​​Why Bitcoin Likes a Hard-On Environment. I want to re-exam | Crypto LVL

​​Why Bitcoin Likes a Hard-On Environment.

I want to re-examine the current macroeconomic environment and how it impacts the Bitcoin (BTC) price. It has been a rough week so far, but one thing I can be sure of is that Bitcoin loves hard-on macroeconomic conditions.

I wrote much about this in a report in conjunction with Bitstamp last summer, I concluded that Bitcoin is happiest when the economy is strong (bond yields are rising), with inflation rising concurrently.

This simple model I concocted a decade ago lays out a framework to understand asset allocation. Below the line sit financial assets such as bonds and equities. These do well in a disinflationary environment, such as the one we have lived through since the early 1980s. Above the line are hard assets, such as gold (and TIPS), and Bitcoin (and commodities, heavy industry, emerging markets and banks). To the left, we have gold and bonds that are defensive when the economy is weak under “risk-off” conditions. On the right, the economy is expanding, the bond yield is rising, and conditions are said to be “risk-on”.

In summary, bonds and equities are soft assets, while Bitcoin and gold are hard assets. Bitcoin and equities prefer risk-on, while bonds and gold prefer risk-off. You can think of it like this; bonds like soft-off, equities soft-on, gold hard-off and Bitcoin hard-on. No giggling please, I am deeply serious here.

A decent hard-on requires not only inflation but economic growth to boot. Here I update the chart from the Bitstamp report, which demonstrates how Bitcoin has done best during risk-on conditions when the US 10-year government bond yield has been rising.

What about inflation?
Moving onto Bitcoin and inflation, you get a similar picture, yet the results have not been quite so compelling. During the red inflationary periods, Bitcoin rose from USD 1 to USD 47 by 2013, then USD 432 to USD 9,299 between 2016 and 2018. And in the current cycle, a timely buy at USD 5,948 in March 2020 to today’s USD 50,000. For the blue deflationary boxes, you buy at USD 47, sell at USD 432, buy at USD 9,299, sell at USD 5,948, and would be out of the market today.