Will Money Printing End Bitcoin Bear Market? | Lyn Alden

Bitcoin is currently correlating with software stock indices due to a lack of retail demand, while global macroeconomic factors like fiscal dominance and AI-driven productivity are creating a complex inflationary and deflationary environment.

• Macro environment is fiscally dominant, with modest balance sheet increases, and energy stability suppressing broad inflation.

• AI is a significant deflationary force, particularly for white-collar jobs, but overall productivity gains are positive.

• Bitcoin lacks retail demand and correlates with software stocks, while gold benefits from central bank diversification.

The current economic landscape is characterized by a transitional macro phase, moving from balance sheet reduction to increases, but without significant money supply growth that typically fuels inflation. Instead, large fiscal deficits and energy stability are key drivers, while AI and automation introduce powerful deflationary forces, particularly in white-collar labor. Bitcoin's performance is currently linked to software stocks, suffering from a lack of retail interest, unlike gold which benefits from central bank diversification.

Current Macroeconomic Environment

• 00:01:23 The macroeconomic environment is in a transitional phase, shifting from balance sheet reduction towards increases, though these increases are not large enough to be considered aggressive 'money printing.' Fiscal dominance, characterized by persistent large average fiscal deficits, constantly injects capital into sectors like defense, healthcare, and social security. As long as energy remains cheap and flowing without bottlenecks, this framework allows for potential rate cuts and balance sheet expansion without triggering significant inflation in the near term.

Inflation vs. Deflation Dynamics

• 00:03:17 Inflation is a spectrum, resulting from the debasement rate (money supply growth) minus productivity growth. Central banks actively counteract the inherent deflationary forces of productivity and technological advancement, like AI, through money supply increases. However, money supply growth does not affect all assets equally; it tends to show up in assets that are difficult to 'make more of,' such as gold and top stocks, while more abundant goods become cheaper, keeping CPI inflation in check.

Bitcoin vs. Gold Performance

• 00:05:35 Gold has outperformed Bitcoin recently, benefiting from global central bank diversification away from treasuries towards gold, creating momentum. In contrast, Bitcoin is currently correlating with software stock indices and suffering from a significant lack of retail demand this cycle, with institutional investors primarily driving its interest. The broader crypto space, with its perceived overvalued market cap and association with scams, also negatively impacts Bitcoin's 'brand' and contributes to the absence of retail interest, unlike the retail participation seen at the tail end of gold's bull run.

AI's Economic Impact

• 00:15:08 Artificial intelligence is a powerful productive force that will exert a deflationary pressure on white-collar work, mirroring the automation and offshoring trends that deflated blue-collar labor over the past 25 years. While disruptive, AI is expected to increase overall productivity, making businesses more efficient and freeing up labor for other fields, similar to the impact of the tractor on farming. However, potential risks include the concentration of gains and how societies adapt to significant job market shifts, which could lead to calls for increased money printing if a pessimistic labor market scenario materializes.