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The news broke yesterday that Janet Yellen will be Joe Biden’s selection for Treasury Secretary in his new administration. This nomination will have a significant impact on asset prices over the coming years, so it is worth digging deeper on Yellen and her perspective on various policies.
Janet Yellen is one of the ultimate trail blazers in American history. She is a classically trained economist who became the first woman to Chair the Federal Reserve in 2014. She served in that role for 4 years. Before that, Yellen was the Vice Chair of the Federal Reserve, President of the Federal Reserve Bank of San Francisco, and served two stints as a Federal Reserve Board Governor. Simply, Janet Yellen has been around for a long time and served in some of the most important economic roles our country has to offer.
If you want to learn more about Janet Yellen, you can read her Wikipedia page. There are a few things that I find very interesting about her nomination in the current environment:
Yellen has previously shown a bias to allow bubbles to continue much longer than her peers. One example is “In a 2005 speech in San Francisco, Yellen argued against deflating the housing bubble because “arguments against trying to deflate a bubble outweigh those in favor of it” and predicted that the housing bubble “could be large enough to feel like a good-sized bump in the road, but the economy would likely be able to absorb the shock.“
Yellen is known to have an “inflationary bias.” One of the elected officials who voted against her 2010 nomination to Vice Chair of the Federal Reserve actually used that exact phrase as rationale for his vote against her. Additionally, “Yellen has been an outspoken advocate for using the powers of the Federal Reserve to reduce unemployment, and has seemed more willing than other economists to risk slightly higher inflation to accomplish this goal.”
In 2013, during the confirmation hearing for Yellen to take over as the Federal Reserve Chair, she defended the $3 trillion of monetary stimulus that was used during the housing crisis. This was followed in 2017 when she stated that she did not believe we would see another financial crisis “in our lifetime.” A year later though, “Yellen later warned of the possibility of a financial crisis by citing “gigantic holes in the system” after her departure from the Federal Reserve.”
The key thing you need to know is that Yellen is a classic Keynesian economists who believes that an economy can only operate properly with the intervention of a central bank. She is widely considered a “dove,” which means that she is more likely to focus on unemployment and other metrics, rather than ensure that we keep low levels of inflation.
Essentially, Janet Yellen is likely to be Bitcoin’s greatest ally over the coming 4-8 years. She has never seen an opportunity to print money that she didn’t like. She has never seen a situation of high inflation that scared her. Given that we are currently living during a period of high unemployment due to the coronavirus, it would be my expectation that Janet Yellen will begin pulling out every tool of monetary stimulus to get unemployment lower.
This perspective is identical to the Federal Reserve’s current stance that they would like to see inflation hit 2%+ for a sustained period of time. You don’t have to be a genius to see what we are being set up for — high levels of inflation that will be disguised as “normal” by career economists who believe they are omnipotent, omnipresent, and omniscient.
As we have discussed previously, Bitcoin will benefit from the fear of high inflation, regardless of whether it actually occurs or not. When people think high levels of inflation are coming, they will move their capital to be positioned in inflation-hedge assets. If the inflation comes, great. If the inflation never happens, the capital flows will drive asset prices higher anyways. This concept is counter-intuitive, but we have seen it play out numerous times in the past.
Janet Yellen will solidify the narrative that higher inflation is coming. She will drive home the point that monetary stimulus bombs are always right around the corner. This will be an even stronger tailwind for Bitcoin in the coming 12 months. With Bitcoin poised to hit an all-time high in the coming days, you can’t help but smile.
Have a great day. I’ll talk to everyone tomorrow.
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More Institutions Are Buying Bitcoin, Say JPMorgan Analysts: In their “Flows & Liquidity” report, JPMorgan analysts say institutions are piling into bitcoin at a stronger pace this quarter than they were in Q3, and may have a bigger role in price movement than commodity trading advisors, or CTA. Read more.
Biden to Tap Former Fed Chair Janet Yellen as Treasury Secretary: Former Federal Reserve Chair Janet Yellen is set to become the next head of the U.S. Treasury Department. President-elect Joe Biden intends to nominate the longtime economist to succeed Treasury Secretary Steven Mnuchin when Biden takes office next year, the Wall Street Journal reported Monday. Any nominee would have to be confirmed by the U.S. Senate. Read more.
John Lennon’s Son Says Bitcoin ‘Empowers’ People Like Never Before: The younger son of Beatles legend John Lennon has praised bitcoin for its ability to help individuals transcend politics and world events. Sean Ono Lennon, speaking on the Orange Pill Podcast on Sunday, said bitcoin “empowers people in a way they’ve never been empowered before.” He noted that, the world’s first cryptocurrency is “one of the only things” that gives him more optimism about “the future and humanity in general” amid the tribulations of 2020. Read more.
Restaurant Tech Startup Toast Soars to $8 Billion Valuation: Last week, Toast closed a secondary sale that allowed current and former employees to sell up to 25% of their vested shares for $75 a piece, according to CNBC. The deal values Toast at about $8 billion. The company last raised a primary round in February, just before the coronavirus hit the U.S., reeling in $400 million at a $4.9 billion valuation. The share price at that time was reportedly $45.45. Read more.
Nic Carter is a Partner at Castle Island Ventures and a Co-Founder of CoinMetrics.
In this conversation, Nic and I discuss:
Bitcoin’s market cap all-time high
What metrics Nic checks every morning when he wakes up
I really enjoyed this conversation with Nic. Hopefully you enjoy it too.
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