For more follow me on Twitter @fairfreedigital: Since my last Tradingview post I've been looking at the bitcoin cycle and putting it into perspective of real purchasing power by adjusting the price for the money supply. More will becoming on the timechain (an x axis of block height rather than date) front, but I wanted to post about how undervalued bitcoin is in terms of previous cycles and its price in relation to the money supply.
Bitcoin is an asset that doesn't require absolute perfection for success, but rather an ability to zoom out and spot signal through market distortions and short term manipulation.
So lets talk about that:
One of the largest drivers of Bitcoin's price is the projected growth of the money supply rather than the money supply growth itself. Because of this, we see large run ups in price prior to money supply growth and discounts in price post and during currency debasement activities. In June 2020 we saw massive buy pressure come into bitcoin that pushed the price into a period of over performance in response to unprecedented Federal Reserve /Global Central Banks balance sheet expansion (more on federal reserve balance sheet expansion can be found in my tweet history @fairfreedigital) and federal government spending from the CARES Act.
As of right now, bitcoin is in a period of under performance as the US Treasury has been drawing down on the Treasury General Account ( TGA ), aka new dollars that were already projected to be spent forward into the economy. As the TGA account is coming close to zero, the US approaches the threat of bankruptcy. With 156T in unfunded liabilities that need to be paid out, its only a matter of time until a new deficit ceiling is established and we will be able to project forward if we should expect a top as related to 2013 and 2017. Until then, there is no reason not to assume an average of the two previous cycles.
This puts the bitcoin price at about a 10x from where it is today at the top of this bull market, that's a long way to go. I also see no reason it couldn't be speculated that the period of over performance would be any different than the period of under performance due to bitcoin's mathematical nature. This would put bitcoin's price up 136% in relation to the total M2 money supply around mid/late October as these expectations of future spending begin to get priced into the market. This would make a lot of sense if the market is currently expecting a Federal Reserve tapper in asset purchases, but the reality is that the Federal Reserve balance sheet expansion is accelerating. As I've covered in my previous work this is exactly the case. Unless the Federal Reserve isn't gaslighting the world in terms of tappering its asset purchases and the US government defaults on its unfunded liabilities, we should expect bitcoin to continue to print astronomical numbers in the bitcoin price in nominal terms to continue.
Bitcoin is a screaming buy for anyone who understands what is happening in monetary policy . Me personally, I've seen all I need to see. Bitcoin is in a period of extreme undervaluation and solves the next largest problem not yet priced into the markets of capital controls over financial securities (stocks, bonds, etfs). When those capital controls come and wealth confiscation begins, bitcoin provides the capital flight solution that people will pay any price for as the Bitcoin network continues to look as strong as ever.
I maintain my bullish call of a 486k bitcoin by EOY as a result of a blow off top. This call remains subject to Federal Reserve balance sheet asset purchase acceleration, US federal government not engaging in austerity for unfunded liabilities, and the US Government not defaulting on its debt in nominal terms. Tik Tok, next block.