Bitcoin Shortage Ramps Up And CPI Inflation Won't Come Down
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The worldwide bitcoin shortage shows no signs of abating.
Spot bitcoin ETFs in the United States have been buying 5,000 bitcoin per day on average since the end of last month when the outflows from GBTC slowed down:
With the current block reward of 6.25 bitcoin per block and a new block mined once every 10 minutes on average, there are only 900 new bitcoin coming into circulation daily. In just ~9,200 blocks, or 64 days from now, this will be slashed in half to 450 new bitcoin coming into circulation daily:
It doesn't take a math wizard to see that the amount of bitcoin being purchased by spot bitcoin ETFs in the United States every day will soon be more than 10 times the amount of new bitcoin supply coming into circulation daily.
Bitcoin's asymptotic 21-million supply ceiling is slowly but surely approaching. The reality of bitcoin's inherent supply constraint is greatly accentuated by this rising passive bid for new bitcoin daily thanks to these new ETF vehicles. The supply inelasticity of bitcoin paired with an evergrowing daily bid will come to a head in the form of massive price appreciation, as new supply is gobbled up immediately, and ETF owners are forced to buy from holders who demand an ever-increasing dollar amount to part with their coins. The bitcoin shortage is real, make sure you take care of your stack by holding with Theya.
CPI just won't return to target. It has proven extremely stubborn over the last 8 months, with January being no exception, as it decelerated from 3.4% to 3.1% year-over-year, 0.2% higher than economists' 2.9% projection.
Noteworthy in the report are core goods and core services both deflating this month. This is a sign that an economic slowdown may be closer than some realize, lining up with our cautionary messaging around the late-March timeframe when consumers are slated to run out of excess savings:
Consumer prices are driven partly by inflation expectations. If people think prices will go up, they're inclined to buy more today, creating a self-reinforcing loop where they drive prices higher, driving inflation expectations higher, rinse and repeat. This is a dangerous cycle that the Fed aims to avoid with its rhetoric, and keeping a close eye on short-term and long-term consumer inflation expectations to make sure that they remain "anchored" to their long-run 2% policy target.
Right now, short-term inflation expectations are approaching their prepandemic level but are still one full percentage point above where the Fed wants them to be. As such, the Fed is given no reason to cut interest rates now and risk reigniting the price inflation it has worked so hard to bring 610 basis points lower:
5Y5Y inflation swaps, a hedging tool for the market to bet where it thinks price inflation will be 10 years out, are pricing in a long-term inflation outlook that is still too high for the Fed's liking, currently at 2.6%. Like the year-ahead consumer inflation expectations, this is all the more reason for the Fed to stay tight:
All things considered, the market is still deadset on the Fed to slash interest rates before the year is through. Taking a look at the 2-year yield, the most liquid front-end US Treasury note yield and our best proxy for where the market thinks the Fed will take interest rates, it is inverted 86 basis points below Fed Funds:
One last note: the Fed is political this year, and as such, it will continue to hammer the "higher for longer" mantra for interest rates as long as inflation remains elevated. The number one issue for Americans is price inflation, while the number one issue Joe Biden has going for him is the stock market/asset prices. As long as corporate fundamentals remain intact and can operate in this environment, cutting interest rates now would only serve to worsen the issue that Americans are most likely to think of at the voting booth come November. If asset prices crumble as a result of the Fed's efforts to fight inflation, it's look out down below for Joe Biden's approval ratings, and look out down below for interest rates in repsonse.
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Have a great weekend,
Joe Consorti
Theya is an app for simplified Bitcoin self-custody. With its 2-of-3 multisig custody solution, you can enjoy maximum security for your Bitcoin and the peace of mind that comes with it.
Download Theya on the App Store and declare your sovereignty today.