The Aftermath of One Big Macro Trade

The risks of insolvency and deflation were core themes in our latest Macro Outlook report and for good reason. Yet many have inquired as to what happens in the aftermath of a deflationary period and what does that mean for Bitcoin and crypto? And how is all this money printing not hyperinflationary? I know, it sounds counterintuitive, but time horizon is very critical in this particular context.

Here’s what we know: the economic “recovery” has stalled, COVID-19 is still a major problem, and officials elected “by the people, for the people” can’t seem to put their swords away at the expense of millions of American livelihoods.

In the short run, quantitative easing won’t drive consumer spending nor spur an economic boom; it isn’t even directly inflationary for that matter. Credit creation and, therefore, money supply growth, is primarily driven by the banking sector. If banks won’t lend and they tighten credit conditions across the spectrum of potential borrower types, future growth expectations will roll over as the recovery slows.

People wonder whether a deflationary environment will be bearish for BTC and the answer is: probably, at least in the short-term. It is not a guarantee but if it continues to trade anything like gold then deflationary pressure could weigh on BTC.

The kicker is the higher the risk of deflation, the more extreme response we’d expect

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