China’s financial crisis, US dollar strength and Bitcoin – Bitcoin Magazine
“Fed Watch” is a macro podcast with a real and rebellious bitcoin nature. In each episode, we question mainstream and Bitcoin narratives by examining current events from around the world, with an emphasis on central banks and currencies.
Listen to the episode here:
In this episode, Christian Keroles and I catch up on the week, go through an update on the developing Chinese financial crisis, talk about why fiat money today should rightfully be called credit-based money and the side effects of that fact. Finally, we dive into the bitcoin chart.
You can access this episode’s slide deck of charts here or below.
China
First up is the situation in the Chinese economy. They are facing some major problems in the real estate market, the economy and the banking system. Currently, 28 of the top 100 property developers have defaulted or restructured their debt. There is a growing “boycott boycott,” where buyers of unbuilt housing units in projects now delayed by the pandemic, developers’ financial plight and the country’s zero-Covid policy have refused to pay their mortgages. The boycott started with 20 projects and has since grown to 235 projects.
The rhetoric surrounding this mortgage crisis is eerily similar to that of the US in 2007. Excuses such as “There are a small number of mortgages” and “Effects are contained” are offered.
As a result of the developer and mortgage problems, small and medium-sized banks have solvency problems. Chinese banks have $9 trillion in real estate exposure. If there was a problem with constantly falling house prices, it could very quickly lead to a solvency problem for the banks. In fact, that is exactly what we see.
New home prices in China have fallen for the 10th consecutive month in June 2022.
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Gross domestic product fell in Q2 2022 to 0.4%.
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The GDP chart well supports my personal macro predictions that the major economies will return to post-Global Financial Crisis (GFC) “normal”. Since the GFC, growth in China has slowed. Then there was the violent economic disruption and the whiplash effect in the economy, followed by a return to slowing growth.
At the end of the China portion of the podcast, I read through a fascinating article from Nikkei Asia about the situation surrounding recent bank runs in Henan province. The article highlighted the abusive response to the bank run and the growing dangers of a full-blown financial crisis in China.
Bitcoin charts
Next, we’ll go through a couple of bitcoin charts. The first two charts highlight the similarities and differences in the chart during periods that resembled today’s price action. I pointed out that the current flat consolidation is different because it has higher highs and higher lows, where the previous breakout attempts did not.
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There are also some very interesting observations from Twitter on cash positions in hedge funds and the bitcoin market.
Kuppy points out that the percentage of hedge fund portfolios holding cash is higher than at any time since the dot-com bubble back in 2000. When these peaks happen and hedge funds rotate back into stocks, the market bottoms out and has a nice rally. .
We can also see this effect in the bitcoin market.
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This chart is a little busy, but the top panel is the “stablecoin dominance”, as I’ve called it, the ratio of the stablecoin market cap to bitcoin’s market cap. It is a proxy for a “cash position” in the bitcoin market. The bottom panel is the bitcoin price. At relative peaks in the stablecoin ratio, bitcoin falls in price because these stablecoins can rotate to buy bitcoin and vice versa.
The US dollar
There has been a lot of talk about the strengthening of the dollar. We’re the only bitcoin podcast to unequivocally call for a strong dollar in the last two years, and boy were we right.
I do not expect the dollar to sell off dramatically after the parabolic rally, but to establish a new higher range, perhaps between 100-115 on the US Dollar Index (DXY).
I emphasize that bitcoin does not need a weakened dollar to explode higher. In fact, if you look at the history of bitcoin charted with the DXY, you can see that the dollar is establishing a new higher area where bitcoin is selling off. After periods of a rising dollar, bitcoin tends to take off. I had not prepared a chart to show this during the live broadcast, but it is included below.
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The pink zones indicate periods of rising dollar and falling bitcoin. The black arrows indicate rising bitcoin amid a steady dollar in a higher range. It’s important to note that both bitcoin and the dollar have rallied over the past 10 years, just on slightly different schedules.
Finally, we take a look at the euro and discuss how and why it is in the most trouble of the major currencies. We mention fragmentation risk several times. I recently created a podcast episode dedicated to that topic.
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This is a guest post by Ansel Lindner. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
