Bitcoin & Markets Guiding Macro Thesis

This framework summarizes the economic forces driving macro trends.

1. A terminal deflation for the Dollar system

  • The global economic environment is dominated by high debt and low productivity of debt

More debt cannot solve a debt problem if there is low productivity of debt. We can kick the can with the tradeoff of lower productivity and growth. Lower productivity and growth means lower private debt creation and deflationary pressure.

  • EM dollar shortages will manifest in different ways

The global downturn will affect EMs through lower export demand and fewer dollars coming in. Dollar-denominated debts will cause crises which they will blame on the dollar itself. This will lead to dedollarization talk, which is actually a political excuse to explain the very real malfunctioning dollar system.

  • Real search for monetary alternatives that don't have systemic credit risk

2. Bitcoin will continue to expand and encroach on the traditional financial system

  • Bitcoin in reserves and as collateral will grow

The next stage of bitcoin adoption is as reserves for companies and collateral in repo and other swaps.

  • Value appreciation can solve dollar shortages built into the current system
  • Marginal Central Banks will accumulate reserves

3. Peak China

  • The CCP's economic model has maxed out

Their current model is based on globalization and free trade. As this model breaks down they must pivot to a consumer-led economy but it's too late.

  • Geopolitically very limited

Naturally broken up geography of China limits political cohesion. They face a terrible water shortage, desertification problems, and demographic collapse. They are boxed in by the Himalayas, rain forest, the first island chain, and their temporary ally, Russia.

  • Communism

Xi Jinping is a radical Marxist and has no plans to avoid suffering of the Chinese people. The Party is all. The plan is what is happening now, and he will not change course. Foreign investors will flee.

4. Deglobalization

  • Repricing geopolitical risk

The world has been able to outsource minor processes across the globe because risk to those supply chains was considered zero. Covid and Western sanctions on Russia have shown the world those risks are not zero. When they are properly repriced, most complex supply chains will become uneconomic.

  • Balkanization of international trade

This includes smaller free trade alliance and less complex supply chains. This will cause end-prices to rise, but not because of inflation.

  • Populism

Higher structural prices from deglobalization will impoverish the people, leading them to rally behind populist leaders.

  • Trustless money

In a Balkanized world credit-based money will be rejected. The market will require a trustless form of money, meaning that you don't need to trust anyone when you are holding it.

5. European breakup

  • Too dependent on foreign resources
  • Poor defense capabilities
  • Poor demographics and credit bubble
  • End of the Euro
  • End of the EU by 2030