(Kitco News) – Bitcoin (BTC) has been making financial news headlines for more than six months as the lead-up to the launch of the first spot BTC exchange-traded funds (ETFs) led to wild speculation about how high King Crypto could go amid the approach of its quadrennial halving and bull market cycle.
Thus far, the orange coin hasn’t disappointed as flows into “The Nine” ETFs have blown away estimates and broken records, with Tuesday seeing a net inflow of more than $1 billion, led by BlackRock’s iShares Bitcoin Trust (ITIB).
While Thursday’s 11% correction for Bitcoin brought many in the ecosystem back down to the reality of how markets operate – and resulted in ETF inflows declining to $132.7 million, the lowest level since Feb. 29 – most analysts are convinced that this is but a temporary pause in what is expected to be the biggest bull market in cryptocurrency history.
According to Mike Novogratz, long-time Bitcoin bull and CEO of cryptocurrency investment firm Galaxy Investment Partners, Bitcoin’s upward trajectory is likely to continue as governments around the world continue to print money and run massive deficits.
“Bitcoin has always been a report card on fiscal stewardship, and we’ve got no stewardship in D.C. right now,” Novogratz said during an interview with CNBC on Wednesday. “There are two vectors of Bitcoin: one is adoption – and this move is mostly adoption – and the other is macro. The macro factors are the Fed, Congress, and the budget. We are running deficits that are at crisis levels.”
He noted that Bitcoin was created after the financial crisis of 2008, and it was intended to combat excessive money printing and maintain people’s wealth.
“The genius of Bitcoin really is the Satoshi whitepaper which sets the monetary policy for this ecosystem in code,” Novogratz said. “In every country on Earth, Bitcoin has reached a new all-time high, but on some of the charts, it’s staggering how much wealth it preserved. Until you get countries that run more credible fiscal policy, people are going to want to buy that story, and it’s a story that’s spreading.”
He said that currently, the ETFs have “got the Zeitgeist of what people are making their trading decisions off of.”
“As long as [spot Bitcoin ETF inflows are] positive, the price is going to keep grinding higher,” Novogratz said. “Once that becomes negative you will see the first real correction. And so I think right now every trader is watching… you know, add up the nine ETFs and see what the net is, and as long as there are inflows,” Bitcoin price will continue to trade at elevated levels.”
“Things are frothy, funding rates are high,” he added. “And so in times like this, you always have to be ready for a correction. I don’t think we go back below $50,000 – $55,000. I think that’s the new floor unless something dramatic happens.”
Novogratz is not the only one warning about unsustainable debt printing as Desmond Lachman, an economist who served as deputy director at the IMF from 1994 to 1996, recently posted a blog with the American Enterprise Institute warning that the U.S. government cannot continue down the road it’s on for much longer.
“There is some good news and some bad news about our public debt problem,” Lachman said. “The good news is that, contrary to what many are now warning, our unsustainable public finances will not lead to a dollar crisis or a burst of inflation anytime soon. The bad news is that this will be because the Federal Reserve will be forced to cut interest rates aggressively and flood the market with liquidity through its bond-buying activities.”
Data from the U.S. Treasury Department shows that the national debt rose from $33.990 trillion on January 2nd to $34.465 trillion on March 8th – an increase of more than $474.930 billion so far this year.
“On one thing everyone can agree. Our public finances are on a dangerously unsustainable path,” Lachman said. “One indication of our budget problems is that at a time of cyclical economic strength, when the government’s budget should at least be in balance if not in surplus, the deficit is around six percent of GDP.”
“Another indication is that Washington is showing no sign of seriously addressing the government’s chronic budget deficit problem,” he added. “According to the bi-partisan Congressional Budget Office, these deficits will soon take our public debt to a record level of well over 125 percent of GDP surpassing the level reached at the end of the second world war.”
Lachman said that while it’s “highly improbable” that the U.S. government will ever default on its debt since “the Federal Reserve can always print to cover the deficit,” he warned that “the money printing that would be required to finance our government could lead to a dollar crisis and to a surge in inflation. It could also invite the return of the bond market vigilantes and cause financial market turmoil.”
He cited the recent downgrade of the U.S. government’s credit rating by Moody’s and said, “There appears to be little appetite in Washington to make the necessary spending cuts and tax increases to put our public finances on a more sustainable path. This heightens the prospect that in the end, our poor government finances will lead to a much-feared dollar crisis and inflation surge.”
After noting the high likelihood of “another regional bank crisis within the next year or so” due to losses tied to their bond portfolios, Lachman said, “Washington should take advantage of any delay in our public debt day of reckoning to put our public finances on a more sustainable path. However, judging by Washington’s past performance, no matter which party is in control, I would not suggest holding your breath for that to happen.”
These concerns laid out by Lachman and Novogratz help provide additional insight into why Bitcoin’s price has risen so rapidly in recent months, and Rich Dad Poor Dad author Robert Kiyosaki offered the following take on why it has significantly outperformed both gold and silver, the historic stores of value.
I love gold and silver. I own gold and silver mines. The problem with gold and silver is…the higher the prices go, the more gold and silver is found. Same with oil. I own oil wells also. That is not true with Bitcoin. No matter how high the price of Bitcoin goes there will only…
— Robert Kiyosaki (@theRealKiyosaki) March 14, 2024
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