Monetary Policy & Bitcoin Analysis

EMERGENCY NEWSLETTER

Investors,

I wrote an important & time-sensitive post on Twitter/X this morning, analyzing the macroeconomic environment, monetary policy, and Bitcoin.

This is such an important message that I decided to distribute it as an emergency newsletter to ensure that everyone is aware of my thesis, which is detailed below.

This is the first time that I’m sharing this thesis publicly; however, I’ve been sharing this outlook with premium members of Cubic Analytics for the past several months, even when Bitcoin was trading at ~$25,000. With price currently at $35.4k, the thesis is unfolding in real-time and it’s being reflected in the price.

Nonetheless, I think we’re in the early innings of the thesis.

To stay on the cutting edge of my market outlook and benefit from my in-depth research before the general public, consider upgrading to a premium membership by using the link below, which also includes a 20% discount on the annual membership!

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Monetary policy & Bitcoin analysis with price targets:

As disinflation continues and the Federal Reserve maintains the current policy rate of 5.33%, it’s a mathematical certainty that the real fed funds rate will become even more positive. This will create a feedback loop for even more disinflation (and perhaps even deflation) as the Keynesian model suggests that higher rates strain economic activity and inflation.

The Fed knows this.

So they also must recognize that, while inflation is still too high, the downward trajectory of inflation and the upward path of real rates will create new risks for the economy, which aren’t necessary if/when the Fed achieves its dual-mandate.

This is what the Keynesian model tells them.

What happens if the real federal funds rate rises from 1.6% today to 4% within the next 12 months? Well, theoretically, this is equivalent to another 200+ bps of rate hikes, which isn’t necessary if inflation continues to decelerate and even fall below the Fed’s 2% target.

In the event that their 2% target is achieved and the economy & labor market stay resilient, but perhaps soften (think real GDP growth between +0.5% and +2% & an unemployment rate between 4% and 4.5%), the Fed will cut rates to offset the 12-month increase in the real fed funds rate.

In other words, if their dual-mandate is satisfied (price stability & maximum employment), it’s hard to justify real fed funds > 4%.

Actually, we can take it a step further based on my outlook of:

• Sub-2% inflation YoY
• Softening (but still strong) labor market

I haven’t even brought up the massive debt maturity profile coming down the pipeline, for the federal government or corporations. This will provide additional motivation for the Fed to ease if their dual-mandate is achieved and risks of deflation are becoming more apparent.

The one thing the Fed hates more than high inflation is deflation. If risks are leaning towards deflation and even softer labor market conditions, the economic & financial market risks from high real rates could cause the Fed to act in a preventative measure by cutting the fed funds rate by 100-200bps.

In this case, the real fed funds rate would still be +2% to +3%, which is very high relative to the past 15 years! It would be even higher than it is today. That’s why I think 100-250bps of rate cuts (starting no sooner than Q3 2024) are in the cards.

That’s my thesis in a nutshell, based on my disinflationary outlook and the fact that deflationary risks are more substantial than re-inflation.

Okay, that’s enough macro (I can’t help myself)... Let's apply this to BTC

If the economy stays resilient (but softens a bit), disinflation continues, the market will price in the cuts & monetary policy dynamics that I mentioned above. Assets will likely bid in this environment across the board. I’m talking stocks & bonds. If TradFi assets are rallying, guess how well BTC & crypto will perform... But those are macro catalysts... we also have two massive BTC-specific catalysts:

1. Halving (roughly 170 days away)
2. Spot Bitcoin ETF approvals

So all together we have the potential for:
• Non-recessionary rate cuts to offset higher real rates
• Increasing scarcity from halving
• Institutional flows/adoption from ETF approvals

All within the next 12 months.

Read that again: non-recessionary cuts, halving, and spot ETF approvals all within 12 months.

With Bitcoin currently trading at $35k, reaching new ATH's is ultra-conservative. You could even argue that a price target of $100k is conservative. Perhaps even $150k (which is ~4x upside vs. current market pricing).

Personally, I'm focused on the $175k target (161.8% fibonacci from the prior cycle highs to the bear market lows).

Have fun.
Good luck.
Manage risk.
This is a thesis, not a guarantee.
WGMI.

If you enjoyed reading my thesis, please know that this is something that I've been sharing with premium members of Cubic Analytics for the past several months. If you made it this far and read the whole thing, send me a DM and I'll hook you up with a discount code to join the premium team so that you can get these insights before everyone else.

Best,

Caleb Franzen