Crypto Macro Framework
Liquidity is Everything
Crypto continues to be priced with liquidity. Here is the crypto total market cap compared to WRESBAL (good proxy for US liquidity). Liquidity up crypto up, liquidity down crypto down. A very close match.
Technology is deflationary
Technology is exponentially growing
Our monetary system cannot handle sustained deflation
TL;DR: We’re facing an exponentially growing wave of deflation. To combat, our system must create an opposite level of inflation to remain in stasis and not fall into structural deflation. This is done through many mechanisms but ultimately means one thing. Liquidity.
Technology is Deflationary
Above is the Fed’s balance sheet (WALCL) plotted logarithmically. In log, exponential growth appears as a straight line. Until the data changes our thesis is that the Fed’s balance sheet continues to grow exponentially.
Debt to GDP ratio is too high to be sustainable (general consensus, above 100% is unsustainable) and must eventually come down. All possible options of lowering the debt ratio are: sustained higher GDP, restructuring, default, paying back in full, inflating away. Historically a nation that has high levels of debt denominated in its own currency (US today) has essentially only ever chosen to inflate the debt away via debt monetization and currency devaluing. Liquidity.
Debt to GDP Ratio
Timing
Below is the Year over Year rate of change of global liquidity. When the white line is above the zero bound this means global liquidity is increasing compared to a year prior.
Liquidity Turning
Crypto max pain, max bearish sentiment was very likely in 2022 just prior the FTX and Celsius events.