Have no fear, central banks are here!

What’s a few trillion dollars among friends?

Good morning and happy Friday (I say while slowly feeling the come on from the final shot of Pfizer juice coursing through my veins)! Even though this week was a short (not in crypto) it felt relatively long. While there was not much to report on in terms of price action in the crypto market this week, there are some new tailwinds that caught our attention.

President Biden is set to propose a $6 trillion budget today as he looks to fund areas like infrastructure, education, and the fight on climate change. Even as we move from bubbling to bursting at the seams under excruciating levels of pent up demand into full blown economic recovery (at least here in the States…) Biden is showing little interest in taming the deficit.

Biden is calling for total spending to rise to $8.2 trillion by 2031, with deficits running above $1.3 trillion throughout the next decade. To put that in perspective — the only time the US has exceeded the $1 trillion deficit level was following the Great Recession and again after the COVID-19 pandemic wreaked havoc on the economy.

So much for responsible spending with an outlook to mitigate the debt burden over time… if this plan is carried out it would increase the debt bill to 117% of GDP by the end of the decade, exceeding its World War II record in 2024.

Apparently the fight on climate change is more of war and the US is happy to pay for the lion’s share.

As expected, this week was very slow. As Bitcoin and the broader crypto market trades sideways, investors are patiently waiting for a breakout in either direction to make their next move — I don’t blame them.

We also noticed some rotation out of BTC as Ethereum has been getting a lot of attention lately. Sure, there’s a lot going on in the Ether these days and while some great products and companies are likely to stem from this surge of innovation, we are very early and the risks are high — proceed with caution.

In our experience, during times like this it is never a bad idea to dollar-cost-average into the market.

The second half of this month has been brutal for crypto investors — it doesn’t matter what your portfolio looked like, you got crushed. However, some investors weathered the storm better than others.

As someone with a large portion of their net worth in BTC, it doesn’t feel great looking at that chart. However, I’ve seen these breakdowns happen over and over and so I’ve become used to the volatility. Something that makes me sleep better at night is knowing that the king of crypto has the strongest buyers and holders of last resort — the same cannot be said for other coins/tokens.

When momentum peaks in a cycle, a massive unwinding follows. During this unwinding, levered positions are liquidated, new entrants panic sell, and traders take the other side and start shorting. This is not a fun time for the market. We feel it at the desk as buyers are sparse because everyone is expecting the price to fall. This creates a negative feedback loop only broken up by buyers and holders of last resort which form a base for the next bull market.

Each day, more marginal bitcoin investors turn into true believers (hodlers) who stop thinking (or at least not let it affect their decisions) in fiat terms. When 1 bitcoin always equals 1 bitcoin, we buy bitcoin when we can afford to and tend to buy more on dips and larger pullbacks. So, not only is this quickly growing demographic acting as a holder of last resort (forming a base of strong hands), but they are buyers as well.

Sophisticated investors who have allocated 1–5% of their net worth to Bitcoin for the long-term shouldn’t be phased by these corrections. Sure, they might be “late to the party” but they took the time to decide that it was an asset that they were comfortable allocating to despite the inherent volatility. Although this demographic is still thinking in fiat terms, they can be looked at as a holder of last resort, to an extent. They are also likely to step in as a buyer of last resort as they will likely be able to see past the panic and understand that Bitcoin has never failed to bounce back.

The caveat to this thought, of course, is that there is no fundamental break or negative change to Bitcoin’s ability to attract new adopters. On the contrary, we’ve seen positive changes over the past year such as institutional adoption, supportive legislation in the West, Bitcoin reward cards, important progress to the Lightning Network, financial infrastructure, and a likely protocol upgrade in Taproot.

Now, think about what you’re holding in your bag… heavy, eh?

In case you missed it…

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