The Bull Market has started, so what’s in front of us?
Do you know the feeling of seeing something in a certain way and being unable to unsee it? Like this coat hanger, Raoul Pal’s theory of the Everything Code has made me see the macro picture through a lens that I cannot now unsee.
It all started when Anthony, my dear friend and SwissBorg co-founder, shared with me a video of Raoul Pal explaining how we got to this over-indebted world. This triggered in me a profound emotion, a “holy shit moment”, and touched a special chord I had in me (that I had slightly forgotten about); let’s call it: the macro chord. Slight digression - I started my career at the investment strategy department of the Lombard Odier Bank in Geneva, mentored by an amazing economist and human being, Samy Chaar, who is now a very good friend of mine and a brilliant chief economist. It’s funny how, in life, the dots connect and how past experiences serve your present and future journey in ways you could not have imagined. Indeed, after shifting from the private banking world to entrepreneurship and being a member of the founding team of SwissBorg, I never suspected that my macro love would serve me as CFO. All the credit, therefore, goes to these two gentlemen, Samy and Raoul, for the knowledge they shared (directly or indirectly) that shaped my understanding of the world.
But I’m not here to explain how and why I’m passionate about macro in more detail. I’m writing this article because I believe everyone should know what’s happening to our economy. People are getting robbed without really understanding how, even if they feel it, and it’s important that they start realising what’s happening but, more importantly, that there’s a hedge, a gift to protect themselves against this.
Let’s dig in. I hope you’ll see the octopus as well!
Don’t be scared. It’s easy. There are 2 trends at play. The secular and cyclical trends and the beauty of it is that we are at a perfect nexus today.
The secular trend
Innovation has been part of humankind nearly since day one. It started with better hunting tools and is now the digitalisation of the world, AI, quantum computing, space, robotics, etc.. In between, there have been incredible advancements like agriculture techniques, electricity, vaccines, the car, the phone, the internet, and many, many, many more that have made our lives much better most of the time.
Technology is today’s innovation, and this trend is not stopping. Raoul conducted a survey and asked a simple question. Do you see the world as more digital in 2030 or less digital in 2030 compared to today? Of course, 95% of the answers were for “more”. Indeed, I really don’t see how we could have a less digital world in 6 years unless there’s a major paradigm shift, but the odds are very low.
Therefore, the secular trend of tech is here to stay. As demonstrated on this log chart of the Nasdaq (using a log chart is like zooming out on your camera to fit everyone into a group photo. Using a log chart lets you zoom out to fit all the numbers nicely into your graph. This makes it easier to compare things that grow or change very quickly with things that don't, without losing details or making the graph too big); the trend is clear.
Crypto is a technology, and therefore, it follows this same pattern. Indeed, Bitcoin charts look very similar.
The beautiful thing about crypto (with the drawback that it remains volatile, a bit mysterious, frightening, and sometimes scammy) is that we are still very early. Indeed, it is the 1st time in the history of finance that the crowd is before the institution. ETFs have just been approved, and institutional investors will now access the space en masse.
As a reminder, the space is still minimal (USD 1.45 Trillion) compared to other asset classes, as displayed below.
Sharing an anecdote to give you a sense of the force of the adoption trend: in 2022, when the market was down 80% going through all the liquidation and bankruptcy, wiping out all the leveraged, unprofessional and scammy projects, the number of users continued to grow 40%. Not a lot of industries witness growth (and not a small number) when everything goes to shit.
The 2023 figures are not yet out, but the whisper is that we should be around 500-600 million users now, and this is set to accelerate, and that’s because of the cyclical nexus we are currently in.
The cyclical trend
We are firm believers in the 4-year cycle. It has worked like clockwork and will likely continue until we solve the debt problem. Indeed, various forces are at play in this 4-year cycle; for crypto, two forces dominate the rest.
The halving cycle and the monetary cycle which also coincide. The halving and the monetary cycles coincide due to debt maturities matching the halving timeline and driving the cycles in crypto for opposite reasons.
They are both equally important. Without halvings, Bitcoin wouldn’t have been the scarce asset it is today. Without liquidity cycles, fiat wouldn’t have as little value as it has today.
As said above, this is what makes Bitcoin the scarcest asset on the planet. Every 4 years, mining rewards are divided by 2 and this until we reach the 21 million mark of Bitcoin being created. The choice of the four-year interval is somewhat arbitrary. Still, it stems from a combination of tradition, technical reasons, and economic theory related to controlling inflation and distributing new coins in a predictable and limited manner.
This event has contributed to market price action cycles throughout the years. But it’s not the only force in presence when it comes to the cycle side of things. Indeed, monetary policies have been influencing the crypto cycles as well, and they combine with the halving time horizon once again, and that’s why.
The monetary cycles
For multiple reasons (too long to explain here, but please watch Raoul’s video explaining these), when the great financial crisis started in 2008, the world was already very much in debt. The GFC forced the nations and the central banks to put rates to 0%, creating a new form of debt jubilee. Debts hadn’t been erased, but interest on the debts was set to 0, allowing the entire world to refinance itself at 0 costs. Nations, therefore, refinanced themselves and chose 3-5 years maturities (average of 4 years). The 4-year cycle was initiated. But this is not the only part of the story. Indeed, as the financial world was on the brink of collapse, central banks used a new tool called Quantitative Easing (QE) that allowed them to take on their balance sheets the debt and assets the financial system couldn't sustain. As shown in the chart below, central banks' balance sheets have started growing much faster than in the past, creating a monetary debasement economic phenomenon.
