The sudden hawkish turn of the Federal Reserve dealt a heavy blow to the market, which had been eagerly anticipating an interest rate cut. There were even rumors circulating that the Fed might unexpectedly raise interest rates to 8%, causing a global market frenzy.
The previously soaring Nikkei index, which had been praised by many financial experts, also started to decline.
What’s even worse is that the exchange rate of the Japanese yen against the US dollar began to rapidly fall.
You might wonder why the Bank of Japan, which had rarely raised interest rates, suddenly weakened the yen. Perhaps the logic should be reversed: it was precisely because the Bank of Japan couldn’t withstand the pressure of currency depreciation that it was forced to break its usual pattern and raise interest rates.
In fact, despite the sharp rise in the Nikkei index, when taking into account the depreciation of the exchange rate, the actual increase was not significant. From 28,500 points to 37,300 points, and with the exchange rate falling from 1:133 to 1:155, the annual increase was only 12%.
When it comes to preserving assets, but not exchange rates, both assets and exchange rates suffer. However, by protecting exchange rates and not assets, both assets and exchange rates can be preserved. Ignoring public opinion and allowing leverage to explode, going through a painful process, this requires great courage – I’m talking about Bitcoin.
By attempting to save assets and maintain their prices, speculative capital increases and capital flight causes currency depreciation pressure, forcing central banks to raise interest rates to stabilize the currency. However, the interest rate hike leads to the collapse of asset prices, resulting in both assets and exchange rates being unable to be preserved. The Bank of Japan seems to be facing this unsolvable dilemma.
When discussing the Bank of Japan’s dilemma, the default reference point is the US dollar.
Now, let’s replace the Japanese stock market with the US stock market, the Bank of Japan with the Federal Reserve, the Japanese yen with the US dollar, and the US dollar with gold, and then deduce this situation.
If the US stock market encounters trouble, the Federal Reserve will definitely step in to rescue it and protect asset prices. This has been proven during the 2008 financial crisis and the 2020 pandemic meltdown.
When the Federal Reserve intervenes to protect asset prices, capital can take the opportunity to increase selling pressure.
The crucial point is to stimulate capital flight after selling, putting pressure on the US dollar’s exchange rate depreciation. What does this mean? In simple terms, it means that the price of gold continues to rise. This is exactly what is happening now.
This will force the Federal Reserve to raise interest rates or at least maintain high interest rates to stabilize the rapid depreciation of the US dollar. The Federal Reserve talks about inflation issues on the surface, but the real pressure comes from the depreciation of the US dollar.
Continuing the interest rate hike (which is insane) or maintaining high interest rates in the long term will inevitably lead to a banking system crisis (the 2023 Silicon Valley bank collapse serves as a warning), as well as the collapse of assets such as US stocks.
Once there are signs of an asset collapse, the Federal Reserve will immediately intervene to protect asset prices, returning to the beginning of this cycle and starting an endless loop. This endless loop becomes the “perpetual motion machine” that drives the depreciation of the US dollar and the rise of gold – until the Federal Reserve pushes the entire United States into an irreversible situation, leading to a complete collapse and the “perpetual motion machine” finally stops.
The above statements can be well verified by examining the trend of US stocks and gold since the 2008 financial crisis.
The chart above shows the “15-year bull market” of the S&P 500. It is truly amazing how the Federal Reserve has achieved the “smoothing of cycles” that economists dream of, with such smooth market interventions that there has been no significant alternation between bull and bear markets in US stocks for 15 years. Has the Federal Reserve really overcome the laws of economics?
At the same time, gold, which was trading alongside the S&P 500, has also “broken free” and made a comeback.
The true elite in the United States can see clearly: in order to maintain the status of the US dollar, there must be no relaxation in suppressing gold. From the Roosevelt Executive Order 6102 in 1933 to the Dodd-Frank Act in 2011, the US has never relaxed its suppression of gold (see the Chain of Teachings article “Gold, Gold” on September 28, 2023). As the country with the largest gold holdings, the US has the largest bargaining chip to short gold and suppress the gold market.
