## Bitcoin as a Hedge Against Fiscal Dominance: Lyn Alden’s Insightful Take
Renowned investment strategist Lyn Alden has stirred the crypto community with her assertion that the United States has entered a new era – one of ‘fiscal dominance.’ This shift, according to Alden, means government deficits are now the driving force behind monetary policy, a departure from the previous era of ‘monetary dominance.’ This could potentially have significant implications for Bitcoin’s future.
During an appearance on the ‘Less Noise More Signal’ podcast, Alden delved into the current economic landscape, outlining her views on Bitcoin’s role and the challenges facing traditional financial systems. Alden traces the shift from monetary to fiscal dominance back to around 2016-2017, primarily attributed to demographic changes as the baby boomer generation enters retirement.
The impact of this shift on monetary policy is profound. Alden notes that raising interest rates, a traditional tool to combat inflation, can paradoxically worsen the situation. This is because increasing interest rates increases the government’s debt burden, exacerbating inflation. “When they [Federal Reserve] raise rates, it does slow down bank lending but it actually blows out the deficit by an even bigger number than it slows down bank lending,” Alden points out.
Bitcoin as a Potential Hedge
Alden sees Bitcoin as a potential hedge against this impending monetary debasement. However, she emphasizes that Bitcoin’s success hinges on continued adoption and utility, particularly as a ‘store of value.’ Her perspective reflects the growing sentiment within the crypto community that Bitcoin could offer a safe haven against economic uncertainties.
Navigating Government Attitudes
Regarding government attitudes towards cryptocurrencies, Alden stresses that “governments are not monoliths.” She emphasizes the diverse range of opinions within political structures, which she believes is crucial in preventing overly restrictive policies. Alden advocates for education as a key strategy in fostering a balanced approach to cryptocurrency regulation, highlighting the importance of informed decision-making.
Liquidity and Bitcoin’s Correlation
Furthermore, Alden delved into the significance of liquidity in asset markets. Her recent study found Bitcoin to be highly correlated with global liquidity measures, moving in the same direction 83% of the time over 12-month periods. This correlation surpasses any other asset class examined, underscoring Bitcoin’s potential sensitivity to global financial conditions.
Alden acknowledges that while this correlation is significant, it’s not absolute. In the 17% of cases where Bitcoin deviates from liquidity trends, other factors, such as valuation, come into play. This emphasizes the importance of considering multiple factors when analyzing Bitcoin’s price movements.
Conclusion: New Technologies and Potential Hedges
Ultimately, Alden concludes that new technologies like Bitcoin offer potential alternatives and hedges against the risks inherent in traditional financial systems. Her insights provide a valuable framework for understanding the evolving relationship between Bitcoin and the broader financial landscape, especially in the context of fiscal dominance and its implications for monetary policy.
This analysis underscores the growing relevance of Bitcoin as a potential hedge against economic uncertainties and underscores the importance of understanding the complex interplay of economic forces shaping the cryptocurrency market.