Why Bitcoin Has Been Highly Correlated With Fiat

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Steven Lubka is managing director of Swan Private Client Services, a concierge service for high-net worth investors at Swan Bitcoin.

It isn't independent. It's contextual. It's relational. Bitcoin is contextualized by the existence of fiat, and hopefully, fiat becomes contextualized by Bitcoin.

Thinking deeply about this, one should realize this implies a relationship between bitcoin and the current system. When the current system is engaged in reckless expansionary policies, in the debasement of the numeraire, bitcoin should become more valuable relative to whatever abused fiat currency you are measuring it against .

Over the next year bitcoin outperformed every major asset class, and even today, after the precipitous drop from all-time highs, bitcoin has still outperformed the S&P 500 and Nasdaq 100 by a huge margin if you bought both at the beginning of the pandemic, before the expansionary monetary policies began.

When the total value of U.S. financial assets declines by over $20 trillion, there is significantly less total dollar-denominated financial value sloshing around the world. What is this if not a contraction of the money supply? Paul Krugman might disagree with me on a semantics basis, but I don’t care about semantics, I care about how reality functions.

 

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