Global Uncertainty Is Bitcoin’s Opportunity

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The below is from a recent edition of the Deep Dive, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

The Larger Macro Picture

Last night, Dylan shared an extensive thread on Twitter covering the current macro picture across stocks, bonds and volatility in the market. In today’s Deep Dive, we’re expanding on some of those ideas and charts more in-depth as these are some of the more important market dynamics that will affect all markets in 2022, bitcoin included.

The overall ethos of the thread and a thesis we’ve discussed many times in the Deep Dive is that we’re in unprecedented times with over a decade of negative real rates contributing to the everything bubble we’re in today. The market now has to face the second order effects.

Official inflation rates compared to the Fed funds rate demonstrate highest inflation in decades.

Second order effects, such as higher periods of volatility, have been more frequent over the last few months. Higher volatility is a direct result of lower credit market liquidity. Looking back at an extreme period of volatility during March 2020, markets violently sell-off in the face of a credit unwinding. Like most risk assets, bitcoin is severely affected in these higher periods of market volatility and rising U.S. dollar strength as told through the VIX relationship. We’re likely due for more market volatility going forward.