Bitcoin faces major opportunities in the shadow of the global economic crisis
原文标题：Let's Go Bitcoin原文作者：Arthur Hayes原文来源：https://substack.com/编译：Daisy， 火星财经
Wharton School celebrates capitalism and American exceptionalism. Young students from all over the world are involved in this environment with dreams. Professors vigorously promote free market capitalism and the “rules-based” American peace order, which is maintained by Tomahawk cruise missiles. However, if you started your career in September 2008, like me, you'll soon discover that most of the education you've received is completely illusory. The reality is that this system isn't really an elite selection system — rather, companies that rely most on government support end up being the most financially successful. Capitalism is meant for the poor.
The first lesson I learned from real capitalism — or what I now call “corporate socialism” — came after seeing which major investment banks flourished and which declined after the 2008 Global Financial Crisis (GFC). After Lehman Brothers went bankrupt, all banks in the US were bailed out through direct equity injections from the government. Although banks in Europe received secret financial support from the US Federal Reserve, they did not receive government equity injections or forced mergers funded through central bank loan guarantees until 2011. So, when my analyst class at Deutsche Bank received the 2009 annual bonus in February 2010, our bonus was a bit smaller than our friends working at Bank of America who had already pressed the “F9” button.
This is the KBW Bank Index, which includes the largest commercial banks listed in the US. Since its low in March 2009 after the financial crisis, the index has risen by more than 500%.
This is the European Stoxx Bank Index, which includes the largest European banks. Since its post-crisis low in 2011, the index has only risen 100%.
Regardless of what political commentators say, corporate socialism is more common and more profitable in the US than in Europe.
Remember, kids, privatizing profits and socializing losses is the secret to getting big bonuses.
Considering that China has always claimed that its economic system is different and superior to the West, you might think they will adopt different policies to solve economic problems. But that's not true, young man.
To understand the huge changes China is undergoing, we must first consider the recent financial crises of the other three major economies (the US, Japan, and the European Union) in the context. Every economy has experienced a severe financial crisis due to the bursting of the housing market bubble.
Japan: 1989
US: 2008
EU: 2011
Today, China can also be added to the list of economies affected by the bursting of the housing bubble. China's central government began restricting the supply of credit to real estate developers in 2020 and achieved this goal through a policy known as the “Three Red Lines.”
ChatGPT interprets this policy：
China's “Three Red Lines” policy is a regulatory framework introduced in August 2020 to curb excessive borrowing by real estate developers and reduce financial risks in the real estate industry. The policy sets strict thresholds for three key financial indicators: a balance ratio of no more than 70% after excluding advance payments, a net debt ratio (net debt divided by equity) of no more than 100%, and a cash-to-short-term debt ratio of at least 1. Developers are classified according to the number of violations of these standards, and the debt growth they allow is limited accordingly — developers that meet all criteria can extend their debt by up to 15% per year, while developers that violate all three standards are not allowed to increase their debt levels. By implementing these “three red lines,” the Chinese government hopes to promote financial stability by encouraging developers to deleveraging and enhance their financial position.
The Chinese economy then fell into a liquidity trap or balance-sheet recession, like all other victims. Private businesses and households began to shrink economic activity and save to repair their balance sheets. When demand for credit from households and businesses falls, conventional Keynesian economic policies — that is, maintaining a moderate fiscal deficit and reducing capital costs by cutting central bank policy interest rates — will no longer work. What is needed to avoid terrible deflation is a “big deal” of money and finance. The time it takes to launch “panic mode” depends on a country's culture. But make no mistake — no matter what the so-called economic “doctrine” is, every country will eventually respond by injecting monetary therapy.
I call this palliative treatment “chemotherapy” because while it may cure deflation “cancer,” it ultimately “kills” the host. The hosts are the middle and lower classes. They are being destroyed by asset price inflation, yet they are unable to see any significant improvement in the real economy. Like modern oncology, this ultimately ineffective monetary “chemotherapy” is extremely profitable for a small group of financial “witch doctors” headquartered in New York, London/Paris/Frankfurt, Tokyo, and now possibly Beijing and Shanghai.
