Written by Malik Corbett
Investment assets should not be viewed in isolation. Wise investing requires a holistic approach and the same holds true for digital assets. Currently, the global macro environment is signaling long-term bullishness for digital assets. This is a big economic week for financial markets as the Fed is expected to cut interest rates by .25 basis points on Wednesday. Furthermore, U.S. and China trade representatives resumes talks in Shanghai for a two day meeting but the likelihood of a trade deal are low.
Last week European Central Bank President Mario Draghi signaled that the central bank will cut interest rates in September and resume QE (bond-buying). The ECB is running out of options as inflation is not meeting their 2% target and European bank activity continues to be anemic. Furthermore, with the new UK Prime Minister, Boris Johnson; Europe again, faces the threat of a “hard Brexit” which could inflict more pain on the fragile European Union.
Turkey has been cozying-up to Russia for years now but geopolitical and economic term-oil have brought a major split between Turkey (an important EU member) and the United States. Turkey has defied stark warnings from the U.S. about accepting and installing the Russian S-400 defense missiles system. This is a major concern for Nato officials because Turkey who relationship with the U.S. has turned sour in the past 3 years. Turkey is a key strategic Nato ally in the Middle East. Many investors around the world are watching to see how the Trump administration deals with Turkey, especially when U.S. military operations are picking up in the region and the confrontation between Iran and the United States are heating up.
Weaponizing the Dollar
Last Friday, White House economic advisor, Larry Kudlow said that the U.S. will not intervene in the markets to weaken the dollar despite President Trump railing against Fed Chairman, Jerome Powell and the FOMC for months about a strong dollar. Whether the U.S. government begins to openly manipulate the dollar or not; investors are pretty certain that the Fed will cut rates at least two more times in 2019 which signals a continuation of loose monetary policies for the unforeseeable future.
What does this mean for digital assets?
“So, the big question worth pondering at this time is which investments will perform well in a reflationary environment accompanied by large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts. It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system.” ~ Ray Dalio Read Blog Post
There seems to be dark clouds on the horizon in global markets. As geopolitical tensions around the world rise and post WWII economic and military alliances begin to be disrupted and reshaped; investors must think about where to invest their capital. What’s frightening for concerned investors is that as we come to the close of the current market cycle; investor’s worry if Central Banks have enough monetary tools to fix the economy when the next recession hits.
So as investors grapple with economic and geopolitical headwinds (U.S./China Trade War, negative interest rates in Europe, Brexit, and Iran) the question they must ask themselves, where can they find attractive investments with potential outsize future returns? Furthermore, one must ask themselves; if central banks around the world continue to print money (QE) and keep interest rates at or near 0% or worse, central banks drives interest rates to negative territory; where will investors allocate their capital? If this happens, cryptocurrencies, especially Bitcoin will be a very attractive asset for an alternative system for store-of-value to protect investor’s wealth.