Podcast Summary
Multiple long-term cycles are ending simultaneously: Luke Mikic identifies the end of multiple long-term cycles, including the 80-year term debt cycle, 250-year empire cycle challenging the US, 250-year revolutionary cycle, 90-year 4th turning, and the dawn of the digital age, as catalysts for Bitcoin adoption and global transformation in the 2020s.
Luke Mikic, a thoughtful and insightful individual, believes we are living through unprecedented times as multiple long-term cycles are coming to an end simultaneously. These cycles include the end of an 80-year term debt cycle, a 250-year empire cycle challenging the US, a 250-year revolutionary cycle, a 90-year 4th turning, and the dawn of the digital age. Luke argues that these cycles are catalysts for Bitcoin adoption and the transformation of the world in the 2020s. The concept of a 250-year empire cycle comes from Ray Dalio's works, and Luke, a longtime listener of The Investors Podcast, has written extensively about these topics, providing a holistic perspective for readers.
Understanding historical economic patterns and potential outcomes: Examining 250-year empire cycles and long-term debt cycles can provide insights into current economic trends and potential future outcomes. Historical periods of deleveraging, such as the 1930s and 1940s, resulted in economic chaos, political upheaval, and the rise of dictators. Understanding these patterns can help navigate the current economic climate.
Ray Dalio's theory of 250-year empire cycles suggests that the US, which has been the rising global power since the late 1700s, is now entering a period of decline, with China as the potential new global power. However, Trey Lockerbie disagrees and is bearish on China due to its economic and demographic challenges. Looking back at history, the last time we experienced the end of an 80-year long-term debt cycle and a 90-year 4th turning cycle was during the 1930s and 1940s. This period was marked by economic chaos, political upheaval, and the rise of dictators. According to Lyn Alden's research, once governments become too indebted, they go through a period of deleveraging, which can result in either deflation or inflation. In the 1930s, it was a period of private sector deleveraging, while in the 1940s, it was an inflationary period of deleveraging. As we navigate our current economic climate, understanding these historical patterns and potential outcomes is crucial.
Global financial situation similar to 1930s and 1940s with unique differences: Despite similarities to past financial crises, the current situation's global scale and interconnectedness pose unique challenges
We are currently experiencing a global financial situation reminiscent of the 1930s and 1940s, but with some key differences. During the 1940s, the US implemented yield curve control, resulting in negative real yields and significant economic contraction. Fast forward to today, we're seeing similar conditions, including yield curve control and deeply negative yields, but on a more global and interconnected scale. The magnitude of the financial coordination and debt accumulation over the last 80 years is unprecedented, leading to potential consequences never seen before, such as a globally interconnected, unbacked fiat currency collapse. The transparency of information through social media and the ability to encrypt and share it across borders make this situation unique and potentially more volatile. It's important to note that while the similarities are striking, the differences in scale and interconnectedness make the current situation a unique challenge.
Living in an Era of Exponential Debt Growth: Many countries are reaching a tipping point where they must print money to keep their economies afloat, potentially leading to significant consequences. Bitcoin's decentralized nature separates it from the state, empowering individuals and disrupting traditional finance.
We are living in an era of exponential debt growth, and many countries are reaching a tipping point where they have no choice but to resort to printing money to keep their economies afloat. This is a trend that has been observed throughout history, with many nations defaulting on their debt within 15 years of hitting debt-to-GDP ratios of 130%. Central banks around the world are currently at this threshold, and the consequences of continuing down this path could be significant. Bitcoin, combined with the internet and other asymmetric technologies, has the potential to separate money from the state for the first time in history, empowering individuals and disrupting the traditional financial system. The implications of this shift are vast and still not fully understood, but it's clear that we are on the brink of a major transformation in the way we manage and understand money.
Japan's Unique Circumstances Allow It to Avoid Defaulting on Debt: Japan's high debt-to-GDP ratio doesn't mean default is imminent due to unique economic circumstances and ownership of its bond market. However, most countries with similar ratios are likely to default, leading to potential currency crises and a shift towards assets like Bitcoin as a store of value.
Japan, which has the highest government debt to GDP ratio in the world, has managed to avoid defaulting on its debt due to unique economic circumstances and ownership of a significant portion of its own bond market. However, most countries that reach a debt to GDP ratio of 130% or higher are likely to default within 15 years. Central banks around the world may attempt to follow Japan's approach, but this could lead to currency crises and a potential shift towards assets like Bitcoin as a store of value. In today's interconnected world, individuals have more options to protect their wealth, unlike during past economic crises when holding multiple fiat currencies was the only alternative. Bitcoin is seen as an "escape hatch" for people seeking to preserve their wealth. The TIP Mastermind community and Yahoo Finance are valuable resources for investors seeking to stay informed and learn from others in the value investing community.