There are two aspects of monetary chemotherapy:
First, the banking system must be recapitalized through public funding. Banks' balance sheets are always full of bad real estate loans. The private market will no longer provide equity capital. This is the reason why bank stock prices have crashed and become insolvent, ultimately leading to bankruptcy. The government must inject new funds and change accounting rules afterwards to legalize banks' financial health claims to the outside world. Japan, for example, allows its banks to hold real estate assets at the cost of purchase rather than current actual market value, thereby maintaining accounting insolvency. After government capital injection, banks can resume expanding their loan business, thereby increasing the broad amount of money in the economy. As bank credit expands, so does nominal GDP.
Second, central banks must “print money,” which is known today as quantitative easing (QE). By using printed money to buy government debt, the government has reliable debt buyers at any price, so it can implement large-scale stimulus programs. QE will also force reluctant savers to re-enter high-risk financial markets. As central banks absorbed all of the safest interest-type government debt, savers replaced their “safe” government bonds with speculative financial assets. They are taking these measures urgently because they have correctly anticipated the impending inflationary impact of monetary “chemotherapy.” Ultimately, this meant buying property and stocks again. For those who don't have enough financial assets, they can only stare.
Bankrupt banks have survived because the prices of the financial assets (real estate and stocks) that support their loan books have risen. I call it “re-inflation,” and it's the opposite of deflation. The government can increase incentives, as growth in nominal GDP leads to increased tax revenue, which stems from increased bank-led generalized money creation and banks' ability to issue unlimited debt (which are ultimately bought by central banks using printed money). For those engaged in financial speculation (including you, readers), the link between actual economic performance and asset prices has been broken. The stock market is no longer a forward-looking reflection of the economy; it is an economy itself. The only thing that matters is monetary policy and the speed at which money quantities are created. Of course, if you want to choose stocks, the government's specific policies for funding specific companies are also important, but Bitcoin and cryptocurrency prices are mainly affected by the overall money supply. As long as fiat money is created, Bitcoin will continue to rise, and it doesn't matter who is the recipient in the end.
The current argument of financial analysts is that China's announced stimulus measures are still insufficient for the economy to reach an appropriate size. This is true, but recent announcements hide hints that China, under Xi Jinping's instructions, is ready to inject monetary “chemotherapy” to cure the “cancer” of deflation. This means that Bitcoin will soar over the long term as China recovers its economy by re-expanding its banking system and real estate sector. Given that China's housing bubble is the largest in human history, the amount of RMB credit it has created will be comparable to the amount of dollars the US printed during the 2020-2021 pandemic.
To prove my point, I'll explain the following step by step:
Why are modern governments blowing up huge real estate bubbles?
An analysis of the size of China's housing bubble, and why Xi Jinping finally decided to end it.
Signs that Xi Jinping is ready to revive the Chinese economy.
How did China's renminbi end up flowing into Bitcoin.
social order
Modern government is based on broad popular support. In an age where there is no reliance on organized religion to establish legitimacy, how can a country get ordinary people to support its rule? The easiest way is to tie the net financial worth of citizens to the success of the current administration, thereby reducing the threat of revolution.
The most important financial asset you own or want to own is your primary home. The human body can only survive in a very narrow range of temperatures. The fundamental function of a home is a structure that controls temperature and helps us maintain balance in the body. However, if you live on the street, you'll always feel overheated or too cold, and in extreme cases can even lead to death.
Let's not talk about the cost of housing. Let's say you've saved enough money to buy a home for you and your family. Your biggest concern is who will protect your property rights? When no government has the power to lawfully kill people who oppose its domestic laws and regulations, you need to rely on a private militia to protect your property rights. What would stop a heavily armed neighbor from claiming your land is theirs? When the country is strong and the laws are respected, you don't need to worry about homeless people stealing your possessions. But when the country weakens, you must be prepared to use violence against those who seek to infringe on your property rights. So if you own property, then it's only natural for you to trust the government to protect your rights. In exchange, you'll obey the government's demands. This ultimately means you won't fight back, because doing so would lead to self-inflicted financial ruin.
The government intends to turn as many citizens as possible into property owners, thereby tying their financial and living benefits to the country. Because energy is expensive and buildings always require energy, the government strives to create projects that encourage private ownership of property, usually through various debt-based financing schemes. Even in so-called communist countries like China, property rights were one of the first things to be reformed. This began with Deng Xiaoping's reforms in the late 1980s and early 1990s.
