Will Bitcoin become the new wool of the US dollar cycle?

Overnight Bitcoin (BTC) rebounded to 50k, and the market seems to be ready to welcome the Federal Reserve FOMC interest rate meeting tomorrow and the day after tomorrow with a strong attitude. This FOMC is the last meeting of the year and will be held on the 14th and 15th. For those of us in the Eastern Hemisphere, we expect to hear the conclusion of the meeting on the 16th.

At such a delicate time, the Fed's interest rate meeting has attracted much attention. On the one hand, there is still no final conclusion on the effectiveness of the Omicron mutant virus. (See 11/29 "Virus Strikes Back at the Fed") Obviously, some people are reassuring that it seems to be not very powerful at present; on the other hand, many countries have upgraded their epidemic prevention measures, especially some Western countries that were originally lying flat, which are simply facing a great enemy. On the other hand, inflation in the United States is getting higher and higher. (See 12/11 "The United States encounters high inflation, and the market is in a life-and-death situation") Similarly, on the one hand, people are worried about the record high inflation rate, which may promote the accelerated tightening of the Fed's macro-monetary policy (see 12/1 "Powell's harsh words"); on the other hand, the president came out to say that the growth rate of inflation is slowing down and will fall after reaching the peak, so there is no need to worry.

These contradictory reports, interpretations and behaviors are quite confusing, and have made the world's spectators go around in circles, confused and lost. However, this is the strategy of financiers in finance. For any signals and policies that may cause market interpretations and actions, expectations need to be managed to avoid the market from taking actions that are beyond control. This routine was summarized and promoted by former Federal Reserve Chairman Greenspan. Of course, the most accomplished person among the people may be Zhao Benshan in "Selling Crutch", and Comrade Fan Wei is a spectator who is being managed for expectations.

The Fed announced and immediately implemented two tapers at the FOMC meeting in early November, one in November and one in December. (See 11/4 "The Fed Tapped as Expected") This accurately suppressed the second half of the year-end market (i.e., the peak market at the end of 2013 and 2017). The market was hit head-on and fell back. (See 12/5 "Big Pie Reverses to Pick Up People") Now it is close to mid-December, and the cooked ducks who still insist that the currency market will peak before the end of the year should be almost extinct, right? (See 10/15 "No Second Half of the Year")

There are two kinds of coins in the entire currency market, one is Bitcoin, and the other is other coins. The essence of other coins is more like the "stock" of a so-called blockchain project, which has the nature of securities. Therefore, the way they dance with the monetary baton of the Federal Reserve is somewhat similar to the US stock market. But for Bitcoin, it is a little different. Bitcoin is electronic gold, a counterproduct of US dollar inflation. Then, we will have two contradictory inferences: first, when inflation is high, the Federal Reserve tightens its monetary policy and raises interest rates, the US stock market plummets, and Bitcoin plummets; second, when inflation is high, people are hedging and buying inflation-resistant Bitcoin, and Bitcoin rises. So which inference is correct?

Both are right and both are wrong. We must understand that things in this world are constantly changing, not black and white, and there is no absolute truth or eternal correctness. All truth and correctness are established in a narrow and confined time and space. Beyond this scope, truth becomes a fallacy and correctness becomes error.

The right way to think is not to argue about right or wrong, but to discover where the boundaries of that range are.

People who don't understand that rise and fall are two sides of the same coin and are opposites and unity, and who always ask whether the market is going to rise or fall, are hopeless.

The tap of the Federal Reserve affects the dollar price of Bitcoin. The tap of the Federal Reserve also affects the price of US stocks. However, the price of Bitcoin and the price of US stocks are not causally related. In a local time and space, there will be a certain correlation. Sometimes it is a positive correlation, sometimes it is a negative correlation. In general, there is no particularly large correlation.

The problem here is that the Federal Reserve cannot directly print money to buy Bitcoin. Therefore, the money released by the Federal Reserve can only flow to Bitcoin through other channels. This creates the appearance that those things that serve as water pipes will show a certain correlation with Bitcoin, or even temporary causality.

For example, the Federal Reserve prints money for the US government to support President Biden's bill to distribute money to all Americans. Through the Treasury Department, the US dollars are directly distributed to the American people. Some of the people who receive the US dollars spend it, some buy houses, US stocks and other assets, and some buy pizza. Through such a transmission path, the money released by the Federal Reserve enters the pizza. Our analysis and thinking must be specific to this level in order to find out the relationship between them.

Will Bitcoin eventually become a reservoir for the Federal Reserve? When the money is flooding, it will accumulate, and the water will rise. When the money is withdrawn and interest rates are raised, it will drain out, lowering the water level. This breathing action in line with the dollar's operating cycle is a bit like the non-US economies that have performed this function in the past few decades.

When the dollar expands, excess dollars flow into these non-US economies or regions, causing overheated investment and economic prosperity. When the dollar contracts, capital suddenly withdraws, causing an economic collapse. Wall Street financiers will take advantage of this transition between breathing. When the expansion cycle turns to an expansion cycle, they will use a large amount of dollars to buy up low-priced assets in non-US economies after the economic collapse, and sell them at high prices before turning to a contraction cycle, driving economic collapse and asset price collapse. This process is figuratively called "shearing the sheep." This breathing cycle of the dollar cycle is about 16-18 years.

After the 2008 financial crisis, which is also when Bitcoin was born, we may be at the beginning of a new round of dollar expansion cycle. In fact, the DXY dollar index cycle believes that 2001-2009 was a round of contraction cycle, and after 2009, it entered a new round of expansion cycle.

2009+16 is 2025, +18 is 2027. From the perspective of Bitcoin's halving cycle, 2025-2026 is exactly the top of the next bull market. Everything fits so perfectly. The end of the next bull market will probably be the turn of the dollar.

It's just that the sheep of the pie may not be big enough or fat enough to be sheared. We need to raise the sheep and fatten it first. The way to do this is to build more water pipelines to the pie. Then, we need to let people all over the world enter the pie. Otherwise, wouldn't the United States be cutting itself?

Perhaps our central bank has seen through the situation, so it cut off the water pipeline to the big pie for the Chinese people in advance.

The future will be even more exciting.