Dollar Milkshake Theory: Currency Wars and Global Debt: The US dollar's role as global reserve currency can lead to currency wars, where countries devalue their currencies to repay US dollar debts during economic downturns, potentially causing geopolitical tensions and sovereign currency crises.
The US dollar's status as the global reserve currency and the resulting dollar shortage during economic downturns can lead to a currency war dynamic, where other countries are forced to devalue their currencies to pay back US dollar-denominated debts. This dynamic, known as the Dollar Milkshake Theory, is currently playing out as the US aggressively raises interest rates while other countries struggle to do so. This is causing capital to flee to the US, potentially bankrupting friendly countries and leading to geopolitical tensions. The US dollar's strength can make it more expensive for countries with US dollar debt to repay, potentially leading to a sovereign currency crisis. The US, as the issuer of the global reserve currency, could be the last one to face significant issues.
The Bitcoin Milkshake Theory: A Potential Solution to the Global Sovereign Debt Crisis: The ongoing global sovereign debt crisis could lead to increased demand for Bitcoin and US government debt-backed stablecoins, potentially providing a solution for countries to cope with the unwinding of the petrodollar system.
The ongoing global sovereign debt crisis, as described in the "dollar milkshake theory," could lead to a wave of hyperinflation and economic instability in various countries. However, instead of being detrimental to Bitcoin, this situation could actually push some countries to adopt Bitcoin as a stable pricing mechanism, while continuing to use the US dollar. This would result in increased demand for US government debt to back these stablecoins, potentially providing a solution for the US to cope with the unwinding of the petrodollar system. Essentially, the Bitcoin milkshake theory suggests that as the world moves towards a more dollarized and Bitcoinized economy, stablecoins backed by US government debt could play a significant role in the global financial landscape.
Shifts in Global Economy: Countries Diversifying Away from US Dollar and US Debt: Countries and organizations seek to reduce US dollar and US debt reliance, US may look to Bitcoin and US-backed stable coins for treasuries, Stable coin operators prefer short-term bonds, Fed hesitant about CBDCs, Possible rift between US and Europe on monetary policy, Implications for global finance and US dollar's role in international economy.
The global economic landscape is undergoing significant changes, with various countries and organizations looking to reduce their reliance on the US dollar and US government debt. This includes Russia, BRICS nations, and even stable coin operators. The US government, in turn, may look to Bitcoin and stable coins backed by US debt as potential buyers of its treasuries. However, stable coin operators prefer short-duration bonds due to inflation concerns. The US seems hesitant about central bank digital currencies (CBDCs), which may be a factor in the Fed's aggressive rate hikes. Some analysts suggest the Fed is trying to drain the offshore eurodollar market and that a rift between the US and Europe on monetary policy could be contributing to this dynamic. Ultimately, these shifts could have far-reaching implications for global finance and the role of the US dollar in the international economy.
US dollar's strength vs Euro due to Fed actions and concerns over green agenda: The US dollar is gaining strength against the Euro due to $2 trillion flowing into the reverse repo window at the Fed and US banks expressing concerns over the global green central banking agenda, potentially leading to a recession and open revolt against the Fed.
The Euro was decimated against the US dollar due to $2 trillion flowing into the reverse repo window at the Fed, causing a self-tightening or stealth quantitative tightening. This began in June 2021 and was driven by large US banks, such as JPMorgan, expressing concerns over the global green central banking agenda and the potential negative impact on their businesses. Meanwhile, some pension funds in the US are pulling billions out of ESG funds, including BlackRock, due to underperformance. Europe, on the other hand, seems to be slower in recognizing the potential negative consequences of certain policies, such as the green agenda and the anti-fragmentation tool used to bail out struggling European nations. The US dollar's strength and Europe's potential economic struggles could lead to a recession and a potential open revolt against the Fed. The situation is being closely watched as it unfolds.
Europe's energy transition left grids susceptible to crises: Europe's aggressive shift towards renewable energy, influenced by the Davos agenda, neglected quantitative analysis and left grids vulnerable to crises, worsened by overreliance on Russian energy sources.
Europe's aggressive transition away from reliable forms of energy like oil, gas, and nuclear towards renewable sources, primarily wind and solar, left the continent's power grids susceptible to crises, even before the geopolitical events in Ukraine in 2022. The reliance on Russian energy sources further compounded the issue, as over half of Europe's oil and gas came from Russia in 2021. The push towards renewable energy, influenced by the Davos agenda and the World Economic Forum, may have been driven by qualitative, feel-good factors that neglected quantitative analysis. It's unclear if Russian individuals influenced key European decision-makers, but the lack of energy diversity and overreliance on Russia left Europe vulnerable to energy crises.
