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>Fed holdings went from $4T to $9T over the last ten years. >By contrast, the cumulative crypto complex grew from essentially $0 to $2T before its recent crash

by PKop 4y ago

>Fed holdings went from $4T to $9T over the last ten years. >By contrast, the cumulative crypto complex grew from essentially $0 to $2T before its recent crash. Where did this money come from? It was essentially a money multiplier effect of QE. >Crypto is now collapsing because the Fed is tightening. Yes, and when the Fed reverses course after everything breaks from this tightening, BTC will rise again. Why are extreme boom and bust cycles of crypto surprising to anyone anymore? It is the asset most correlated change in global liquidity. And if the author thinks the liquidity spigot is forever cut off with this much global debt, he's got another think coming. The Fed balance sheet will be going to 15, 20, $30 trillion eventually. No entity has a big enough balance sheet to buy the enormous debt and deficits the US produces, and the Eurodollar market can't function without continued liquidity injections.

onlyrealcuzzo 4y ago
> Yes, and when the Fed reverses course after everything breaks from this tightening, BTC will rise again. Why are extreme boom and bust cycles of crypto surprising to anyone anymore? I wouldn't be so sure. The narrative for crypto was that interest rates were never going to go up, QE was never going to stop, and we were going to see hyper inflation. Somehow - crypto was uniquely the only possible hedge against this. This has proven to be false. It's at least going to need a new narrative. At some point, it's going to run out of narratives, and it's going to need to actually deliver value.
- bradstewart 4y ago
  Despite all of the narratives you'd read on HN, I honestly don't think the majority of "regular" people who helped drive the boom needed any story beyond "look how fast it's going up!". Hell, I'm also guilty of falling for that at times. It can, and likely will, happen again.
  - onlyrealcuzzo 4y ago
    The "look how fast it's going up" needs a narrative to get going up in the first place...
- PKop 4y ago
  >The narrative for crypto was that interest rates were never going to go up Who made this claim? They went up in 2018 and BTC crashed. Then they went back down, Fed expanded their balance sheet, and BTC boomed. The Fed has no choice but to eventually monetize the debt more. There is no other option. Where is the balance sheet going to come from to fund the massive deficits the US runs? There is no where else. Meanwhile the US is freezing foreign reserves. Of course they could also mandate penalties for owning or buying BTC which could certainly crash the price for a time. But "rates are currently going up a little bit" is not in any way a refutation of the long term BTC trend. Rates can eventually rise after the $ devalues and the debt to GDP declines significantly. But Fed has not even begun to shrink their balance sheet yet you think they should declare victory? Lets see what happens when the market falls 50% more. They will reverse course eventually, if not in the short term. Of course none of this means you should blindly hodl BTC through the crashes. All risk assets are tanking now as long as Fed tightens. Then when they expand their balance sheet again and sent rates back down, you average into BTC as it moons. Being all or nothing on any investment thesis in perpetuity is silly. But look at the charts. You can't say BTC is finished until it fails to have another bull run.
DANK_YACHT 4y ago
There are two components to the crazy asset inflation we saw after COVID: 1) The Fed increasing the money supply. This lead to a situation where there was a lot of money that needed to be put somewhere. 2) The Fed keeping the interest rate near zero. This meant there was no safe place to put all the money the Fed was dumping into the system. Warren Buffet, someone generally regarded as being very good at estimating value, has said that near-zero interest rates can support near-infinite valuations. That's exactly what we saw play out.
- PKop 4y ago
  Yes, and with the amount of debt the US has (over 120% dept to GDP), the economy cannot function without low rates, without negative real rates (for long enough until debt to GDP declines). Without new money pumped into the system it collapses, without steadily increasing asset prices (at least assets not declining for long) the system collapses. The interest on debt will crowd out everything else and put economy in depression if rates rise meaningfully. With energy becoming more expensive than in decades past ("peak cheap oil"), there is not enough real growth to keep the system going without injections of money/liquidity. Inflation, however painful, is baked into the cake and is the only real path to devalue the debt. Cutting spending, cutting entitlements, cutting defense, raising taxes...all are politically near impossible and would put US economy into massive depression.
  - DANK_YACHT 4y ago
    The government debt doesn't really matter because the Fed can always increase the money supply by buying treasuries. For instance, the total U.S. debt is almost 30T, but 9T of that is owed to the Fed. The Fed can do this regardless of interest rate.
ephbit 4y ago
> Yes, and when the Fed reverses course after everything breaks from this tightening, ... This. I'd really like someone to explain to me, how the central banks and the states are supposedly going to get out of the increasing-debt-spiral we're in right now. I see literally no way except for governments to tax the rich, which they won't do. The only other way for governments to still sign off budgets to enact policy is to pile on more debt (going further down the spiral).