Let me praise my alma mater. One of the best courses I've ever taken was the Housing Policy Course, taught by former US President Bill “I didn't have sex with that woman” Clinton's Deputy Secretary of Housing. I took this course in the first half of 2008, when the subprime mortgage crisis was spreading. We learned about various government projects aimed at increasing home ownership rates. The main thing I learned from this course is that housing bubbles always require government support and financing. In the US context, the government vigorously promoted the increase in the homeownership rate from the Clinton era (1992 to 2000), expanded the role of government-funded enterprises (GSE) such as Fannie Mae and Freddie Mac, and enacted the Federal Housing Enterprise Financial Security and Stability Act in 1992. These GSEs are publicly traded private companies, but there is implicit support from the federal government. The reason they can cover most home mortgages is because they finance their own loan books like the federal government. As a result, Fannie Mae and Freddie Mac became one of the most profitable financial services companies. Banks also played a role in this, obtaining risk-free profits by issuing loans, and ultimately transferring risk to the public sector's balance sheet. Of course, given this distorted incentive system, the financial tycoons are definitely overboard — but without government endorsement, they would never take such a risk.
Hmm... this sounds a lot like the local government financing model in mainland China. The union of China and the US!
Thanks to BCA Research, Ned Davis Research, and Gavekal Research for this wonderful chart on the Chinese economy。
A real estate bubble with Chinese characteristics
First, let me explain China's economic model. In order to rapidly achieve industrialization, the Chinese government has imposed financial suppression on depositors through the state-owned (SOE) banking system to provide capital to state-owned industrial enterprises at low cost. If the biggest users of bank credit are industrial enterprises, then the fair interest rate for savers should be a percentage of industrial value added. Industrial value added percentage refers to the share of a country's industrial sector's contribution to GDP. It is calculated by calculating the value added generated by all industrial activities and dividing it by the total GDP.
As you can see, the benchmark interest rate for loans has always been below the value added of industrial production. This is because interest rates on deposits paid by state-owned banks to ordinary savers are minimal — see chart below.
Savers know they're not getting much in return, but since RMB is a restricted currency, they can't invest their funds abroad. For a higher return on capital, they can choose to invest in the local stock or real estate market.
The problem with the stock market is that the best companies are state-owned enterprises (SOEs). State-owned enterprises can obtain the cheapest bank credit and can operate monopolistically due to their exclusive operating licenses in the most profitable industries (such as telecommunications, oil and gas, mining, etc.). Arguably, the stock performance of state-owned enterprises should be good, but in reality, the return on equity (ROE) of state-owned enterprises is mediocre. This is because all senior managers of state-owned enterprises are members of the Chinese Communist Party. Party interests and shareholders' interests are not always consistent; the Party's needs take precedence over shareholders' interests.
This chart shows the CSI300 index ROE minus the S&P 500 ROE. As can be seen, the performance of Chinese stocks is worse than that of US stocks.
Compared to state-owned enterprises, private enterprises facing real market competition receive much higher returns. State-owned enterprises, however, account for a larger share of major stock market indices.
Taking the index as 100, China's GDP (green) +1200% vs. the CSI300 index (white) +200%.
Since the actual launch of the stock market in the early 2000s, the performance of stocks has lagged far behind the crazy growth of the Chinese economy (as shown in the chart above). The average Chinese aren't stupid, so stocks aren't their preferred way to grow their savings. Instead, they turned to the real estate market.
Chairman Mao initiated the urbanization process in China, after which Deng Xiaoping and his more market-oriented policies accelerated the urbanization process. The Chinese Communist Party believes that to restore the global status of “China” (literally “country of the center”), it must rely on global manufacturing strength. This means migrating farmers from rural areas to cities to manufacture products for export. Therefore, every five-year plan has urbanization goals.
When you move hundreds of millions of people from rural to urban areas in just a few decades, it takes a lot of residential and industrial land to be built. The first way real estate makes money is by selling land to developers. Local governments own land and sell it to developers through leases. Since the central government in Beijing keeps most of its income tax revenue, local governments mainly finance themselves through land sales. As economic growth and urbanization accelerated, land became more valuable, and sales revenue surged. In addition, Beijing also sets annual debt limits for local governments. Normally, these debts are secured by their land reserves. As a result, the government's fiscal position is directly linked to rising housing prices.
Land prices have increased 80 times in 19 years, with a compound annual growth rate of 26%.