Bitcoin's Adoption S-Curve: Bitcoin's adoption rate is projected to significantly increase in the 2020s, potentially reaching 90% due to network effects, catalysts, and monetized value. Limited supply and large entity purchases fuel exponential growth.
Bitcoin, as an emergent technology, is expected to follow a typical S-curve adoption pattern, having already reached a critical mass after 14 years of existence. With network effects and catalysts in place, Bitcoin's adoption rate is projected to increase significantly in the 2020s, potentially reaching 90% adoption. This is unique because Bitcoin's value is monetized, meaning each incremental adoption percentage leads to a direct increase in Bitcoin's price. The potential for limited supply and large entities buying up available Bitcoin further fuels this exponential growth. Overall, Bitcoin's adoption curve is anticipated to be more aggressive than most anticipate. For smart financial decisions, consider NerdWallet for credit card comparisons and High Yield Cash Accounts for FDIC-insured savings.
Institutional Investors Driving Bitcoin Market Shift: Institutional investors and large money managers are increasingly buying and holding Bitcoin, reducing the amount available for sale and driving up demand.
The Bitcoin market has undergone a significant shift in the past few years, moving from being dominated by retail investors to attracting the attention of institutional investors and large money managers. This transformation is evident in the decrease in the amount of Bitcoin available for sale on exchanges and the increase in the number of coins being held by entities with strong conviction not to sell. The speakers also emphasized that looking at Bitcoin's price chart alone can be misleading, as the underlying technology and infrastructure are experiencing rapid growth and development. The adoption of Bitcoin by institutions and large money managers is expected to continue, potentially leading to a situation where there will be no Bitcoin available for sale on exchanges in the future.
Bitcoin hodlers' unwavering conviction and limited supply fuel price increases: Bitcoin hodlers' unwillingness to sell and limited supply could lead to a hyperbitcoinization scenario, causing significant price increases, potentially leaving many unprepared.
The conviction of Bitcoin holders, often referred to as "hodlers," is unwavering, and a significant portion of Bitcoin is being held off the market by these individuals. According to Trey Lockerbie, only 2.3 million out of the total 21 million coins are available on exchanges for purchase. This means that if a large number of new buyers enter the market, they may not be able to acquire enough Bitcoin to match their desired stack size, driving up the price significantly. The psychopathic conviction of Bitcoiners to never sell, combined with the limited supply, could lead to a hyperbitcoinization scenario where Bitcoin becomes a dominant store of value, and institutions and wealthy individuals allocate a larger portion of their assets to it. The ongoing Bitcoin super cycle and adoption curve could result in significant price increases, and many individuals and institutions may not be prepared for this hyperbitcoinization scenario.
Potential massive increase in Bitcoin price due to global wealth flow: Bitcoin's price could surge due to global wealth inflow, with estimates suggesting $65M tag but potential for even higher multipliers due to scarcity
The price of Bitcoin could reach significant heights if a large portion of the world's wealth were to flow into it. This could result in a multiplier effect, causing the price to rise even further due to scarcity. Using conservative estimates, a Bitcoin price tag of $65 million was suggested, but some experts believe the multiplier could be even higher, reaching 5, 10, or even 15 times the value. This is based on the decreasing amount of available Bitcoin in circulation as more of it is held by entities that won't sell for long periods. However, even with more conservative estimates, if the world's wealth continues to grow and a significant portion is stored in Bitcoin, its price will continue to rise.
Bitcoin's potential value beyond traditional currencies: Bitcoin's value could surpass traditional currencies' limits, as shown by Zimbabwe's hyperinflation example.
Bitcoin's potential value could surpass the limits of traditional currencies, much like how the purchasing power of fiat currencies can become meaningless in extreme cases. Luke Mickgee, a Bitcoin advocate and writer for Amber, used the example of Zimbabwe's hyperinflation to illustrate this point. He explained that just as the value of the old Zimbabwean currency became unrecognizable in the past, Bitcoin's value in the future could seem astronomical to us today. This perspective challenges the conventional thinking of Bitcoin's value and highlights its potential as a store of value beyond the reach of traditional currencies. Mickgee encourages readers to explore his article for more insights on this topic. He is an active voice on Twitter, writes articles for Amber, and produces educational content on Bitcoin through his podcast, Bitcoin Made Simple.
