Darius recently sat down with Anthony Pompliano to discuss global liquidity, bitcoin, the Fed, and more.

If you missed the interview, here are three takeaways from the conversation that have significant implications for your portfolio: 

1. The Years Leading Up to Bitcoin Halvings Are Extremely Volatile. 

When we analyzed the past Bitcoin halvings from November 2012, July 2016, and May 2020, we found that in the years leading up to the halving, Bitcoin tends to have three drawdowns of more than -20% on a median basis.

All drawdowns in the year leading up to halvings have a median decline of -27%. 

We believe Bitcoin will be much higher in a few years, but it will likely require a rough path to reach its destination. 

2. Over The Next Year, Liquidity Will Determine Bitcoin’s Path.

On a median basis, Bitcoin increases 144% in the year leading up to halvings.

These increases have closely followed global liquidity cycles; the liquidity cycle bottomed in 2012 and 2015, years leading into the halvings where Bitcoin increased 384% and 144%, respectively.

However, in 2019, when liquidity conditions were less favorable than in 2011 and 2015, Bitcoin failed to see a similar price increase. 

The increase that year was only 20%, and the drawdowns were more significant than in the previous pre-halving years.

The amount of liquidity in asset markets will decide Bitcoin’s path over the next year.

3. We Believe The Fed Will Be Forced to Increase Their Inflation Target From 2% to 3%

The change will likely come in two phases:

  • First, the market will become comfortable with inflation settling above 2%. This is likely a 2024-25 phenomenon. 
  • Then, when the unemployment rate is high enough, and with enough political pressure, the Fed will officially increase its target to 3%, ultimately paving the way for it to resume QE and lower interest rates. This is likely a 2025-26 phenomenon. 

That’s a wrap! 

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