Ordinary citizens get rich in real estate by saving and buying one or more apartments. From the early 1990s to 2020, housing prices almost only rose or fell. Banks that don't usually provide any type of consumer credit are also more than happy to lend real estate. The average household's net worth is almost entirely dependent on rising house prices.
As housing prices rose, all stakeholders made money. After the initial needs of the rapidly urbanizing population were met, the market continued to build apartment units because this behavior was encouraged, and it was the only area banks considered safe to lend. As a result, an epic housing bubble was born.
Maintaining social harmony is the Party's clear goal. When the majority of people cannot afford housing, the social fabric falls apart. A sharp drop in the birth rate is a symptom of the housing bubble. Although young people are in love, due to high housing prices, the only “housing” they can afford is a condom. Furthermore, too much bank credit went to real estate rather than to develop new technology. As a result, Xi turned capital from unproductive speculative real estate development to high-tech manufacturing.
Beijing began harshly talking about controlling the real estate market in the mid-2010s, but actually piercing the bubble posed many risks. Every major state-owned bank and industrial enterprise is deeply involved in the real estate market. Most of the assets supporting bank loan books are residential property loans issued to households or developers. Real estate developers are one of the main customer groups of companies that produce products such as air conditioning, steel, and cement. Furthermore, Beijing continues to retain most of its tax revenue to keep the central government's financial profile strong, which means that local governments cannot meet the growth targets set by the Party without land prices continuing to rise. Piercing the housing bubble would destroy ordinary households, banks, industrial enterprises, and local governments. If Beijing loses control of the downturn in the market, social harmony will be threatened.
By 2020, Xi believes that his control over the Party and the country is strong enough to put an end to wanton real estate speculation and its negative effects. In his campaign for shared prosperity, he declared that “houses are for living, not speculation.” Subsequently, he introduced the “Three Red Lines” policy. Soon, highly leveraged real estate developers stopped production and failed to fulfill their offshore bonds. Evergrande is an example of a well-known Chinese real estate developer that collapsed after credit was tightened.
Before continuing with this history, I would like to briefly introduce an underunderstood characteristic of the Chinese real estate market and its impact on policy success. In China, most homes are purchased through “pre-sale.” Buyers are required to make a cash down payment in advance and pay the balance through a loan a few years before the house is completed. Essentially, real estate developers act as operators of Ponzi schemes. The full payment for the undelivered units was used to complete the construction of the old project. Developers are also using this pre-sale capital as collateral to obtain bank credit as they still need more capital to complete early projects and buy land from local governments for new developments.
When banks were instructed to slow down loans to highly indebted developers, this raised questions about whether buyers could receive unfinished units. If the average Chinese household doesn't believe that a real estate developer will complete the unit, they won't buy a pre-sale unit. Real estate developers won't be able to complete old units without pre-sale funding. The end result is that developers must stop construction, confidence in the entire real estate market structure collapses, and everyone will lose.
At the beginning of the crisis, the Chinese government directed banks and local governments to lend to real estate developers to ensure that units can be completed. However, there's a huge proxy problem here. Although Xi Jinping and the central government have great power on paper, they rely on party members taking professional risks to carry out orders.
Imagine you're the head of a local government. If you can create economic growth, you'll get promoted, but if you lose money, you'll be investigated by the Central Anti-Corruption Commission. Being punished by the party for corruption could result in jail time or the death penalty. Investigations are usually carried out suddenly, many years after the act occurred. So there's no benefit in taking risks, and even if the central government tells you to lend, you won't do anything.
Beijing continues to issue higher quotas to allow more credit to real estate developers, but these credits are not being distributed effectively. Another option is for the government (whether central or local) to directly participate in construction projects and complete millions of unfinished units to restore market confidence. But they haven't taken this action yet, and I think that's probably because such tasks are too complicated for a centralized government from the top down, considering the millions of square feet that need to be completed. Furthermore, if the government takes part in construction and the units it builds fail to meet the quality initially promised, the angry crowd will blame Beijing rather than the discredited real estate developers.
This brings us to the present moment. Using conventional monetary policy to stabilize prices and restore confidence could take decades.
Xi Jinping is unwilling to wait this long because China's economy is slowing fast. It's time to bring in “Doctor Witch” and start monetary chemotherapy.
Reinflation
Let's look at the impact of the bursting housing bubble on the Chinese economy through some depressing charts.
If you listen to economists' pessimistic comments about the Chinese economy, you might be convinced that Beijing has been doing nothing. But that's far from the case.
