Follow the money, buy Bitcoin and Gold

bitcoin digital gold

It is a fact that from 2018, institutional money has started to flow into the crypto sector at an increasing pace. I wrote about it here and this was recently confirmed by Coinbase CEO. To remain bullish on the sector though, it is vital to understand whether this money inflow will continue in the short to medium term and what are the main reasons driving the inflow.

There are different reasons. I have analyzed in this article why bitcoin is by all means a digital version of gold and the reasons why the whole crypto sector is worth investing into. But the fact that an asset class is a good investment opportunity for any number of reasons, does not necessarily mean that investors will buy it. There must be a catalyst to drive money into that assets class. Then we must understand why the big money, which is on the verge of what Ray Dalio defines a paradigm shift in investing, will be inevitably driven into precious metals and — my take — into the crypto sector as well.

It is not about making “predictions” — no one has the crystal ball and most times it is only a matter of luck and good timing to get it right or wrong. It is rather about analyzing the macroeconomic environment which drives money into certain assets and out of others. Many observers, analysts and professional investors are betting that the Fed will lower interest rates because a recession is looming. I do not know if a recession will come or not. No one knows for sure, it is just speculation. Regardless, this is irrelevant in our analysis. There are real and more pressing macroeconomic reasons that will be driving — in the medium term — US interest rates down and institutional money into under allocated investment sectors such as gold and crypto.

To make a long and complex story short, there is a US Dollar liquidity problem which is apparent and it is — for now — discussed among few restricted circles of macroinvestors, by the likes of Jeffrey Snider of Alhambra Partners, Luke Gromen and Erik Townsend of Macrovoices. In this interview Luke Gromen clarifies what are the reasons of the US$ liquidity shortage and the consequences of that. I will try to summarize and oversimplify a quite complex issue and a 40min interview into few lines:

The consequences of the above construction are:

The winners in this scenario will be risk assets, precious metals and the crypto sector, with bitcoin being the main beneficiary. The timing of it is much harder to guess.

But regardless of the timing, the macroeconomic fundamentals highlighted above are the most powerful catalyst that will drive the big money towards precious metals and crypto in the foreseeable future.

Friday 23 August, 2019 at Jackson Hole the FED might dispel the doubts, or it may not…


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