Starting 2025, the USD index is hitting peak levels we've not seen in years.
To elaborate, since 2000 the USD index rarely breaks the 109 mark, and its momentum truly gained ground post-Trump's election win, even as he advocates for a weaker dollar.
Oddly enough, his strategies advocate otherwise. With McTrumper set to assume office once more, expectations run high. strong USD as he steps into the role again for another term.
In the world of cryptocurrencies, a robust USD could pose challenges.
Depending on your perspective on risk and global capital dynamics, a fortified USD might benefit or doom alternative investments.
No More Dollar Milkshakes
The USD index assesses the USD value in relation to other currencies, primarily the Euro.
During the inception of the USD index, Europe was a major player with several currencies (Deutsche Mark, we remember you fondly).
Today, with Asia emerging as a critical economic sphere, the USD index might seem outdated, though beyond JPY, most Asian currencies don’t serve as reserve or settlement currencies.
Funny that…
Nevertheless, in the realm of investment, the dominant currencies (USD, EUR, GBP, JPY) still hold sway, backing numerous intertwined financial structures. 80% of SWIFT volume – these currencies matter.
The crux is that these nations can incur debts far beyond feasible repayment. U.S. federal debts are nearing a daunting $40 trillion, and this will likely accumulate.
Over the next five years, inflation seems inevitable. Yet paradoxically, the USD could appreciate against other global currencies.
Slurping Liquidity
Pay attention to the Dollar Milkshake Theory.
The astute Brent Johnson introduced the Dollar Milkshake Theory (let's call it DMT), describing how the largest debtor can keep producing dollars while elevating its currency compared to others.
DMT also hints (at least in our view, Brent’s opinion on cryptos might differ) that Bitcoin might defy conventional trends and rise alongside USD and gold.
The explanation is simple – while the U.S. maintains its debt dominance, nations globally rely on the USD for trade and investment, unlike currencies like the Korean Won.
There is a colossal sum of USD-denominated debt circulating, further stoking the demand for the USD. It doesn’t stop here!
Within the 'Big Four', USD debt provides tremendous returns.
Debt in JPY and EUR yields considerably less, and the GBP markets lack the liquidity the USD markets offer. Money migrates to where returns are most favorable.
Essentially, the massive volume of USD-denominated debt necessitates USDs, even amid an unprecedented U.S. borrowing spree. The capability for debt issuance is uniquely American.
This Seems Off
Though the DMT perspective on financial markets might feel unjust, reality is rarely fair, a fact that resonates worldwide.
Conversely, fiat currencies are losing value, revealing systemic weaknesses.
This shaky global monetary framework might explain why USD, gold, and Bitcoin begin 2025 at peak values. Capital influx into the USD ecosystem signals an understanding that the financial game is skewed.
A limited amount of liquid financial avenues exist for escaping fiat's debt snare. Among these, Bitcoin and gold remain significant, embraced globally.
Cryptocurrencies, we believe, are a prudent move, far easier to covertly transact compared to tangible assets like gold, which customs snatch up!
Persistent Liquidity Crunch Risk
A potential liquidity squeeze worldwide, as flagged by DMT, warrants exploration.
Opinion: Crypto at a Crossroads: Navigating Market Liquidity, Geopolitics, and the 2025 Trajectory
Bitcoin's recent surge, while highlighted prior, seems fueled by optimism toward McTrumper’s crypto vision rather than any easing in global liquidity.
We reiterate,
Should a market disruption occur, crypto valuations could plummet, possibly seeing BTC seeking a floor at $20,000 amid panic-driven sell-offs.
FED’s strict posture towards limiting rate cuts hints at restrained liquidity in 2025, potentially pressuring BTC as markets adopt tighter financial conditions.
The Roaring 80s Again?
The affection McTrumper's election brought to crypto was substantial, admittedly.
Opinion: The Overwhelming Wave of Capital Could Upend Markets Anytime
Trump seemed a more favorable choice for crypto, propelling BTC to $100k single-handedly. Such a leap seems excessive, leading to market oscillations in 2025.
Without a drastic shift in central bank maneuvers, akin to the stimulus-filled 2009, and global liquidity, predictions for BTC shooting to a million are speculative.
A detailed analysis of past actions like the Plaza Accord suggests potential similar measures soon, amid an exorbitant USD and intense U.S. military activity.
Coordinated efforts to devalue USD’s exchange rate could ignite an unprecedented post-crypto ETF rally, though turbulent times might persist for now.
BTC Goes Much, Much Higher!
Persisting issues with debt issuance among dominant economies and others, like China, suggest a sustained rise in alternative assets moving forward.
Now, the key question is: How volatile will the crypto landscape become before we see Bitcoin hit the $1 million milestone?
In light of FED’s proactive stance, we foresee considerable turbulence in crypto markets by 2025, especially with potential developments in volatile regions.
It’s all on the table as we enter 2025.
We do have a soft spot for milkshakes; wouldn't it be nice if they were still a buck?