In fact, the absolute amount of fiscal and monetary stimulus is huge. However, due to severe economic surpluses, these funds are only used to maintain basic operations. Look at the rising debt-to-GDP ratio (left chart), which allows zombie state-owned enterprises to barely maintain (right chart) and avoid large-scale layoffs.
However, when you've just pierced the biggest housing bubble in human history, you needed this kind of monetization therapy to stop deflation. Everything is relative. Compared to the economic “black hole” caused by the collapse of the real estate market, current measures are insufficient to generate positive credit and/or fiscal spending impulses.
Even with so much stimulus, demand for loans remains at a historically low level. This is because real interest rates are still too high. China's broad monetary growth has reached its lowest level in history, so nominal GDP growth has also slowed sharply.
When economic activity shrinks in deflationary liquidation that removes excess capacity, Beijing's real problem is young people doing nothing. Urban youth unemployment is so severe that China stopped publishing this statistic in June last year.
A group of young, educated, unemployed, and homeless men are unable to fall in love because they are unattractive in front of the opposite sex. This is certainly a dangerous sign that has sparked a popular revolution. I bet the CIA is struggling to create a color revolution in China. Those young graduates have little to lose against a regime that has failed to deliver on its promises of prosperity. If China were the US or the European Union, it might go to war with other countries and send these young people into wartime “meat mills.” But large-scale overseas military adventures are not in line with China's genes. China needs to reinvigorate economic activity by implementing quantitative easing (QE) and increasing broad monetary growth, so that ordinary college students can find jobs every week.
Xi Jinping knows the current situation, and starting this summer, he instructed the People's Bank of China (PBOC) to update its toolbox to begin open market operations in the government bond market.
We will gradually include the trading of Chinese government bonds in the secondary market in our toolbox. Recently, the market is paying more attention to this. We have been enriching and refining our base currency injection methods. Over the past period, injections were passive and carried out through unpaid funds in foreign exchange. Since 2014, as this type of capital has declined, we have actively injected the base currency through tools such as open market operations and medium-term lending facilities (MLF).
It should be noted that incorporating Chinese government bond trading into the monetary policy toolbox does not mean quantitative easing. Instead, it is intended to be a channel for base currency injections and a tool for liquidity management. The trading of Chinese government bonds, whether sold or purchased, will work together with other instruments to create an appropriate liquidity environment.
China's current monetary policy stance and future development of the monetary policy framework
Today, QE is a swear word because the public knows it means inflation, which is bad news. Regardless of what you call it, the People's Bank of China has increased its local government bond holdings from 1.5 trillion yuan to 4.6 trillion yuan starting in August of this year. This is the first time since 2007 that the People's Bank of China has printed notes to buy government debt.
If China wants to raise fiscal stimulus to a level sufficient to break out of this deflationary trap, the only way is to issue local and central government bonds on a large scale. Although Chinese bond yields are at an all-time low, they are still too limited in terms of real interest rates. The price of capital needs to be close to zero, and supply must increase substantially. This can only be achieved if the People's Bank of China implements QE.
The Federal Reserve, the European Central Bank (ECB), and the Bank of Japan (BOJ) all began QE with modest government bond purchases. But they eventually realized they had to print large amounts of money to break out of the deflationary trap. China and its People's Bank of China will do the same. Don't let the initial gentle intervention fool you—the People's Bank of China will eventually print trillions of yuan to adjust the Chinese economy. Remember, this is exactly what Xi Jinping said!
Quantitative easing is coming to China, but this is only half the battle. Banks need to lend again to generate high nominal GDP growth.
Let's go back to the incentive system for state-owned bank executives. They don't want to issue lots of new loans because some of them will inevitably go bad, and as a result, they may be investigated for corruption in a few years. They need to know that Beijing will support them.
In a series of recent monetary policy measures, the People's Bank of China mentioned that it will borrow money and directly inject this money into the banking system. This is a sign that bank credit growth will be encouraged. Given that the country owns all banks, borrowing money from left hand to right hand is a bit academic. But I think it's all for visual effects. Beijing has shown through its actions that if bank managers increase loan growth, there is no personal risk.
Another sign that Beijing is preparing to ease the prosecution of corruption is the revival of the “three categories” policy. In a recent party communiqué, the Politburo informed party members that it will forgive the mistakes of lower-ranking officials who take action to improve the economy. By eliminating the personal risk of pursuing high goals, officials can begin to lend as much as they need to start the economy.
