Bitcoin and Velocity of Money
Bitcoin represents the only money ever created that does not require DEBT to create velocity of money. Jeff Booth said this at the Bitcoin 2022 conference in May. Today, we will look at global macro economics again from the stand point of where we are with velocity of money and why that is important.
This first chart shows that the US government has been printing federal deficits ever since it got off the Gold Standard on August 5, 1971! The late 90’s was the only exception. Now, the defecit spending is approaching 2009 levels. Perhaps by the end of 2023 it will get there. Here is the chart below:
Meanwhile, as the federal deficit is climbing, here is a chart that details what is happening with families:
Credit Card and revolving debt is at all time highs. Family savings are dropping fast. Especially since the covid stimulus checks stopped being sent out by the US Government. Here is what Michael Burry has to say about 2022:
Here are the reasons why he is right. This next chart is small, we will explain it. This chart is daily reverse repo payments. They are up to $2 trillion, per day! Money market funds park money at the Fed. The Fed moves the money into bank reserves. Remember, bank reserves allow commercial banks to loan out that amount of money. Then, due to fractional reserve banking laws, they can actually loan out 10 times more than they have in reserves. Basel III regulations force banks to have smaller balance sheets. This creates the demand for reverse repo. Below is the reverse repo chart, notice the demand is up and to the right:
However, look at the M2 velocity of money chart. Lately, over the past two months velocity of money has dropped way off. See the red arrow:
Reverse repo is still increasing, while velocity of money is dropping. This decoupling is very dangerous! It increases counter party risk. Just like Lehman Brothers in 2008! Commercial banks CAN go bankrupt. The Fed cannot! That is counterparty risk. Thanks to George Gammon for these two charts above.
This Bloomberg headline above says it all. “Officials uncertain about market impact of accelerated runoff.”
This means the Fed is running off mortgaged backed securities from it’s balance sheet. This is also why interest rates have gone from 3% to 5%. The Fed wants treasuries not mortaged backed securities on the balance sheet. This “runoff” is stressing those who have adjustable rate mortgages or HELOC’s. As the US dollar loses more and more buying power, interest rates have to increase. This stresses homeowners and the stock market at the same time. When mortgage backed securities start getting dumped after June 15, 2022. This will reduce demand for houses and real estate. It will also cause interest rates to spike up. It could take a few years for real estate prices to get to their bottom. Interest rates will move much faster. Therefore, the impending stock market crash will as well.
The total value of ALL companies listed on the US stock market is $53 trillion. The real value is much lower because the US has been printing trillions to provide interest free loans to investment banks to pump up the stock market. It creates Zombie companies, which make up the S&P 500. Netflix is a good example of that. Although the Nasdaq has crashed -35% this year so far, we expect another -50% crash the remainder of the next year or two. S&P500 as well. Fall 2022 into 2023 will be very bearish for stocks. Who knows how long this recession will last. Too soon to predict that.
What is truly interesting is the amount of interest Bitcoin gets from institutional investors. Like commercial banks, they see the writing on the wall. This recession is almost here, all that is missing is the dramatic crash in stock prices. Where will institutional investment money, hedge funds, pension funds, endowments go if this crash does hit this fall?
Coinbase custody for Institutional clients has gone from 580K Bitcoin to 2.2 Million Bitcoin from 2020 to 2021. Institutions are adopting Bitcoin. They see it as the lifeboat from the old monetary system. Which is sinking. Here is the chart below:
Octagon networks converted it’s entire balance sheet to Bitcoin, click here to view.
So again, Bitcoin does NOT require debt to create velocity of money. There is no fractional reserve banking in Bitcoin. There is no backing of any kind to fiat currency. That ended 51 years ago! Bitcoin is backed by the miners proof of work, energy! Yes 2022 is a bear market. Bitcoin has just crashed to $30K, and last month it touched $25K for a minute. The real question is, what will it do as it gets closer to the halving in early 2024? By then inflation will either be unbelievable, or interest rates will be. Pick your poison! We think the Fed will have to go back to QE (quantitative easing) in fall 2022 or 2023 at the latest. Watch the mortgage backed securities and where they end up! Likely whatever bank has the most liability from mortgage backed securities will be the next Lehman Brothers. This is not financial advise and we are not financial advisers. A really bad storm is brewing economically. Bitcoin is the life boat. If the scenario we see playing out does. There will be more inflation, and the stock market will be a lot cheaper than it is now. So will Bitcoin, but not as bad. We believe, going into 2023 there will be an exodus into Bitcoin by institutional investors. The extent to which that happens will depend heavily on the status of the Bitcoin Spot ETF. Just remember how scarce and decentralized Bitcoin is. That decentralized nature of it may keep the Spot ETF from happening soon. We cannot count on it. We all need a lifeboat. Fiat is debt. Debt is bondage. Central Bank Digital Currency is a financial slavery system. Bitcoin is freedom.
Neutral ATM is here to get everyone off of zero Bitcoin.
Give Neutral ATM a try. We have low rates, convenient locations and we are expanding. Contact Neutral ATM, we will answer all your questions about Bitcoin and using our ATM machines. Find a Neutral ATM Bitcoin machine location near you.