Historic U.S. debt and currency creation … bitcoin as a solution to fiat debasement … the greater return-potential from altcoins
Estimates say, in 2020 alone, the U.S. has created 22% of all the (U.S. dollars) issued since the birth of the nation.
That mind-blowing quote comes from Bitcoin.com.
Take a moment to let that truly sink in …
In this nation’s entire history of currency creation, our government has created almost a quarter of its dollars in this year alone.
***We are drowning in debt and newly printed currency
The U.S. response to the coronavirus has already hit $4 trillion. And the next stimulus package will likely be somewhere in the $1.5 – $2 trillion range.
To be clear, this is money that the United States does not have.
It is created from thin air … backed by nothing more than good faith in the federal government … and it is a sum greater than what our economy will create this year.
From CNN:
On Thursday, the Congressional Budget Office estimated that for fiscal year 2020, which ended September 30, the US deficit hit $3.13 trillion — or 15.2% of GDP — thanks to the chasm between what the country spent ($6.55 trillion) and what it took in ($3.42 trillion) for the year.
As a share of the economy, the estimated 2020 deficit is more than triple what the annual deficit was in 2019. And it’s the highest it has been since just after World War II …
The Treasury Department won’t put out final numbers for fiscal year 2020 until later this month. But if the CBO’s estimates are on the mark, the country’s total debt owed to investors — which is essentially the sum of annual deficits that have accrued over the years — will have outpaced the size of the economy, coming in at nearly 102% of GDP, according to calculations from the Committee for a Responsible Federal Budget.
We’ve seen similar spending explosions from other global central banks …
Governments around the world have unleashed at least $15 trillion of stimulus via bond-buying and budget spending.
According to French investment bank Natixis, the amount of global central bank money will increase more in 2020 than it has over the last 20 years — and that includes the 2009 crisis.
Natixis predicts the cash supply of major central banks is going to increase by 70% here in 2020.
Overall, experts predict that by the end of this year, we may see the global debt-to-GDP ratio rise to 342%.
***Returning to just the U.S., what happens if our debt-to-GDP ratio remains distorted?
From a report from the Congressional Budget Office (CBO):
That trajectory ultimately would be unsustainable …
How long the nation could sustain such growth in federal debt is impossible to predict with any confidence.
At some point, investors would begin to doubt the government’s willingness or ability to pay its debt obligations, which would require the government to pay much higher interest costs to borrow money.
Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country.
This situation would be disastrous for the dollar … which is exactly why you need to hold some of your wealth outside the dollar.
And it turns out, one asset in particular is appearing ready to take its next leg higher.
***The case for a major move from bitcoin
Let’s begin by looking at a one-year chart of bitcoin with no commentary.
What do you notice?
Well, in general, bitcoin tends to have three directions: up sharply, down sharply, and sideways.
As you can see, there is little gradual-up or gradual-down.
Right now, bitcoin appears to be setting up for its next major move.
Now, while there’s always a chance it will be lower, we believe the more likely direction is higher.
As to one reason why, we’ll present the same chart, but this time we’ve added in recent trend lines.
What you’re going to see is bitcoin’s price action has been compressing into a wedge pattern. This suggests a major breakout is coming — one way or the other.
But notice what’s happened in the last few days — bitcoin’s price is pushing through the top of its upper trend line. This bodes well for a bullish breakout.
For a second reason why we’re bullish on bitcoin’s breakout-direction, we’ll turn to macro investor, Raoul Pal. He’s a former hedge fund manager, and the founder of the respected investment shop, Real Vision.
In a recent tweet, Pal noted that bitcoin’s historic volatility has been dropping. It is now in the 20s.
Here’s Pal for more:
In the past it has hit 20% vol 7 times. 6 times prices exploded higher immediately and vol hit 80% in a few months.
1 time (November 2018) prices fell sharply.
Either way, a big move is coming soon.
***But what if this time is like November 2018 in which bitcoin drops?
Well, first, that’s simply part of the risk an investor takes when trading markets.
That’s why you’d want to use smart position-sizing and stop-losses so that you’re not risking more capital than is right for your specific financial situation.
(Be sure to read the free e-book from our CEO, Brian Hunt, “The Risk Vs Reward Manifesto” that walks investors through these powerful tenets of trading and investing.)
That said, even a short-term drop in bitcoin isn’t likely to be sustained from a longer-term perspective. That’s because while “bitcoin as a trading vehicle” might see shorter-term pullbacks, “bitcoin as a long-term investment” is likely headed much, much higher.
The latest evidence to support this comes through yet another sign of widespread adoption — this time through tech darling and payment company, Square.
From CNBC last week:
Payment company Square is buying a large block of bitcoin, an unusual use of corporate cash.
Square said Thursday it bought 4,709 bitcoins, worth approximately $50 million. This represents about 1% of Square’s total assets as of the end of the second quarter of 2020.
“Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose,” the company said in a release.
This is just the latest win for bitcoin.
Other household brands accepting bitcoin include Microsoft, Overstock.com, AT&T, BMW, and Etsy, to name a few.
And the wider its adoption grows, the more demand for bitcoin we’ll see, which will be a huge, long-term tailwind for investors with established positions.
***Our crypto specialists, Matt McCall and Charlie Shrem, recently echoed this point about bitcoin, though noting this adoption-tailwind will likely be even more beneficial for elite altcoins
Matt and Charlie recently launched InvestorPlace’s newest service, called Crypto Investor Network.
Its goal is to identify the most valuable, most explosive altcoins in the crypto ecosystem — the ones that have the potential to return hundreds, if not thousands, of percent.
You see, while Matt and Charlie are bullish on bitcoin, they believe select altcoins will offer investors vastly greater returns this decade.
Behind this is Matt and Charlie’s belief that our broader culture is waking up to the fact that cryptocurrencies are one of the most valuable, revolutionary technologies ever created.
And as this awareness spreads, there will be an enormous rush into this asset class — or as Matt calls it, an “awakening.”
From Matt:
This awakening could singlehandedly drive the price of bitcoin and several other select cryptocurrencies to never-before-seen heights.
If you position yourself correctly, it could hand you a fortune that you could only previously dream of.
Recently, Matt spoke to the explosive potential in altcoins, as well as their ability to help protect your wealth against the currency debasement.
Back to Matt:
As governments around the world pump money into their economies, the greater supply automatically puts pressure on traditional currencies.
Cryptos are a fantastic hedge because nobody can manipulate their production. Bitcoin and other select altcoins have a fixed supply written into their code. That makes them an excellent store of value.
***The big picture
We believe the future is bright for bitcoin and elite altcoins. And we encourage investors to add some to their own portfolios.
But if the crypto world isn’t for you, at a minimum, don’t miss the bigger picture of what’s happening in our nation and world with fiat currency.
Returning to the top of this Digest, estimates are that 22% of all U.S. dollars ever created have been printed this year alone.
That does not bode well for savers with a large portion of their wealth in the dollar.
But what’s bad for the dollar could be very good for bitcoin and elite altcoins.
I’ll give Matt and Charlie the final word, from their most recent issue of Crypto Investor Network:
Odds are that the next big move for bitcoin and the entire crypto universe will be higher. This goes along with what we said in last week’s special issue about bitcoin remaining above $10,000 longer than it ever has …
We see this as just one more catalyst that will send bitcoin to its highest level in over a year. The next stop should be the $15,000 area.
If and when this occurs, at least some and possibly all the altcoins in our Crypto Investor Network portfolio should also explode higher and even outperform bitcoin.
Have a good evening,
Jeff Remsburg