In a new report, Capriole Investments states that Bitcoin will outperform all other assets in the coming year for three main reasons. One of those reasons, perhaps not surprising to many, is the current all-determining factor US Federal Reserve (FED).
According to the company, the market is currently experiencing the most aggressive monetary policy since the 1980s. The annual rate of change in M2 money supply is now negative for the first time ever, as analyst Dylan LeClair showed yesterday.
Guys, the money printer is jammed. pic.twitter.com/IimHwaoEaX
— Dylan LeClair 🟠 (@DylanLeClair_) December 28, 2022
Like the founder of Capriole Investments, Charles Edwards explainedthe Federal Reserve has consistently cut Federal Funds rates in subsequent years when inflation rose above 5% and then fell by more than 20% as recently shown.
Although in all cases the inflation peak continued for several years. In 4 out of 5 cases, inflation normalized to 2-3% in the following years, while the FED fund rates declined, as the chart below shows.
“I expect this to be the golden decade for hard money,” Edwards continued, saying history suggests that further monetary tightening is unnecessary, making it very likely that the Fed will pivot within the next six months. This would also be in line with the latest news from the FED reviewwhich predicts another 75 basis points in interest rates, which could mean two steps (50 and 25 basis points) or three steps (three times 25 basis points).
Capriole investments argues that the need for the FED to run for the next year will be for a number of reasons. On the one hand, pressure on the economy is mounting, as evidenced by falling indexes, mass layoffs at tech companies and housing market sentiment; on the other hand, debt will be a major driver:
Higher interest rates for longer periods put great pressure on the US government to fund its obligations. From a government standpoint, it is much better to have higher base inflation (say 2-4%), which helps to reduce relative debt over time.
Bitcoin is harder than gold
Capriole Investments compares the current inflation peak with that of 1970 and 1975. “Both periods led to huge gold bull runs. From 1971-1975 gold rose 450% and between 1977-1980 it skyrocketed 800%,” the company notes.
There are “convincing parallels” between the present and the 1970s in terms of inflation trends. With Bitcoin being the “harder money” compared to gold, plus other advantages, Capriole Investments expects BTC to outperform its older competitor.
Accordingly, a second major reason for Bitcoin’s massive strength in 2023 will be its upcoming halving in early 2024. Currently, BTC’s market cap is only 2.5% of gold’s market cap, which means upside potential of 3,739%.
“In just over a year, Bitcoin will become the most difficult asset in the world, with a programmed inflation rate less than half that of gold. […] Each Bitcoin halving has triggered a cyclical bull market in digital assets. Yet with every halving, people expect this to be priced in,” says Capriole Investment.
BTC poised for a bull run in 2023
Looking at the fundamentals, Edwards notes that Bitcoin is trading within $100 of the Bitcoin bottom signals he points out gave in November. The all-important graph according to Edwards is that of Bitcoin production costs: “Bitcoin continues to trade at the bottom of electricity costs. Incredibly rare, low value.”
In conclusion, the investment firm predicts that the 2020s will be the decade of hard money, similar to the 1970s. “For stock market investors, this could be called a lost decade.”
“If you agree, the only question that remains is which hard money will prevail,” says Capriole, continuing that Bitcoin is poised to outperform gold because of three key advantages: It’s tougher, it’s digital and it is 1/40th the size of gold, predisposing it to greater appreciation.
At the time of writing, BTC price was still struggling to gain momentum, trading at USD 16,584.
Featured image from Kanchanara / Unsplash, charts from Capriole Investments and TradingView.com