Bitcoin to The Fed Balance Sheet

We asked Brent Johnson, Raoul Pal, Tyler Neville, and Sune Sorenson all the same question, “Why Does This Chart Matter?”. Needless to say, their answers varied WIDELY…which is a good thing.

Brent Johnson | Santiago Capital

• This chart highlights the massive expansion of the Fed Balance sheet as the S&P 500 is sitting at all-time highs in nominal terms…but shows a massive drawdown when compared to Balance Sheet expansion.

• It also highlights the immense rise of Bitcoin as a perceived hedge or store of value against the expansion of money supply.

• One perhaps overlooked aspect as a result of 13 months of rebounding asset prices, neither the S&P 500 nor Bitcoin acted as a store of value, or we would be able to avoid massive drawdowns, as in the March 2020 liquidity crisis.

• The final point I would add is if you changed the chart and replaced the S&P 500 with the DAX, TSX, Nikkei, etc…and then ran the same comparison with Bitcoin vs the expansion of the relative ECB, BOC, BOJ Balance Sheet expansion, you would get a very similar looking chart.

• This chart is not the result of a uniquely American situation.

  Raoul Pal | Real Vision and Global Macro Investor

• Bitcoin has shown to outperform the debasement of fiat money more significantly than any other major asset and this attracts additional excess capital.

• The rise of Bitcoin is representative of the new financial system being built out on crypto rails that is running in parallel.

• Bitcoin has incredible built-in behavioral incentives to create exponential network effects over time.

• It [Bitcoin] is the best performing asset in all recorded history, is uncorrelated with other assets which creates massive alpha, and is subsequently attracting institutional investors.

• Investment in bitcoin can help offset the relentless rise of the 1% over the 99%. It gives access to all.

  Tyler Neville | Blockworks

• This chart shows how we are in an age of deceptive financial repression and the cost of living is rising for everyone who doesn't realize the dilution of currency that is taking place..

• Bitcoin is one of the few assets that protect citizens against the inexorable expansion of the Fed's balance sheet in order to keep the system afloat for the retiring boomers.

• This chart also captures the true attack that happens when savers do not invest in risk assets. If you don't protect yourself with a store of value, you can get left behind by the inflation of financial assets.

• [On the post-Oct. ’20 rise of BTC] That is definitely institutional money realizing that the bond market yield is now reward-less risk instead of riskless reward. The institutional money needs to manufacture yield to pay out future liabilities and one of the few places they can generate that yield is in digital assets where you can use the futures curve to risklessly make way more than you ever could in a bond.

  Sune Hojgaard Sorensen | The Strategic Funds and BFI Capital Group

• As I began to ponder this ‘Rorschach test’ handed to me by the mad scientists in the Lykeion lab, I was quickly reminded that perception is a reality in the eye of the beholder and as such it might be useful to consider it in the context of the ‘eye of the beholder’ of the two diametrically opposed groups that currently inhabit the opposing “high-grounds” on all things Crypto.

• Is it telling me that Crypto is clearly in a bubble not seen since the days of the great South Sea Bubble, that led Sir Isaac Newton to temporarily lose his mind and permanently his fortune? Yes – shouts the Boomer crew; it’s all a scam, those damn Millennials and their crazy internet dog money have clearly lost their minds in a mist of speculation and naivete.

• Or is it showing me the future and telling me that Crypto and tokenized assets will take off and leave the old ways in the dust? Yes - shouts the Crypto crew; All assets will be tokenized, accounted for on the blockchain, governed seamlessly with smart contracts in one big global decentralized 24/7/365 marketplace in the cloud. Those who do not get it will be left by the wayside, while those who do will ride by on their unicorns and purple Lambos.

• As Churchill put it; “Statistics are like a drunk with a lamp post; used more for support than illumination.” Human knowledge tends to take the form of interpretation and the more I squint at this illustration from both sides of the argument the more I lean towards that rare middle ground, asking myself could they both be correct, but over different timeframes?We asked Brent Johnson, Raoul Pal, Tyler Neville, and Sune Sorenson all the same question, “Why Does This Chart Matter?”. Needless to say, their answers varied WIDELY…which is a good thing.

