(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
Good morning y’all,
It’s been a couple of weeks...and with my wedding coming up on October 10th, I’m assuming I won’t be allowed to write on my honeymoon either. Yes, 10/10. The anniversary of the largest liquidation event in crypto history, when more than $19 billion in leveraged positions got wiped out. We’re hoping for a slightly better experience this year.
Before I disappear for a few weeks, I wanted to leave you with something bullish. Meanwhile, the US 10-year Treasury yield just hit 5.34%, its highest level since 2002. So bear with me here...
I’ve also been watching the US dollar rip higher against the euro. My stay at the Marbella Club is getting cheaper by the day, which is probably the only part of this my fiancee wants to hear about. For everyone else, there’s a more interesting conversation here about what we actually mean when we say a currency is strong.
And looking at the CAD...maybe it’s not just Trump keeping everyone from visiting us in Florida 😂
The dollar can strengthen because investors are worried about Europe or Canada. It can strengthen because US interest rates are more attractive, or because people go to cash when the market is uncertain. None of that requires Washington to have its finances under control. It just requires people to prefer lending to Washington over the alternatives.
Very masculine…
This is really interesting. Investors are demanding a much bigger premium to lend to the French government than to Germany, even though both borrow in euros. The currency is the same but the confidence in getting paid is wildly different. I’ve never really looked into this scenario before but it does not look too good for France…kinda defaulty.
And in the US, higher Treasury yields mean Washington has to pay more as it issues new debt and refinances the old stuff. The government doesn’t get its entire interest bill reset overnight, but the longer rates stay elevated, the more expensive the problem becomes. The same pressure works its way through mortgages, business loans and investment decisions.
Peter is right.
The problem is that another rate hike can’t fix Washington’s borrowing habit. Push rates higher and the debt gets more expensive to carry. Do too little and investors may demand even more compensation for lending long term. So I wouldn’t be surprised to see Bessent lean harder on short-term borrowing, buy back longer-dated bonds, and look to stablecoins and money market funds to help finance it all. There are plenty of ways to make the debt easier to sell. None of them require actually getting the spending under control.
I’m well aware that none of this sounds particularly bullish for bitcoin. Higher yields give investors a reason to hold bonds, a stronger dollar can tighten financial conditions, and when people need cash, they sell what they can. Bitcoin trades around the clock - it’s very easy to sell. But boy oh boy has it been strong AF these last few weeks.
If BTC can hold up with higher yields and a stronger dollar working against it, I’m interested in what happens when those pressures ease. I wouldn’t pretend to know when that happens. But I have a hard time believing governments will happily accept years of increasingly expensive debt without trying to do something about it.
Are we going to get spending restraint? Higher taxes that voters happily accept? A painful downturn that governments allow to run its course while they get their balance sheets in order? I’d love to be pleasantly surprised. But my entire net worth is betting against it.
Bitcoin doesn’t require me to pick which government will manage this best. I don’t need to decide whether the euro is worse than the dollar, or whether the next central banker will be more competent than the last. I can own an asset with a supply limit that doesn’t get revised because servicing the national debt has become politically inconvenient.
Now, I did promise to leave you bullish...take a look at October.
Nine of the past eleven Octobers finished green. No guarantees, obviously, but I’ll take those odds alongside a thesis that doesn’t depend on politicians suddenly becoming responsible with money.
For the next few weeks, though, I have a wedding and a honeymoon to enjoy. Please try to get through this October 10th without a liquidation event. I’d really like to keep my phone in my pocket.
See you as a married man 🫡