“Fed Watch” is a macro podcast with a true and rebellious bitcoin nature. In each episode, we challenge traditional narratives and Bitcoin by examining current events around the world, with a focus on central banks and currencies.
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In this episode, Christian Keroles and I catch up on the week, take stock of the evolution of the Chinese financial crisis, explain why fiat money today should rightly be called credit-based money and the side effects of this do. Finally, we dive into the bitcoin chart.
You can access the slideshow of the graphics of this episode here or below.
First, the situation of the Chinese economy. They are facing major problems in their real estate market, their economy and their banking system. Currently, 28 of the top 100 real estate developers have defaulted or restructured their debts. There is a growing “mortgage boycott”, where buyers of unbuilt homes in projects that are now delayed due to the pandemic, the financial situation of developers and the country’s zero-COVID policy, have refused to pay their mortgages. The boycott started with 20 projects and has since expanded to 235 projects.
The rhetoric around this mortgage crisis is eerily similar to that in the United States in 2007. Excuses such as “It’s a small number of mortgages” and “The effects are contained” are offered.
Due to problems with developers and mortgages, small and medium banks are facing solvency problems. Chinese banks have $9 trillion real estate exposure. If there were a problem with the perpetual decline in house prices, it could very quickly cause a solvency problem for the banks. Indeed, that is exactly what we see.
New home prices in China fell for the 10th consecutive month in June 2022.
Gross domestic product collapsed in the second quarter of 2022 to 0.4%.
The GDP chart does support my personal macroeconomic predictions that major economies will return to “normal” post-GFC. Since the GFC, growth in China has slowly declined. Then there was the severe economic disruption and the whiplash effect in the economy, followed by a return to slower growth.
At the end of the Chinese segment of the podcast, I read a fascinating Nikkei Asia article on the situation surrounding the recent bank runs in Henan province. The article highlighted the abusive response to the bank run and the growing dangers of a full-scale financial crisis in China.
Next, we review some Bitcoin charts. The first two charts highlight the similarities and differences in the chart over time periods that resembled today’s price action. I pointed out that the current flat consolidation differs because it has higher highs and higher lows where previous breakout attempts did not.
There are also some very interesting observations from Twitter about cash positions in hedge funds and the bitcoin market.
Kuppy points out that the percentage of hedge fund portfolios that hold cash is higher than any time since the dot-com bubble in 2000. When these spikes occur and hedge funds return to stocks, the market bottoms and is enjoying a good recovery. .
We can also see this effect in the bitcoin market.
This chart is a bit cluttered, but the top panel is “stablecoin dominance,” as I called it, the ratio of stablecoin market cap to bitcoin market cap. This is a proxy for a “cash position” in the bitcoin market. The bottom panel is the bitcoin price. At the relative highs of the stablecoin ratio, the price of bitcoin bottoms out, as these stablecoins can turn into buying bitcoin and vice versa.
The US dollar
Much has been said about the strengthening of the dollar. We’re the only bitcoin podcast that has unequivocally called for a strong dollar in the past two years, and we got it right.
I don’t expect the Dollar to sell off dramatically after its parabolic rise, but to establish a new higher range, perhaps between 100 and 115 on the US Dollar Index (DXY).
I emphasize that bitcoin does not need a weaker dollar to explode higher. In fact, if you look at bitcoin history plotted with the DXY, you can see that the dollar is establishing a new upper range where bitcoin is selling. After periods of rising dollar, bitcoin tends to take off. I hadn’t prepared a graphic to show this during the live stream, but it’s included below.
The pink areas indicate periods of rising dollar and falling bitcoin. The black arrows indicate rising bitcoin in the middle of a stable dollar in a higher range. It is important to note that bitcoin and the dollar have both moved higher over the past 10 years, only on slightly different time frames.
Finally, we take a look at the Euro and discuss how and why it is in the most trouble among the major currencies. We repeatedly mention the risk of fragmentation. I did a podcast episode devoted to this topic recently.
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This is a guest post by Ansel Lindner. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.