mismanage.

This mess now needs proper reforms to sort out as moving a single data point will probably not do much that is beneficial, with bitcoin’s temporary price movements being anyone’s guess but in the medium term you’d think such hedge is very useful especially if states or countries start wobbling up under the huge weight of their debt.

While in the short term the Crypto Super Bowl might be more relevant as more than 100 million Americans are to hear about bitcoin, but for now the crypto does not seem to be very sure on which way to go.