The Breakdown - What the $1.9T Stimulus Means for Bitcoin

Episode Date: March 13, 2021

COVID-19 sent the money printer into overdrive. With the newly signed $1.9 trillion stimulus bill, the total spent on pandemic relief in the U.S. exceeds $6 trillion, more than WWII’s inflation-adjusted $4.1 trillion.  In this episode, NLW explores what the possible implications of this spending are for bitcoin, including: Whether we’re likely to see if some of the $400 billion allocated for direct checks to citizens find its way into bitcoin Whether the $1.9 trillion is just the start of a larger set of Biden Administration initiatives that will redefine our relationship with the balance sheet NLW also does a quick regulatory roundup looking at: The CFTC investigating Binance  U.S. Rep. Warren Davidson reintroducing the “Token Taxonomy Act” The introduction of the “Eliminate Barriers to Innovation Act” -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

When these Bitcoiners look at a $1.9 trillion stimulus bill, they're not really just thinking about a specific $1.9 trillion increase on the balance sheet. They're looking at a trajectory. It's a trajectory which to them inevitably leads to an impaired dollar and a greater demand for an uninflatable asset. So far, that's been a good bet. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big picture power shifts remaking our world. The breakdown is sponsored by nexo.io and Casper and produced and distributed by CoinDesk. What's going on, guys? It is Friday, March 12th, and today we are talking about what the new

$1.9 trillion stimulus means for Bitcoin. To answer this question and really to explore whether it means anything, the first thing we have to discuss is the conception of Bitcoin as a macro asset. There are really two. two dimensions to this idea. The first is whether on a day-to-day level, the Bitcoin price is responding to short-term macro stimuli, such as a Fed press conference, J. Powell, doing something that the market expects or something that the market doesn't expect. Stocks, for example, tend to be responsive to that sort of stimuli. We discussed this a couple weeks ago, and there is a lot of skepticism among Bitcoiners that Bitcoin functions in this short-term macro way. There is a very diverse base of hoddlers,

and many simply do not care about that sort of day-to-day input. In short, the time horizon of the average Bitcoin holder inoculates it from much of that short-termism. However, from a long-term thesis perspective, there is no denying that it has been a macro narrative of unfettered money printing that has been driving new types of institutions and traditional financial players into the waiting arms of Bitcoin. It's a particularly poignant day to remember that. On March 12th, 2020, one year ago exactly, we experienced Black Thursday, one of the biggest crashes in Bitcoin's history. I was recording that night with Preston Pish, and we were actually watching the price of Bitcoin get down all the way under 4,000 on certain exchanges, as the rest of the markets tanked as well

as the Western world prepared for a COVID-19 shutdown. A year later, obviously, Bitcoin has rebounded and how it has attracted an entire new set of players, it has proven its metal, and whether there is a connection or not between this latest stimulus and Bitcoin, Bitcoiners on Twitter at least certainly seem to be making that connection. Yesterday, Pomp tweeted, President Biden has signed the historic $1.9 trillion stimulus package. It is historic because it will be the catalyst to put Bitcoin to $100,000. Thank you, President. Let's actually dig in beyond the tweets about what this stimulus might or might not mean for Bitcoin. First, let's ask that question in terms of this bill specifically. The most relevant part is in the $1,400 checks being sent directly to Americans.

Of the $1.9 trillion total tab, those checks represent about $400 billion of the bill. There are many who think that some meaningful part of that new buying power might find its way into Bitcoin, given the broad income-based brush with which it's being distributed. What I mean by that is that this isn't some system whereby Americans are showing they have need, it is everyone who hits a certain income threshold, and there are going to be many people for whom that $1,400 is not going to need to go to essentials, but who have some discretion in how they might want to spend or save it. Last year, when the first round of $1,200 stimulus checks went out, there was a slight but

noticeable increase in the number of Bitcoin buys on Coinbase of exactly $1,200, according to that company. So perhaps we'll see something like that as well, with some of this $400 billion moving directly into Bitcoin. Now, other parts of this $1.9 trillion bill include a child tax credit increase, $350 billion for aid to state and local governments, which was one of the most contentious parts of the bill between Democrats and Republicans, tens of billions for further pandemic response, more than $30 billion for emergency rental assistance and mortgage and homeowner assistance, $130 billion for helping K-12 schools get back online and up and running again, another $4,000,

$40 billion for colleges to do the same. $86 billion of relief for failing pensions. This was again another very contentious part of this bill, as many of these pensions tended to be failing even before this happened, plus a bunch of smaller allocations as well. Now, this list of items in this bill brings us to the real reason that many Bitcoiners see stimulus as connected to Bitcoin's future in some meaningful way. With this new $1.9 trillion, the total

that the U.S. has spent on combating the pandemic will be over $6 trillion. For some perspective, when adjusted for inflation, the U.S. spent about $4.1 trillion on World War II. To many Bitcoiners, including many of the new bitcoiners, like the hedge fund guys, Paul Tudor Jones, and Stan Druckenmiller, this ever-expanding balance sheet inevitably has some pretty serious consequences. The notion is that we will eventually get to a point where the U.S. has three options. First, we could default on our debt. That seems pretty unlikely, given that we are the world's major financial power. Second, raise taxes to pay back that debt.

While certainly tax increases seem to be on the menu, it seems entirely unrealistic and implausible that we could ever tax citizens and corporations enough to both pay back the debt and keep the country running in any sort of semblance of how it is now, which brings us to the third option, inflated away. The idea here being that debt is denominated in today's dollars. If today's dollars are worth less in the future, the burden of that debt is also less in the future. If we owe $100 today, but in 10 years that $100 is worth $1, then we really only owe $1. That's the idea of inflating the debt away. This question of how the U.S. eventually climbs out of this, is the major macro-necrow.

