Happy Sunday!
Bitcoin’s price is the same as it was at the start of the month and squarely in the middle of the “unremarkable” triangle that I talked about in my most recent update.
As long as bitcoin’s price stays above $29k, everything will turn out fine. Until its price goes above $46k, we have nothing to get excited about.
Meanwhile, a huge Chinese real estate developer is on the brink of collapse, delta and lambda COVID-19 variants threaten to wreak havoc on unvaccinated populations, bonds and cash still lose money, the US stock market shows signs of weakness, the US dollar shows signs of potentially reversing a four-and-a-half-year downtrend, and the US housing market shows patterns not seen since the mid-2000s mania—and we all know how that ended.
Fortunately, all of these risks can resolve themselves without damage. Let’s hope they do.
I won’t publish a Sunday Rundown next week. Enjoy today’s edition.
Republicans threaten to hold up debt ceiling days before deadline, raising potential for political showdown
Bottom line: Congressional Republicans will try to force the US to default on its debt unless they get the Democrats to spend money on Republican priorities.
My take: nobody knows whether this is good for crypto. This is an old Republican tactic to get concessions from Democrats. Those previous debt ceiling crises did not affect the value of the US dollar or interest rates (not even the one that downgraded US debt in 2011). Democrats have always worked out a face-saving agreement for Republicans to back down in a way that both parties can use to get money and publicity, but doesn’t fundamentally change anything. Doesn’t mean they’ll do that this time, but I wouldn’t bet against it.
Here’s what happened as a brief conversation:
Democrats: we want to spend more money.
GOP: sorry, you can’t. When we were in power, we spent too much. Now we’re deep in debt.
Democrats: it’s all good, debt is healthy! In fact, more is better. Actually, government debt doesn’t really exist, it’s just money we owe ourselves, so it’s no big deal. Can you please raise the debt ceiling? We need to borrow more money.
GOP: ok but only if you spend it on the stuff we want.
Democrats: no, not the stuff you want. The stuff we want.
GOP: no, the stuff we want.
Democrats: no, the stuff we want.
GOP: fuck off.
Democrats: I’m telling mom you said that.
Why we care: prepare but don’t panic if we see turbulence in the bond market that spills over to stocks, commodities, and crypto. Even if the GOP blocks the debt limit, the government can still pay its debts for a little while, possibly until October.
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Presidential Advisory Group Promises Stablecoin Recommendations
Bottom line: the US Treasury wants to create a US central bank digital currency. The first step—formal recommendations for review and comment among regulatory agencies and their stakeholders.
My take: a digital dollar is inevitable but it could take a while. Regulators have a statutory obligation to take their time with workgroups, recommendations, proposed rulemaking, public comment period, and general red tape. Congress can change the law in an instant, but they have more important things to worry about. As long as CBDC goes through regulators and not Congress, it’s a non-issue for probably another year.
Why we care: because this doesn’t change anything. China has spent seven years developing its own stablecoin and says it needs at least two more years of tests before it can put it to use. Perhaps other governments can use lessons learned and newer technology to do it faster than China, but not the US.
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If you’re not subscribed to Alessio Rastani’s YouTube channel, do it. He’s a trader but doesn’t talk much about trading. More often, he brings up a lot of interesting points most people don’t even think about, much less talk about.
In a recent video, he notes a troubling sign in the stock market that could spill over into crypto (and probably every other asset).
While there’s always the risk of a major drop in the US stock market, we also see a lot of traditional investors shifting to bonds and real estate. As a result, they’re cooling off the stock market naturally.
(Which creates other problems not worth getting into here.)
As always, keep fresh cash and cheap credit handy—not just to buy crypto, but also as a portfolio strategy. Cash and cheap credit have a lot of utility. You pay for that utility as lost purchasing power, but sometimes it’s worth the trade-off.
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Relax and enjoy the ride!
Sunday Rundown - July 25, 2021