Fed’s Bullard Says Bitcoin At $50,000 Not A Threat To Dollar, Sees No Asset Bubbles Anywhere: “It’s Just Normal Investing”

Fed’s Bullard Says Bitcoin At $50,000 Not A Threat To Dollar, Sees No Asset Bubbles Anywhere: “It’s Just Normal Investing”

For the past seven years, a bizarre vendetta spearheaded by the Keynesian, pro-establishment, pro-central bank writers of the FT’s Alphaville blog sought to bash, smear and denigrate bitcoin at every opportunity, in some case on multiple occasions daily. In the end, the joke was on them: earlier today Bitcoin hit an all time high of $50,000.

Or rather the joke was on their readers: anyone who took the FT’s advice to heart missed on millions if not billions in foregone profits (we can only hope that subscription price paid for itself elsewhere).

Amusingly, in an article that was several years too late, FT columnist Rana Foroohar decided to reassess the situation with a somewhat more sober and objective perspective than that spewed forth daily by her Alphaville colleagues, and said that bitcoin’s rise may be seen as an early signal of a new world order in which the US and the dollar will play a less important role. The author – who according to her bio is also CNN’s global economic analyst which may explain some things – “discovered” that “some in the market” believe the US’s post-2008 financial crisis monetary policy designed to stabilize markets will give way to post-Covid monetization of rising US debt loads (some like the world’s biggest hedge fund but anyway). And, if the US government sells so much debt that the dollar starts to lose its value, then bitcoin could conceivably be a safe haven. Lol: “if.”

Well duh. We – and countless others – have been saying this since 2016 when we first recommended bitcoin to our audience as a viable fiat alternative. But we are delighted that the FT has finally come to the same conclusion.

Whether crypto is a rising substitute to the entire broken fiat monetary system remains to be seen – our views are well known to all – suffice to say the price of bitcoin (not to mention its aggressive institutional adoption) is all one needs to know to answer that question. We await Bridgewater to become the latest fund to unveil that it, too, has established a position in bitcoin in the coming days.

But while we wait, we were amused by an attempt by none other than a sitting FOMC president to talk down bitcoin’s aspirations as a “threat to the world’s reserve currency.”

Perhaps because it finally became a serious topic in the FT – which admitted that it had been dead wrong for all those years in which it slammed the cryptocurrency – today St. Louis Fed President James Bullard told CNBC he believes that increasing interest in bitcoin does not pose a serious threat to the U.S. dollar as the world’s reserve currency.

“I just think for Fed policy, it’s going to be a dollar economy as far as the eye can see — a dollar global economy really as far as the eye can see — and whether the gold price goes up or down, or the bitcoin price goes up or down, doesn’t really affect that,” Bullard said on “Squawk Box.”

What Bullard refused to discuss is why bitcoin’s price is going only up, and that of course is a direct function of the monetary insanity unleashed by central banks…

which means 8 central banks are expected to add liquidity worth 0.66% of annual nominal GDP, on average, every month in 2021.

With such a relentless dilution of the “world’s reserve currency” is it any wonder that Bitcoin – whose circulation is capped at 21 million – has emerged as a wide accepted store of value by crypto bulls, one that can be used to hedge against inflation or the debasement of fiat currencies like the U.S. dollar in a world where central banks have nationalized the entire yield curve killing one of the key inflation signals. More importantly, to an entire generation of younger traders, bitcoin is now the equivalent of “digital gold” while its growing adoption by the likes of Visa, Mastercard and even the oldest US bank, BNY Mellon, means that very soon bitcoin will be de facto legal tender, although a tender that is entirely outside of the purview of the central bank.

No wonder the Bullards of the world are starting to sweat.

Bullard, who has led the St. Louis Fed since 2008, and was initially a hawk before transforming into one of the Fed’s biggest supporters of massive monetary stimulus, expressed concerns about widespread transactions using a range of cryptocurrencies that are not issued by governments. “Dollars can be traded electronically already, so I’m not sure that’s really the issue here. The issue is privately issued currency,” he said.

No, the issue here is a currency that the Fed can not dilute with impunity and which is by definition, becoming a threat to the dollar.

Bullard then then contended that both the euro and the Japanese yen are strong currencies – which they may well be in a fiat world where all FX “value” is relative, and where every currency can be printed into oblivion. However, “neither of those is going to replace the dollar,” he said. “It’d be very hard to get a private currency that’s really more like gold to play that role so I don’t think we’re going to see any changes in the future.”

Well, we’ll just see about that, and while the Fed is quite sanguine about bitcoin’s prospects now, we are less confident it will be as sanguine when bitcoin hits $100,000.

But wait, there’s more.

With world stocks hitting record highs for 12 consecutive days – and with bitcoin rising above $50,000 – Bullard said that there aren’t clear signs of excesses though he conceded that stocks are “highly valued on the whole.”

“The biggest thing in equities is really these tech firms and how high are you going to value these guys,” he said on “Squawk Box.” “They’ve got great technology, they’ve got great revenues, business models [where] the sky is the limit. So, where investors want to value those is really driving a big chunk of the market.”

“I’m not really sure you want to call that part a bubble,” he added. “That’s just normal investing, trying to get your head around what those companies are really worth.”

In other words, Gamestop was “really” worth $30 billion for a few days two weeks ago… but there are no bubbles anywhere!

So if not a bubble, what is it then? Well, according to the St Louis Fed president, stocks are simply reflecting the strong economic rebound this year.

“Let’s be clear. Wall Street thinks the U.S. economy might grow faster than China this year” with a “roaring U.S. economy fueled by fiscal stimulus and monetary policy.”

But asked if he thinks the Fed should start tapering the pace of its asset purchases, Bullard said, “Not really. I think we’re in good shape for today. Why don’t we just wait and see if the scenario I just described actually plays out.”

And so without a taper, and with hundreds of billions in freshly printed reserves yet to enter the market (and to a lesser extent, economy), the most likely outcome is precisely a six-figure bitcoin price.

Tyler Durden
Tue, 02/16/2021 – 17:30

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