The financial metrics on Bank of China's non-performing loans (NPL) seem somewhat false. According to the Bank for International Settlements (BIS), the banking system typically averages around 22% of non-performing loans after a real estate crisis. But the Bank of China reported only 2% of bad loans. [1] Is there anything special about Bank of China? I don't think so. There is a reason why banks in China only want to lend to projects directly supported by the government. To put it another way, if a bank's loan portfolio consists only of loans to FTX, Three Arrows Capital, BlockFi, Genesis, and Voyager. If this bank reported the lowest bad loans of any bank, would you trust them; after all, these borrowers are all bankrupt? To restore the bank's vitality, Beijing needs to repair the bank's balance sheet through capital injections.
Another told me that Beijing is preparing to liberalize banks. The policy of allowing them to issue credit on a large scale is an upper limit on the bank's total remuneration. According to recent government directives, I think the maximum total remuneration for financial services employees, whether state-owned or private, is $420,000. No such restrictions were imposed when the US bailed out the banking sector; J.P. Morgan CEO Jamie Dimon was paid $17.6 million after the bank was bailed out by the government in 2009. Beijing knows that re-inflation is extremely beneficial to the banking system, especially since the government basically guarantees all loans. They also know that this kind of wealth will not flow downward, causing anger among ordinary people. The last thing Beijing wants to see is the rise of the “Occupy Wall Street” style “eat the rich” movement on Nanjing Road in Shanghai. This is in line with Xi Jinping's plan for common prosperity.
Beijing is quietly telling the market that it is injecting monetary “chemotherapy.” You just have to listen. Many analysts believe that one side effect of Beijing's possible cessation of such measures is the depreciation of the yuan against the US dollar.
CNY
Russell Napier wrote an excellent article explaining why he believes China is ready and willing to accept the monetary “chemotherapy” I described in the previous section. He also believes that Xi will tolerate the devaluation of the renminbi due to a sharp increase in the money supply. I don't know if I believe Xi Jinping is ready to allow the yuan to depreciate sharply, as this will trigger capital outflows. But I don't think the devaluation of the yuan against the US dollar will be that obvious. Therefore, this prediction will not be tested.
We all know that China is the world's factory. As a result, China's trade surplus continues to hit new highs. However, after in-depth data, we will find that the rise in China's trade surplus (exports minus imports) is not due to an increase in exports, but to a decrease in the import intensity of its economy, and China is able to pay a larger share of import costs in RMB rather than dollars.
To explain my hypothesis, let's say China's total monthly exports are 10 billion US dollars and total imports are 5 billion US dollars; this is a trade surplus of 5 billion US dollars. Now, the import intensity of its export economy is declining — for example, China used to need to import parts from abroad to make cars, but now most parts are produced domestically. This has allowed the trade surplus to rise, even if there is no increase in the number of exported goods. To achieve the same $10 billion in exports, only $2.5 billion in imports would now be needed. As a result, the surplus rose to $7.5 billion. The second way to increase the surplus is if the import volume is the same, but now half of the imports are paid in RMB. This also reduced imports to 2.5 billion US dollars and increased the surplus to 7.5 billion US dollars.
The above chart shows how China is exporting more construction machinery and automobiles while using fewer imported goods.
The main commodity that China lacks is energy. But now, China can buy goods from countries such as Saudi Arabia and Russia in renminbi instead of dollars.
China cannot dominate trade terms until the West seizes Russia's dollar/euro and imposes sanctions after the war in Ukraine began in February 2022. But now, when Russia has no other choice, it must pay in RMB and supply energy to China at a discounted price if requested.
As China increases domestic supply of yuan, this will boost economic growth and inevitably trigger inflation. However, considering that China produces more goods and uses RMB to pay a larger share of energy costs, rising inflation will not cause the RMB to depreciate significantly against the US dollar, as in the past.
The last reason why the RMB will not depreciate significantly is that the US will pursue an industrial policy that weakens the dollar, regardless of who wins the presidential election, in parallel with China's re-inflation measures. I know Trump and Harris are trying to draw attention to their differences, but essentially they both print money and distribute it to key US industrial sectors.