Brent Johnson | Santiago Capital

• This chart highlights the massive expansion of the Fed Balance sheet as the S&P 500 is sitting at all-time highs in nominal terms…but shows a massive drawdown when compared to Balance Sheet expansion.

• It also highlights the immense rise of Bitcoin as a perceived hedge or store of value against the expansion of money supply.

• One perhaps overlooked aspect as a result of 13 months of rebounding asset prices, neither the S&P 500 nor Bitcoin acted as a store of value, or we would be able to avoid massive drawdowns, as in the March 2020 liquidity crisis.

• The final point I would add is if you changed the chart and replaced the S&P 500 with the DAX, TSX, Nikkei, etc…and then ran the same comparison with Bitcoin vs the expansion of the relative ECB, BOC, BOJ Balance Sheet expansion, you would get a very similar looking chart.

• This chart is not the result of a uniquely American situation.

  Raoul Pal | Real Vision and Global Macro Investor

• Bitcoin has shown to outperform the debasement of fiat money more significantly than any other major asset and this attracts additional excess capital.

• The rise of Bitcoin is representative of the new financial system being built out on crypto rails that is running in parallel.

• Bitcoin has incredible built-in behavioral incentives to create exponential network effects over time.

• It [Bitcoin] is the best performing asset in all recorded history, is uncorrelated with other assets which creates massive alpha, and is subsequently attracting institutional investors.

• Investment in bitcoin can help offset the relentless rise of the 1% over the 99%. It gives access to all.

  Tyler Neville | Blockworks

• This chart shows how we are in an age of deceptive financial repression and the cost of living is rising for everyone who doesn't realize the dilution of currency that is taking place..

• Bitcoin is one of the few assets that protect citizens against the inexorable expansion of the Fed's balance sheet in order to keep the system afloat for the retiring boomers.

• This chart also captures the true attack that happens when savers do not invest in risk assets. If you don't protect yourself with a store of value, you can get left behind by the inflation of financial assets.

• [On the post-Oct. ’20 rise of BTC] That is definitely institutional money realizing that the bond market yield is now reward-less risk instead of riskless reward. The institutional money needs to manufacture yield to pay out future liabilities and one of the few places they can generate that yield is in digital assets where you can use the futures curve to risklessly make way more than you ever could in a bond.

  Sune Hojgaard Sorensen | The Strategic Funds and BFI Capital Group

• As I began to ponder this ‘Rorschach test’ handed to me by the mad scientists in the Lykeion lab, I was quickly reminded that perception is a reality in the eye of the beholder and as such it might be useful to consider it in the context of the ‘eye of the beholder’ of the two diametrically opposed groups that currently inhabit the opposing “high-grounds” on all things Crypto.

• Is it telling me that Crypto is clearly in a bubble not seen since the days of the great South Sea Bubble, that led Sir Isaac Newton to temporarily lose his mind and permanently his fortune? Yes – shouts the Boomer crew; it’s all a scam, those damn Millennials and their crazy internet dog money have clearly lost their minds in a mist of speculation and naivete.

• Or is it showing me the future and telling me that Crypto and tokenized assets will take off and leave the old ways in the dust? Yes - shouts the Crypto crew; All assets will be tokenized, accounted for on the blockchain, governed seamlessly with smart contracts in one big global decentralized 24/7/365 marketplace in the cloud. Those who do not get it will be left by the wayside, while those who do will ride by on their unicorns and purple Lambos.

• As Churchill put it; “Statistics are like a drunk with a lamp post; used more for support than illumination.” Human knowledge tends to take the form of interpretation and the more I squint at this illustration from both sides of the argument the more I lean towards that rare middle ground, asking myself could they both be correct, but over different timeframes?