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right now about this debt expansion, are folks saying that the expansion of the balance sheet hasn't produced inflation yet, despite a lot of hand-wringing that it would. Near Cassar and Tim O'Brien wrote a Bloomberg editorial this week called COVID-relief bigger than World War II budget? Sounds right. Their argument is that there is simply no evidence of balance sheet increases leading to inflation. They point to a tripling of the balance sheet post-grate financial crisis with no corresponding increase in the CPI. They also argued that 1970s stagflation had more to do with twin energy crises than spending. And finally, they point to CPI numbers that remain firmly below Fed targets. Let's hold aside for a moment, Bitcoin are

arguments that CPI doesn't accurately measure inflation, in terms of how it's actually experienced by people. The bigger point that I want to make is that there is a shifting conventional wisdom. O'Brien and Kassar are far from outside of the mainstream. There are more and more people who, while not sure just how big a deficit we can run or how much money we can print, are pretty sure it's a hell of a lot bigger than what we're doing now. This group wants to see the federal government flex its spending muscles even more. Jim Bianco, the well-known macro researcher, tweeted, in case you were wondering if we are in a universal basic income world, Biden is set to announced what's next before he even signs the current $1.9 trillion bill. There is a sense among many

that the spending experiment we've seen in this COVID-19 response is still just the beginning, and that the next thing that comes is much more direct money to citizens, be it in the form of some sort of universal basic income or a less direct approach, like the elimination of student debt. Now, there are, frankly, a larger than you'd think number of bitcoins who believe that the fiat die around the U.S. dollar has been cast, and that programs like UBI are net net, a better use of extravagant money printing, things like, well, wars. At least they might argue the byproducts and negative externalities of this type of experimental monetary and fiscal policy are potentially for a time to the benefit of people

directly versus more abundant institutions or some foreign entanglement. The point is that when these bitcoins look at a $1.9 trillion stimulus bill, they're not really just thinking about a specific $1.9 trillion increase on the balance sheet. They're looking at a trajectory. It's a trajectory which to them inevitably leads to an impaired dollar and a greater demand for an uninflatable asset. So far, that's been a good bet. By the way, the stock market seems to like the stimulus bill. U.S. stocks jumped to a new all-time high yesterday, with tech companies in particular making up some serious ground that they had lost over the past few weeks. By the way, number two, this is not just a U.S. phenomenon, and as a global asset, that's part of why Bitcoin is even more appealing.

On Thursday, the European Central Bank said it would significantly accelerate a plan to buy the equivalent of $2.2 trillion worth of government bonds. The reason? Rising rates. European Central Bank President Christine Lagarde said, quote, market interest rates have increased since the start of the year, which poses a risk to wider financing conditions. If sizable and persistent increases in these market interest rates when left unchecked could translate into a premature tightening of financial conditions for all sectors of the economy. This is more or less what investors wanted to hear from Powell last week, but didn't. And since we're already in government and macro mode, let's round this out with a little regulatory roundup as well. First, a small piece of news from yesterday that

makes a lot more sense today. Binance announced that they had hired Maxwell Bacchus, who represented Montana in Congress and in the Senate for almost 40 years, and between 2014 and 2017, was an ambassador to China for Obama. It seemed like a move to try to get friendlier with the U.S. and made a lot more sense today when it was announced that the CFTC was investigating Binance for whether it had allowed U.S. citizens to trade and trade particularly derivatives products. Now, I'm seeing on Twitter a lot of people latching onto this as though it's going to be the major new fud, but it doesn't really strike me as an existential type of threat. The CFTC hasn't accused Binance currently of any wrongdoing, and doesn't, at least for now, seem to be trying to make an example of them or anything like that.

Second, I think a little bit more significant, was the reintroduction of the Token Taxonomy Act. This has been introduced by Congressman Warren Davidson three times in the last three years. Its goal is to exempt certain cryptos and digital assets from federal securities law and is ultimately a pro-business act. The release about the Token Taxonomy Act states, currently a patchwork of laws and regulations creates confusion and even hostility to various blockchain businesses. The bill has bipartisan co-sponsorship with Ted Bud, a Republican from North Carolina, Darren Soto, a Democrat from Florida, Scott Perry, a Republican from Pennsylvania,

and Josh Gottheimer, a Democrat from New Jersey. Effectively, it argues that other countries are going to start lapping us if they're not already. This follows the introduction of the Eliminate Barriers to Innovation Act, which I discussed a couple days ago. That bill would establish a working group within 90 days that would then produce a report within a year that would figure out what parts of this new space are meant to fall under the SEC versus the CFTC. If those timelines feel incredibly slow to you, welcome to government. Still, it is good to see that more of these positive pro-innovation, pro-Bitcoin, pro-crypto

bills are being introduced rather than some wave of new attacks on the space. I think if I had to sum up where we are in terms of this macro asset idea, crypto markets are very weird. They're in in-between space where they're still functioning simultaneously as sort of uncorrelated, certainly compared to other assets, but are increasingly a part of the macro conversation. Bitcoin with all of these new entrants into the market is obviously the one that has the greatest correspondence to the macro narrative. As we'll discuss tomorrow, it feels to me like we're seeing the beginnings of another wave of institutional players announcing their entry into this market, so you can bet that

this macro conversation is only going to increase over time. For now, guys, I appreciate you listening. I hope you're heading into what is going to be a great early spring weekend. Until tomorrow, be safe and take care of each other. Peace.