Someone has figured out the US’s Achilles’ heel in this financial war. To fight against the US in the financial realm, one must seize the “crucial point” mentioned above, continue buying gold, push up the gold exchange rate, stimulate capital flight, and promote the depreciation of the US dollar.
This is exactly the “flanking attack” strategy discussed in the Chain of Teachings article “Financial Collapse across the Mountains” on September 19, 2023.
In 2008, someone also understood this “flanking attack” strategy. At the same time, he believed that gold was too easily controlled by the US, so he wanted to create a better form of gold, redistribute the chips from scratch, and eliminate the US’s ability to short and suppress gold. So this person invented something similar to electronic gold, which he called “Bitcoin.” This person gave himself a pseudonym, “Satoshi Nakamoto.”
One key difference between Bitcoin and gold is that Bitcoin’s control does not rely on violence (armed forces) but only on mathematics (cryptography). Violence is easily monopolized by countries, and in fact, it is already monopolized. Mathematics, on the other hand, cannot be monopolized by a country. In this way, gold can be easily controlled by a country because individuals cannot have enough force to resist the power of the state, and therefore cannot ensure their ownership of gold. Bitcoin, on the other hand, is different. The power of individuals and the power of the state are equal. Even a powerful country like the US cannot forcibly seize your private key.
Therefore, the decentralization of Bitcoin ownership deconstructs the monopolistic nature of the state. It makes sense to talk about the US controlling a large amount of gold as a whole concept, but it doesn’t make sense to talk about the US controlling a large amount of Bitcoin as a whole concept because Bitcoin deconstructs the holistic concept of the US. A US investor holding gold is first and foremost an American, and secondly a gold holder. In contrast, Michael Saylor, the CEO of MicroStrategy, who holds Bitcoin, is first and foremost a Bitcoin holder, and secondly an American.
Bitcoin is internationalist (internationalism). Bitcoin private key holders are true internationalists.
It may take 50 or even 100 years for everyone in the world to fully understand this.
The Art of War by Sun Tzu says, “I intend to fight, even though the enemy may have high walls and deep moats, as long as they have to fight against me, they will have to defend what I attack.”
Raising the price of gold and Bitcoin is like launching a hypersonic precision-guided missile that directly hits the US financial Achilles’ heel – the US dollar.
However, the current size of Bitcoin ($1.3 trillion) is still too small compared to gold ($16 trillion), accounting for only one-tenth of the latter’s size, so it can only serve as a flank support.
For every 1% increase in gold, its attacking power is equivalent to a 10% increase in Bitcoin. A 10% increase in gold is equivalent to a 100% increase in Bitcoin.
From October last year to now (April 2024), gold has risen from $1,820 to $2,370, an increase of 30%. During the same period, Bitcoin has risen from about $25k to the current $65k, an increase of 160%.
30% times ten is 300%. 160% is only half of 300%, and there is still another 150% increase pending. If Bitcoin rises another 150% from $65k, it will reach $90k-$100k.
If gold stops at $2,400 and Bitcoin continues to rise to $100k, then the flank support’s achievements will be no less than the main attack.
A frontal attack on the US dollar with gold, combined with a flank support attack from Bitcoin that is just as effective as the main attack, would result in double the damage to the US dollar.
As a result, the Federal Reserve finds itself in a dilemma: it is forced to continue with high interest rates or even raise them to reverse the decline of the US dollar.
Unfortunately, this time, when the Federal Reserve started to take a hawkish stance, US stocks plummeted (see the Chain of Teachings article “When You Start “Dollar-Cost Averaging” the Nasdaq, and the Nasdaq Plummets” on April 21). However, gold and Bitcoin did not follow the decline of US stocks at all. Gold remained stable around $2,400, and Bitcoin remained around $65k, comfortably sitting on the sidelines, legs crossed, enjoying peanuts and beer, waiting to watch the show put on by the Federal Reserve.
(WeChat Official Account: Liu Jiaolian, Knowledge Planet: Reply “Planet” to the Official Account)
(Disclaimer: The content of this article does not constitute any investment advice. Cryptocurrencies are highly risky, with the risk of going to zero at any time. Please participate cautiously and take responsibility for your own actions.)