As I write this, bitcoin is trading at around $60,000. That’s close to the previous all-time-high of $64,863 that it reached on April 14. And I believe we’re headed significantly higher over the next year and a half — maybe even to $200,000 before this bull market is over.
There are a bunch of bullish catalysts driving bitcoin higher. Today we’re going to cover the ones I think are paramount:
- Institutional investors
- Non-transitory inflation
- Negative bond yields.
Institutional investors continue to move into bitcoin. New additions include George Soros, Morgan Stanley, Wells Fargo, U.S. Bank and countless others.
Professional investors are finally realizing that they need bitcoin exposure. Their clients have been asking about it for years and were denied. Since then, bitcoin has gone up 10x to 100x. So a lot of those clients are not happy. Meanwhile, Coinbase and others have been making a killing.
The institutional FOMO scenario we laid out a long time ago finally seems to be playing out. This could make for an incredible next year alone.
But what’s driving the sudden interest? Money printing and inflation, of course. The Federal Reserve is still buying $120 billion worth of Treasuries and mortgage bonds every month. And interest rates are back near zero.
The Fed claims it will start “tapering” (reducing quantitative easing) this year and finish by mid-2022. But I just don’t think it can do it. The market would crash.
Here’s what I wrote back in July:
The Fed is feeling pressure from rising inflation. It should be raising interest rates right now. But it can’t, because there’s too much debt and leverage in the system.
So it says it’ll raise interest rates in 2023 — when there will be trillions more dollars in debt on the pile.
I’m not buying that.
I think the Federal Reserve and U.S. government need inflation. As I’ve covered here many times before, inflation is the easiest way to deal with a huge pile of unpayable debt.
I do acknowledge that the Fed may try to taper and may even attempt to raise interest rates. But my prediction is that it will NOT go over well with markets, and the Fed will reverse course within a short period.
During these “fakeout” normalization periods, assets like bitcoin and gold may sell off sharply. I think it will be a temporary move, and we’ll head higher after people realize that we need to print and inflate for a long time before normalization can happen.
Negative Bond Yields
Negative bond yields are closely related to inflation, but this topic deserves its own section. Bonds are an absolutely massive market, about the same size as the stock market.
And bondholders are not having a great time right now. Inflation is high. Yields are tiny. The U.S. 10-year Treasury currently pays 1.5%. Official inflation is 5.4%. That’s a -3.9% yield, and bondholders also have to pay TAXES on the “income.”
Over the last 40 years, bondholders have actually done extremely well. Yields have consistently trended down, meaning the price of the asset has risen. But with inflation at 5.4%, how much lower can yields go?
A lot of bondholders will be looking to shift into alternative investments like bitcoin, gold and emerging market debt and stock.
Not Close to Over
I don’t think this bull market is anywhere close to being over. We’re just now hitting an inflection point with institutional investors (finally).
Inflation seems to be sticky rather than transitory. Governments will continue to do the least painful, most politically viable thing. And right now, that’s printing money and stimulating the economy.
It’s an ideal environment for bitcoin to emerge as an alternative financial system. Bitcoin is a scarce asset that can be sent all over the world in minutes for $0.50.
There’s also a very promising group of companies developing around the bitcoin ecosystem. Among the more exciting areas is the Lightning Network, which allows bitcoin to be sent instantly for a few cents. Companies like Strike are making it easy to use the Lightning Network, so users can avoid transacting on the main bitcoin blockchain and slowing things down.
It’s a beautiful setup. Of course, the crypto markets are unpredictable. Anything could happen. We could sell off if bitcoin ETFs are approved, or some other negative thing happens. But over the next year, I’m pretty darn sure bitcoin’s price will continue to go significantly higher.