by PKop 4y ago

onlyrealcuzzo 4y ago

> Yes, and when the Fed reverses course after everything breaks from this tightening, BTC will rise again. Why are extreme boom and bust cycles of crypto surprising to anyone anymore? I wouldn't be so sure. The narrative for crypto was that interest rates were never going to go up, QE was never going to stop, and we were going to see hyper inflation. Somehow - crypto was uniquely the only possible hedge against this. This has proven to be false. It's at least going to need a new narrative. At some point, it's going to run out of narratives, and it's going to need to actually deliver value.

bradstewart 4y ago
Despite all of the narratives you'd read on HN, I honestly don't think the majority of "regular" people who helped drive the boom needed any story beyond "look how fast it's going up!". Hell, I'm also guilty of falling for that at times. It can, and likely will, happen again.
- onlyrealcuzzo 4y ago
  The "look how fast it's going up" needs a narrative to get going up in the first place...
PKop 4y ago
>The narrative for crypto was that interest rates were never going to go up Who made this claim? They went up in 2018 and BTC crashed. Then they went back down, Fed expanded their balance sheet, and BTC boomed. The Fed has no choice but to eventually monetize the debt more. There is no other option. Where is the balance sheet going to come from to fund the massive deficits the US runs? There is no where else. Meanwhile the US is freezing foreign reserves. Of course they could also mandate penalties for owning or buying BTC which could certainly crash the price for a time. But "rates are currently going up a little bit" is not in any way a refutation of the long term BTC trend. Rates can eventually rise after the $ devalues and the debt to GDP declines significantly. But Fed has not even begun to shrink their balance sheet yet you think they should declare victory? Lets see what happens when the market falls 50% more. They will reverse course eventually, if not in the short term. Of course none of this means you should blindly hodl BTC through the crashes. All risk assets are tanking now as long as Fed tightens. Then when they expand their balance sheet again and sent rates back down, you average into BTC as it moons. Being all or nothing on any investment thesis in perpetuity is silly. But look at the charts. You can't say BTC is finished until it fails to have another bull run.

DANK_YACHT 4y ago

There are two components to the crazy asset inflation we saw after COVID: 1) The Fed increasing the money supply. This lead to a situation where there was a lot of money that needed to be put somewhere. 2) The Fed keeping the interest rate near zero. This meant there was no safe place to put all the money the Fed was dumping into the system. Warren Buffet, someone generally regarded as being very good at estimating value, has said that near-zero interest rates can support near-infinite valuations. That's exactly what we saw play out.

PKop 4y ago
Yes, and with the amount of debt the US has (over 120% dept to GDP), the economy cannot function without low rates, without negative real rates (for long enough until debt to GDP declines). Without new money pumped into the system it collapses, without steadily increasing asset prices (at least assets not declining for long) the system collapses. The interest on debt will crowd out everything else and put economy in depression if rates rise meaningfully. With energy becoming more expensive than in decades past ("peak cheap oil"), there is not enough real growth to keep the system going without injections of money/liquidity. Inflation, however painful, is baked into the cake and is the only real path to devalue the debt. Cutting spending, cutting entitlements, cutting defense, raising taxes...all are politically near impossible and would put US economy into massive depression.
- DANK_YACHT 4y ago
  The government debt doesn't really matter because the Fed can always increase the money supply by buying treasuries. For instance, the total U.S. debt is almost 30T, but 9T of that is owed to the Fed. The Fed can do this regardless of interest rate.

ephbit 4y ago

> Yes, and when the Fed reverses course after everything breaks from this tightening, ... This. I'd really like someone to explain to me, how the central banks and the states are supposedly going to get out of the increasing-debt-spiral we're in right now. I see literally no way except for governments to tax the rich, which they won't do. The only other way for governments to still sign off budgets to enact policy is to pile on more debt (going further down the spiral).