I don't necessarily agree that Harris will spend less than Trump, but no matter who wins, we're talking about trillions of dollars of additional fiat money entering the market over the next few years. This will definitely cause the dollar to weaken structurally.
China will not feel the negative side effects of its national currency when implementing a re-inflation policy. All factors point to Beijing being able to print large amounts of renminbi. For those who have witnessed an increase in credit creation, and this does not necessarily depend on an increase in the actual economy, what is the antidote? Go Bitcoin!
Go Bitcoin - Let's Go Bitcoin
The Chinese are among the most resourceful people on this planet. They won't allow their precious RMB savings to sit idle, and Beijing encourages asset price inflation. Bitcoin is not an unfamiliar concept to middle- and high-income coastal city residents. Despite exchanges being banned from offering obvious Bitcoin/RMB trading pairs, Bitcoin and cryptocurrencies are still booming in China.
The market has returned to its peer-to-peer (P2P) roots. Earlier, when the three major Chinese exchanges (OKCoin (now OKX), Huobi, and BTC China) dominated, using RMB to top up exchange accounts was always a challenge. Sometimes users can send money directly from a domestic bank account, while other times they have to operate through complicated voucher schemes. In any case, Chinese people can always find a way to transfer RMB from a local bank account to an exchange for transactions.
Now I've heard that China once again has an active P2P market. All major Asian spot exchanges, such as Binance (Binance), OKX, and Bybit, have significant operations in mainland China. These exchanges operate P2P message boards where local traders help others trade cryptocurrencies. It's like a Chinese LocalBitcoins. The point is, for a motivated Chinese person, exchanging RMB for cryptocurrency is relatively simple.
The reason Beijing closed the Bitcoin/RMB trading pair — I'm just speculating here — is probably because they don't want an effective alert to reveal the effects of currency depreciation and monetary policy. Alerts like this could motivate investors to choose Bitcoin as a store of value rather than stocks or real estate. Given that the Chinese government knows they can't ban Bitcoin, and owning Bitcoin and cryptocurrency isn't prohibited in China (contrary to what some misleading financial media say), Beijing would rather keep Bitcoin out of sight. So if my predictions are correct, I won't have obvious statistics to clearly track the inflow of RMB into the Bitcoin ecosystem. Other than the green candle chart, I can only tell by word of mouth that changes are taking place.
There will definitely be no inflows from Hong Kong-listed Bitcoin exchange-traded funds (ETFs). If funds flow into the Hong Kong market through the stock channel, they will not be used to buy domestic stocks or real estate. This is why mainland Chinese people will be banned from buying Hong Kong's Bitcoin ETFs. I apologize to all the publishers that put up those expensive advertisements at Hong Kong subway stations — Beijing will not allow comrades to easily obtain Bitcoin investment opportunities.
Although I don't have domestically listed Bitcoin tracking products or Bitcoin/RMB price charts to review, I know that stocks and real estate did not perform as well as expected when the central bank balance sheet rose.
This is a chart of Bitcoin (white), gold (gold), the S&P 500 (green), and the Case Hiller US House Price Index (fuchsia). All data is standardized according to the Federal Reserve's balance sheet, with a benchmark of 100. Bitcoin's performance has surpassed all of these other risky assets, to the point where you can't even distinguish the returns of other assets on the right axis.
As you know, this is my favorite chart. No major risk asset class performs as well in currency depreciation as Bitcoin. Investors know this instinctively, and as they consider how to protect the purchasing power of their savings, Bitcoin will flash before them like Kwisatz Haderach (Kwisatz Haderach).
For those who think the market will immediately recognize the future and push up Bitcoin's price accordingly, I'm sorry to disappoint you. The People's Bank of China's quantitative easing (QE) and a re-acceleration in bank credit growth will take time. Chemotherapy also takes time to kill patients. In these early stages, Chinese savers are reacting the way I expected: buying undervalued domestic stocks and heavily discounted apartments. The world is not clearly aware that this is the policy Xi Jinping decided to adopt. But give it a little time, and the results will be undeniable.
Economists are pessimistic about the scale and strength of the stimulus so far, which provides a good buying opportunity. Because when ordinary people living in affluent coastal regions decide to own Bitcoin at any price in RMB, the rise in price fluctuations will be reminiscent of August 2015, when after the People's Bank of China unexpectedly depreciated the RMB, the price of Bitcoin soared from $135 to $600 — almost fivefold in less than three months.