The world has since this time continued to grow in debt (as money was free, interest rates being at 0% or 0% ish), and now many countries, among them major economies like the US, the EU, Japan, the UK, China etc.. have more than 100% of debt to GDP ratios. When you add households and corporations, these figures double or triple for some nations. This has forced central banks to monetise the interests of the debts (a sort of debt mutualisation) as GDP growth can not sustain the payment of interests. By monetising these interests, central banks have increased the money in circulation, inflated their balance sheets and inflated asset prices.
Just before going to the part of asset inflation and finishing on the debt mutualisation, let’s remember what happened in 2020: the COVID pandemic, forcing nations to shut down and governments to subsidise everything. This was financed by additional debt issuance taken on central banks' balance sheets, as clearly displayed in the chart above. The level of debt now, despite the efforts of the central banks to reduce their balance sheets through QT (Quantitative Tightening), the opposite of QE, has continued rising in the system as interest rate hikes seen in 2022 and 2023 around the world, have made explode the cost of debt and created fiscal deficits never seen outside war times putting the entire collaterals of the economy in jeopardy and forcing central banks to provide liquidity through other means.
Suppose you come back to the 4-year cycle. In that case, you now understand that this year, the enormous COVID amounts of debt issued in 2020 have to be either reimbursed or rolled over and as we know what financial and fiscal state the nations are in today, rolling the debt is the only way forward, but not at the current interest rates. The governments have no choice but to either lower interest rates to refinance themselves at more sustainable levels or use the central bank balance again through another mechanism called yield curve control. The technicalities of this instrument are not important (if you want to dig into them, it’s easy to find- Japan has been using it since 2016); what is important is that 2024 and probably 2025 will see major financial conditions easing and sustained levels of liquidity injections through central bank balance sheet increase and various other mechanisms to support the nation spendings and the fragile actors in the economy (regional banks in the US for example).
The trend of liquidity injection rising in the long term has not yet stopped, and as illustrated in the chart below, it could’ve nearly been a secular trend component.
And this is the most important thing to understand. All asset prices rise when liquidity rises, and crypto is no different. As displayed in the charts below, crypto is highly correlated with liquidity.
What differentiates it (and technology) is that it grows faster than the rest of the assets as there’s the addition of adoption.
The liquidity cycles
When the liquidity rises, everything rises. This is the most critical point to understand and why technology and cryptos are a gift for people who don’t have assets or do not yet have a sufficient amount. Indeed, the monetary debasement phenomenon, as explained above in the article, inflates all asset prices, making people with assets more prosperous compared to people without or with fewer assets. This is clearly demonstrated in the chart below.
Another element to illustrate this phenomenon is the affordability of housing in the market. In the 80s, housing affordability in Switzerland, for example, was around 4x your revenues. It is now around 8x when incomes have not increased anything close to this. It is not, of course, only driven by monetary debasement; other forces are into play. However, if you had assets or a house in the 80s already, you would’ve not been left behind and would most probably still be able to buy the equivalent type of property today.
Other illustrations of asset prices rising are art, watches and the stock market.
Indeed, when you look at the central bank balance chart and how scarce assets and financial assets have been rising, it is crystal clear that monetary debasement is robbing people without or with little assets of their future wealth. This is because the fiat money loses value each time debasement is done, and incomes don’t grow close to this. We estimate that average monetary debasement will grow roughly 15% annually; no salary increase can compete with that rate.
This is why not owning assets is not an option. But if you start with nothing or little, you need assets that grow quicker than currency debasement. Otherwise, the gap either continues to widen or never gets closed. This is why crypto and technology are our hedges and why this is a gift. Like the octopus and the coat hanger, when you see it, you can't unsee it after. The more time you lose, the wider the gap will be.
Maybe you didn’t realise this until today and that this article will help you or your friends and family start building wealth that will impact your future selves. Remember that saving today is a delay in consumption. You save today to consume better tomorrow. It has to be worth it, and you need to start. Yesterday, you said tomorrow; today, you say eventually. Stop.
Crypto and technology are critical for making this happen, which is why we hold dear SwissBorg's mission to support people in their efforts to reach financial freedom!
Disclaimer: The information contained in or provided from or through this article (the "Article") is not intended to be and does not constitute financial advice, trading advice, or any other type of advice, and should not be interpreted or understood as any form of promotion, recommendation, inducement, offer or invitation to (i) buy or sell any product, (ii) carry out transactions, or (iii) engage in any other legal transaction. This article should be considered as marketing material and not as the result of financial research/independent investments.
Neither SBorg SA nor its affiliates (“Entities”) make any representation or warranty or guarantee as to the completeness, accuracy, timeliness or suitability of any information contained within any part of the Article, nor to it being free from error. The Entities reserve the right to change any information contained in this Article without restriction or notice. The Entities do not accept any liability (whether in contract, tort or otherwise howsoever and whether or not they have been negligent) for any loss or damage (including, without limitation, loss of profit), which may arise directly or indirectly from use of or reliance on such information and/or from the Article.