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👀 ONE thing you can't miss this week

👀 ONE thing you can't miss this week

PLUS: The SEC loses again

Alex M.
October 04, 2023

GM everyone. This is 2036, the crypto newsletter that pays you.

Here’s what we’re serving up today 🍲: stocks are down. Bonds are down. Gold is down. The cracks are starting to show. What does this mean for you?

Let’s dig in.

🥔 Today’s meat and potatoes

Get smarter on crypto in 2 minutes

Unless you’ve been living under a rock, you know that interest rates are rising.

There’s a reason for this: the US Federal Reserve is raising rates to fight inflation and cool down the economy.

It’s working to some degree. Inflation is down from 9.7% to below 4% today.

But yesterday, a new jobs report showed that the economy is still strong and resilient - despite the rise in interest rates.

This signals to the Fed it could keep raising interest rates. Its target inflation is 2%.

But what’s not obvious - is how bad that is for the rest of the economy. The markets don’t like higher rates.

So on yesterday’s jobs report, financial markets panicked.

Interest rates on US government bonds rose to their highest level in 16 years:

And what happens when interest rates go up? 📈

Bond prices go down 📉

Over the last three years, US government bond prices are down over -60%.

And that’s a fucking sh*tshow. It has two major consequences:

1/ Everyone who bought bonds in the last few years is screwed.

These include major insurance companies and banks.

That’s why Silicon Valley Bank blew up. They were sitting on enormous losses on their bond portfolio.

A lot of other regional banks could be next, and any company or individual investor that owns a lot of bonds is in a bad spot.

US bank stocks… falling…fast

2/ The interest rate paid by major borrowers continues to climb.

Anyone who has issued debt now has to pay a lot more interest.

And who’s the biggest issuer of them all? The US government.

That’s why foreign governments and central banks aren’t buying as many US government bonds as they used to (instead, they’re buying gold).

They’re not sure the US government will be able to pay the interest on the debt without inflating the currency away.

As a result, investors are scared. Everyone’s starting to see the cracks in the system.

So yes - bonds are down.

And US government bonds are considered the safest asset in the world.

But they’re not alone.

Stocks are down too, as indebted companies get crushed by higher rates and investors turn to high-yielding cash.

As a result, US Treasury Secretary Yellen tried to calm investors yesterday. She said at a conference that interest rates staying high for a long period of time was “by no means a given.”

Of course, no one knows what’s going to happen.

But it looks like the US Federal Reserve has two choices:

1/ Keep increasing interest rates until inflation comes down to 2%.

That’s what Jamie Dimon, the CEO of JP Morgan, thinks will happen. He believes rates will go to 7% (they’re at ∼5.25% today)

But as we’ve seen, this will only exacerbate the issues for bondholders and the US government.

2/ Lower interest rates to restimulate the economy.

This would alleviate most investors’ problems in the short term.

Bond prices would probably recover. The interest on US debt would fall. Stocks would rise again.

But inflation could persist.

Luckily for us, we don’t have to guess which is coming.

If rates keep rising, bitcoin will do well on the back of its upcoming catalysts (bitcoin ETF, halving, etc.) and troubles in the financial system. During the Silicon Valley Bank crisis, bitcoin rose +50% in a few weeks.
If rates fall, bitcoin will do well as investors move from bonds to investments with higher expected returns, like stocks and crypto.

Bitcoin is an insurance policy against the chaos in the financial system. It’s also the fastest horse to bet on in the race for a new global asset.

And it’s doing its’ job better than ever today.

When the world freaked out yesterday, bitcoin kept steady.

We think it makes sense to allocate even a smart part of your portfolio to it.

And that’s what we’ll pay you to do today.