Once again, US inflation data is on most trader’s minds.
The CPI print for the US’s economy came in last night, with a less-than-ideal result for market bulls. A 0.1% uptick in month-to-month inflation certainly wasn’t unexpected, but it does confirm the need for more intervention from the Fed.
In other words, more rate rises are almost certainly on the way.
Naturally, this put a dampener on the recent jubilation in US equities. All three of the major indices fell into the red after the realisation dawned on investors.
We haven’t outrun the bear just yet.
So don’t be surprised if there’s more pain to come as central banks try to fix their mess.
It certainly doesn’t mean there aren’t bright spots to be found for investors, however. There are still plenty of individual sectors, assets, or companies that are doing just fine.
And one example, perhaps to the surprise of some, is Bitcoin…
The forthcoming halving
Year to date, Bitcoin [BTC] is up an incredible 80%!
That’s an incredible result compared to a lot of the volatility we’re seeing in other assets. And yet, most people probably haven’t even noticed.
The mainstream media, which couldn’t get enough of the 2021 crypto boom, has gone cold on the subject. After all, despite the 80% gain for 2023, the price of bitcoin is still sitting around US$30,000.
That is still well below its all-time high of US$68,789.
Until that record is broken, I wouldn’t expect to see bitcoin dominating any headlines. Not that that matters, of course…
Bitcoin’s greatest strength has always been its disinflationary design. Because while speculation may lead to incredible price peaks and troughs, the fundamental reward structure of bitcoin is what ensures its longevity.
In fact, one of the most important features of bitcoin is that it gradually becomes harder to ‘mine’. This is a process that is known as ‘halving’.
If you’re unfamiliar with the term or the process, check out this article from Sam Volkering around the time of the last halving.
Back in May of 2020, when this last halving occurred, one bitcoin was worth roughly US$8,605. Nearly a year after that, in April 2021, it would be worth closer to US$50,000.
Granted, the halving certainly wasn’t entirely responsible for this huge price spike. But it certainly played a part in the speculative frenzy. Because with each occurrence it becomes harder to mine bitcoin and, therefore, rarer to own and buy.
Of course, I’m telling you all of this because another halving event is on its way…
We’re roughly a year away from the next milestone moment for bitcoin.
A convergence of money matters
On its own, a halving event is a pretty muted affair. If you’re not a crypto enthusiast or investor, you probably couldn’t care less about this ‘event’.
But the reason the next halving is particularly important, at least in my view, is because of the other factors at play. More specifically, the timing of this halving amidst rising US interest rates and fears of a substantial economic downturn could lead to some interesting developments…
For starters, the strength and stability of the US dollar is increasingly coming into question.
We’re seeing some big efforts by big players to use the Fed’s ineptitude to decouple the world from a reliance on the USD. For example, Saudi Arabia has openly stated that they’re willing to sell their oil in currencies other than the US dollar for the first time in nearly half a century.
On top of this, as Peter Schiff recently noted, we’re seeing entire economic blocs try to distance themselves from the USD.
Here’s Schiff’s response when asked about the BRICS plan to use a new currency for trade between one another:
‘And once they [BRICS] start moving in that direction, the pendulum is going to continue to swing. There are all sorts of reasons why the world should want to divest of dollars and no longer depend on the US dollar as a reserve currency, but we gave them another one.
‘The Biden administration in slapping those economic sanctions on Russia really highlighted how dangerous it is to allow the United States to enjoy this privilege. And so, we have scared the world into divesting of dollars, something they should have done anyway because it was in their economic interest to do so.’
This is where bitcoin comes into the picture…
Because while crypto certainly isn’t ready to replace fiat currencies just yet, it is getting closer. With each halving, for example, the resilience of bitcoin becomes just that much stronger. It has time to prove its worth relative to the shortcomings of fiat currencies.
That’s why bitcoin has always been playing a long game.
Because at a fundamental level, it was designed to combat exactly what we’re seeing unfold. The intervention in and weaponisation of money is why bitcoin was created.
And that’s why by this time next year, as the next halving occurs, the price of bitcoin is likely to be booming once more.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
