What might this all have to do with bitcoin?
For one, it’s a reminder that bitcoin is a global asset and is sensitive to global liquidity conditions, not just the actions of the Federal Reserve.
Secondly, studying Japan may prove to be a useful guide in anticipating the evolution of Chinese, European and US monetary policy. Japan’s demographic cliff leads China and Europe by maybe a decade or two, and it seems that all the monetary stimulus in the world was not enough to break them out of the deflationary bust that ensued after the 1989 stock market blow-off top. And while at home many think the US is on an unsustainable fiscal path, and they might be right, Japan’s debt-to-GDP of 247% is double that of the US’s currently, and the BoJ as mentioned holds more than half of Japan’s national debt, while the Fed “only” holds about 15% of the US’s $32 trillion national debt.
As such, Japan is an instructive study on how far certain measures in the economy can be stretched (at least in one instance) in practice and not just theory.
Finally, we can contrast Japan’s long sought after wage-price spiral with the Fed’s intense desire to avoid that very thing here at home. It is an example of how central bankers are always seeking to manipulate the economy in one way or the other, over-correcting for past errors, striving for some inflation (but not too much!).
Bitcoin’s monetary policy comes with no such oscillations and unpredictability. The only “manipulation” of the economy it comes with is to encourage savings, a low time preference, and thoughtful investment in growing the stock of capital. This is no manipulation at all, but rather the bottom-up natural state of an economy when individuals are left to their own machinations.
Fed Maintains Policy Rate But Strikes Dovish Tone
While the actions of other global central banks do matter in a global economy as discussed above, the Fed is nonetheless the tail that wags the dog.
Fed Chair Jerome Powell held the short-term interest rate steady at 5.5% yesterday, but the Fed maintained their forecast for three rate cuts in 2024. Powell also hinted at a slowing in the pace of balance sheet reduction (quantitative tightening or QT) in the near future, implying the Fed could begin to taper its QT program as soon as their next meeting at the end of April. Since June 2022, the Fed has been letting $95 billion of treasuries and MBS roll off its balance sheet every month in an effort to tighten monetary conditions. A reduction in the pace of run-off would typically be seen to be positive for stocks and other risk assets that are sensitive to liquidity.
Risk assets responded favorably to the announcement and the S&P 500 closed at a new all-time high. Bitcoin rallied 9% in the wake of the announcement from $62,000 to $67,500, reversing much of a 15% drawdown experienced over the previous week.
In his press conference, Chair Powell basically ignored the recent uptick in inflation readings, fueling market-wide speculation of monetary debasement.
MicroStrategy Accumulates 1% of 21 Million
On Tuesday, MicroStrategy announced the completion of their latest offering of convertible notes, borrowing $603.75 million, and that they had acquired an additional 9,245 bitcoin with the proceeds, bringing their total stack to 214,216 BTC.
With the latest purchase, MicroStrategy has now accumulated more than 1% of the 21 million bitcoin there will ever be, primarily by borrowing fiat money at a sub-1% interest rate.
The latest borrowing came just a week after the company borrowed $800 million to fund the purchase of bitcoin:
