Why Bitcoin Is A CDS On The Fed

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With rampant inflation and institutional unease in the air, bitcoin is poised to gain exponentially.
This is an editorial from Adam Taha, an entrepreneur with two decades of experience in government and corporate finance.
The latest printout of the consumer price index (CPI) came in at a shocking 9.1% (9.8% in cities), with many speculators expecting the price of bitcoin to turn “moon”. What happened was the opposite and bitcoin price action correlated with other risky assets. Many threw an expected tantrum and asked why? “I thought BTC was a hedge against inflation…when moon?”
Keep in mind that bitcoin is a 13 year old resilient asset with only 13 years of network effect. How is it resilient? While the dollar, as we all know, has continued its rapid climb, with new annual highs against the British pound, the euro and the Japanese yen so far, making it a wrecking ball against most foreign currencies and risky assets. However, this past week, something incredible started to happen: Bitcoin’s price (in USD) has maintained an extremely strong level of support as the dollar gains. This, in my opinion, represents a hugely important event.
Image Source: Tradingeconomics.com
Bitcoin’s price action is frustrating some retail investors. That’s because the market is not dominated by retail. It is dominated by institutional investors and big money. Institutions dominate the market, but are themselves entangled in rules, regulations and policies. As such, they view bitcoin as a risk stock and when inflation is high (last push of 9.1%) then they go risky – especially when interest rates are high (“quantitative tightening” (QT) environment). In general, “cash is king” is a common saying in traditional finance and the current fiat system for many investors. Institutions sell their risky assets (risk-off) and they buy cash (USD) and cash flow stocks when the DXY rises.
Note that gold and silver have fallen significantly in recent weeks. So, what happened to their secure store of value proposition? Nothing. The statement itself probably still holds. It’s not about the assets themselves, it’s about collecting dollars now. Having cash is better for institutions and investors than having a valuable but illiquid asset. Remember that institutions consider cash to be king in times of high inflation and QT.
Again, Bitcoin is only 13 years old and it takes time for retailers and institutions to understand the true value of bitcoin. For now, institutional investors continue to view cash as king, and many retail people still don’t understand what kind of money bitcoin is. So for now we are still stuck in the monetary world of the Federal Reserve Board.
The Fed’s policy is unsustainable. They know that, we know that. They cannot and will not stop printing by adding liability to their balance sheets (debt to be paid off by future generations). What is the solution? Bitcoin is the solution. Sure, in two months cash will remain king, but in two years cash will return to its original form: waste. Meanwhile, bitcoin will continue to do its thing and investors (both retail and institutions) will realize its value.
The following statement is relative: “Bitcoin is a hedge against inflation.” I say relative because for someone who bought bitcoin years ago (before 2017), that statement is true. But for someone who recently bought, that statement is taken with some skepticism. In the long run, it is certainly a hedge against inflation.
A credit default swap or CDS is an insurance instrument that institutions use when they own a bond issued by an issuer, such as a corporate or government bond. They can buy insurance against the failure of that bond (default of the issuer). For institutions and investors, Bitcoin can and should be their CDS if the Fed fails. Bitcoin protects your wealth from depreciation and it protects you like a CDS from the government. Bitcoin is your insurance policy against the entire government monetary policy and its “scam token” (aka the dollar).
The future is almost completely digitized. Money will be no different. Bitcoin is without a doubt the only solution to a sound, immutable, secure, digital money that gives people their sovereignty. Banks are counterparties. Goldman Sachs, NYSE, Vanguard, Fidelity and others are counterparties. With bitcoin, you fully own the asset and not the underlying asset. In the current system, the reliance or hope on the counterparty to fulfill their end of the obligation and give you what you owe when you need to liquidate an asset. Bitcoin turns this on its head using an elegant system of incentives, encryption, supply cap, decentralization, and a network that anyone can participate in.
Increasing your purchasing power comes second. First, you need to protect that purchasing power. How do you protect your purchasing power? Bitcoins.
This is a guest post from Adam Taha. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

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