Blain’s Morning Porridge 29^th July 2024: Central Banks ponder while Crypto Takes Centre Stage

“Mummy, why is that fat man with the crown on his head completely naked?”

This week will be about listening to Central Banks. Meanwhile, the US Bitcoin Conference in Nashville over the weekend was an eyeopener – could Crypto be the issue that wins the election for Trump? The conference might has pressed the Bitcoin reset upside button.

It’s a big week for markets waiting for The Fed and The Bank for clues on when they will cut rates, and the BoJ on when it will hike. There are a raft of expectations on where rates, inflation and currencies are going – and what central banks are thinking is key to how these play out. All will not be revealed later this week.

Many still think big rate cuts are inevitable in the face of the improving numbers (and more data will emerge this week), suggesting economies have peaked and inflation is beat. In contrast, central bankers in London and Washington will be asking themselves if they have successfully re-educated markets that ultra-low rates were an aberration and that any easing will be limited withing normalised bounds. They are acutely aware the market’s hive-mind still thinks rates are going back closer to zero to unleash more financial asset inflation on already overpriced markets…

Rates may ease later this year – assuming nothing else negative emerges from rising agri-commodity prices, wage pressures, still busted supply chains, or worse, intervenes. Never underestimate the unfathomable likelihood of No-See-Ums. If the central banks do ease, we’re looking at a couple of small step dips – nothing more. Real interest-rates will remain positive – above inflation. Yet markets are behaving as if 2% is nailed back on again.

And thus it ever was. Hope trumps reality.

Markets are trying to talk themselves higher on hopes of an AI boost, consumers borrowing more cash to keep the spendathon going, and Central Banks juicing the mood with rate cuts. The reality? A dismal washed out summer. AI proving a bit “meh”. Consumers finding less money in their wallets by the middle of the month. Nervous central bankers. Rising insecurity and a deepening sense of disappointment as the news flow remains depressing..

Still, there are always bright spots – something to keep us amused and excited…. and in that respect the US Political Circus is the gift that keeps on giving.

Let’s talk about Crypto

We have so much to look forward to when Trump wins the US election. Not only has he promised to let Jay Powell stay on at the Fed – if surrenders and does Trump’s biding – but on Day One he is going to fire Gary Gensler, Chair of the Securities and Exchange commission, and replace him with new regulators who love crypto. Yay… wtf…

The Bitcoin 2024 conference held in Nashville over the weekend was extraordinary. I was alerted to its importance last week listening to the US edition of the Alistair and Rory podcast show; The Rest is Politics. The US edition is hosted by Katty Kay, and Anthony Scaramucci – The Mooch, who famously lasted 6 days as Trump’s communication director in 2017. The Mooch (who can gabble crypto BS with the best of them about Bitcoin), said Kamala Harris missed a massive opportunity by turning down a slot to address the conference. (She apparently offered to do a Zoom! Not good enough said the organisers.)

Bitcoin has become important in this election because it gets coverage, and, it is said, over 60mm Americans apparently hold crypto assets… I idly wonder if that is a larger proportion of the US electorate than Dutchmen who owned tulips in the 1630s? They care about the value of their crypto wallets – because they’ve been told they are going to get rich on them. When they hear politicians back statements like “Bitcoin can fix America”, they sit up and listen. Few of them understand there is no such thing as a free-lunch. Yet when they hear senior US politicians giving crypto credibility, and talking up the value of Bitcoin, they are all-in.

The Bitcoin conference, attended largely by men of a certain type, many wearing Make Bitcoin Great Again hats, was a class act of political venality. When large donations are at stake, politicians are willing to say whatever their audience wanted them to say – including pardoning convicted shysters like Ross Ulbright, the guy who ran the dark-web site “Silk Roads”. (Trump said he is going to pardon him – also on Day One.) The reality is the vested interests of Crypto are dangling enormous amounts of wedge to politicians willing to take the shilling… Trump and 3^rd Presidential Candidate Robert F Kennedy Jnr grasped the opportunity to embrace and take their cut with both arms.

Kennedy has promised the US will build a 4 million “Digital Bitcoin Fort Knox” strategic reserve, starting with the 210,000 BC Washington already holds, confiscated from digital proceeds of crime – and suggested that’s what Trump is also planning. Kennedy wants the US Treasury to buy 544 bitcoins ever day – ‘cos that definitely not look like the US government essentially front-running Bitcoin for the crypto-whales who own most of the original BC wallets. Of course not. (For more on who owns Bitcoin, check my Bitcoin is a Cult comment from January. The 100 largest bitcoin accounts hold 15% of the total issued.)

Trump will pander to the crypto-masses by removing SEC chair Gensler – making it quite clear to any and all any negative critical analysis on Bitcoin is verboten. He will make ‘Merica the crypto capital of the world, and a Bitcoin superpower – because apparently that’s not in the least incompatible with the US dollar already being the de-facto global exchange mechanism. (I’m trying to reconcile how patriotic Americans in MAGA hats and Bitcoin shirts reconcile their professed love of flag and country with an instrument specifically designed to smash confidence in the fait US dollar? Hey-ho.) Trump raised “Kamala Harris’s anti-crypto crusade”… a “real thing” nobody, including Harris, was aware of till then. He will also block any attempt by the US authorities launching a Central Bank Digital Currency (CBDC) – a gift to stablecoin operators.

Trump, of course, has no compunction in saying one thing and doing something completely different. He is not daft, but he smells the money and potential votes. He has realised the crypto community from whales to miners have an awful lot of greater fools money to spend, and that these greater fools want to hear politicians telling them their “investments” are safe. Trump raised $4 mm at the conference, and has taken money from the charming Winklevoss twins (who, despite owning 70k bitcoin, are apparently unaware of the rules re donations, so will get much of it back) and from the Kraken exchange.

Trump has the full deck of tech barons with their fingers in the crypto pie on his donation list; Musk, Akerman, Thiel, Andreessen, Horowitz et al. Story is they even got to tell him who his Vice Presidential pick would be; JD Vance, Thiel’s bagman and self-professed Bitcoin investor and holder. Gosh… I wonder how much they collectively stand to gain if Trump’s conversion to Crypto, causes Bitcoin to rally? Just a few years ago Trump dismissed Bitcoin as a scam – what has changed? According to Bloomberg – for Trump it started to make sense when he found he could sell NFTs of himself, earning a cool $20mm, and the fact he can charge conference attendees $60,000 for a photo, or $840k to attend a dinner!)

What the Bitcoin conference demonstrated was a) money talks, b) if you say its going up, it will.. as long as the greater fools keep believing, and c) politicians will do anything for votes. Trump and Kennedy attending the conference and pandering to its Audience was perhaps the greatest boost Bitcoin has had in years.

What the Bitcoin conference did not do was… explain why bitcoin is worth anything.

I repeat my offer: name me on thing Bitcoin can do or facilitate better than real money which is legal?

Out of time and back to the day job..

Bill Blain

CEO and Founder,

Wind Shift Capital

www.windshift.capital