Ryze Recap 8/27: What Today's Landmark Federal Reserve Speech Could Mean for Money
Plus, Fidelity launches Bitcoin fund. Also, big acquisition news for consumers in crypto.
It’s Thursday, August 27th. If you’re new here— Ryze Recaps is a newsletter synthesizing the biggest news Bitcoiners need to know.
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What Today's Landmark Federal Reserve Speech Could Mean for Money
Federal Reserve Chairman Jerome Powell is scheduled to give a "profoundly consequential" speech today. Powell has arguably been one of the most important figures of this pandemic.
He's employed every weapon in his arsenal of monetary policy to enable the Fed to be the crutch that upholds a crippled pandemic economy. And to his credit, so far it's worked, at least in the short run. Stocks are ripping high, money is cheap, deals are getting done, things aren't terrible from a money standpoint— unless you're one of the 30-50 million unemployed.
But today, Powell is faced with the daunting task of convincing America that higher inflation will be good for us in the long run.
I know what you’re thinking: How does that make any sense? How did we get here? What does this mean?
Let me explain.
Rewind: A History of the Federal Reserve (Just The Highlights)
1913: the Federal Reserve is created as the United States' central bank and given the dual mandate of lowering inflation and unemployment. Traditionally, it has done this by manipulating interest rates and the money supply.
1971: Nixon severed the link between the dollar and gold right as we plunged into an economic crisis. The Fed lowered interest rates and increased the money supply repeatedly, and it failed terribly. It caused stagflation (high unemployment + high inflation) for an entire decade.
1979: Paul Volcker became Fed chairman and reversed course, hiking up interest rates and decreasing the money supply. This led to a short-term recession but curbed inflation, and led to the economic boom that lasted through the '90s.
2009: after the Great Financial Crisis, the Fed started to employ quantitative easing: injecting liquidity and money into the system by purchasing government bonds and other securities. Quite frankly, this is an experiment.
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What's happening now:
Now, the Fed has announced unlimited quantitative easing, printing nearly $3 Trillion this year to combat the economic effects of the pandemic. This will inevitably lead to higher inflation in the long run. Today, Jerome Powell will attempt to convince us that this is a good thing through a speech titled "Monetary Policy Framework Review.” And he’s the only Fed chairman that wasn't an economist
This is the exact opposite of Volcker's strategy, which pulled us out of economic misery. All through the '70s, we lowered rates and increased money supply, but it only led to more and more inflation. Volcker did a complete 180 and it worked. Since 2008, we've been doing what we did through the '70s, but at a much more drastic scale. And today, it seems that the Fed will double down on this policy which has failed in the past.
What they're saying:
"Simply, it means that the Fed, which has pegged 2% as a healthy level, will let inflation run higher than that for a while if it has spent a considerable time beneath that level. The Fed’s preferred inflation gauge has stayed below that level for all but two years since the Great Recession ended in mid-2009. It’s a mirror-image reversal of Volcker’s inflation-busting and sets the stage for a pivotal policy move." - Jeff Cox, CNBC
Why it matters:
Nobody knows what this will do to the US economy in the long run. Many are speculating that eventually, this leads to a debasement of the US Dollar as the global reserve currency. Even Goldman Sachs recently expressed "real concerns around the longevity of the U.S. dollar as a reserve currency." Governments creating more money means that the hard-earned dollars you make today will have less purchasing power in the future.
Bitcoin has recently regained popularity given its role as a hedge against inflation. Bitcoin is the alternative to a government-controlled fiat money system. It's decentralized, disinflationary, and has a fixed supply, making it the perfect insurance against our current monetary system. Institutions around the world, including publicly traded companies, are waking up to this and holding Bitcoin as a reserve asset to protect their wealth. Isn't it time you did the same?
Why Investors Know that $11,000 is Just the Beginning: Bitcoin as the ultimate insurance
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In case you missed it:
The Fastest Growing Crypto Exchange Makes a Huge Acquisition
FTX, one of the world’s largest crypto derivatives exchanges, has announced that it is acquiring Blockfolio, a consumer portfolio tracking app, for $150M. FTX, owned by Alameda Group, offers a wide range of investment products to retail crypto traders, from futures and options contracts to index tokens similar to levered ETFs. Blockfolio is one of the most popular price and portfolio tracking apps used, and FTX is looking to leverage Blockfolio’s user base of over 6 million crypto investors.
This deal is at the intersection of macro tailwinds generating more consumer interest in crypto, and the rise of the retail trader using investing as entertainment. The two companies are exploiting these trends to build a new, retail-focused trading product that will integrate directly into Blockfolio’s existing app.
All of this is, of course, the brainchild of Sam Bankman-Fried, one of the most prominent traders in crypto. FTX was built by traders, for traders, and this expertise will likely carry over into Blockfolio’s new trading product. To make things more interesting, FTX has recently hired Robinhood’s former head of crypto, Sina Nader. Clearly, FTX is betting heavily on a consumer crypto boom, and we’ll be watching closely to see how it plays out.
Fidelity Launches Bitcoin-Only Fund
According to an SEC filing from Wednesday, Fidelity Investments is launching a Bitcoin-only fund for wealthier, accredited and institutional investors, with a minimum investment of $100,000.
The 2.5 Trillion dollar asset manager has been making strides in the Bitcoin investment space since 2018 when it first launched Fidelity Digital Assets. Since then, this arm of Fidelity has offered Bitcoin custody services to institutional investors. Now, Fidelity is doubling down by offering a fund that will enable clients of investment advisors and wealth managers to have exposure to Bitcoin.
Its nearest competitor is Grayscale, a much smaller crypto-only firm, which offers similar functionality with growing success. Currently, Grayscale manages over $4 Billion in crypto-assets for institutional and consumer investors, with the vast majority being Bitcoin. Grayscale’s success can be attributed to increased interest in Bitcoin among traditional investors, as more and more high-net-worth individuals, family offices, and funds have been allocating funds to Bitcoin to hedge the current macro environment. We’ll keep you posted on whether or not Fidelity is able to emulate Grayscale’s success.
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