Transcription
You've always got to pay attention to cycles in markets, for sure. But, you also got to think about the long-term trend.
Now, monetary inflation hedges in a world where we're likely to get monetary inflation, a lot more of it, uh for the reasons that I've already suggested, uh has clearly got to be part of your investment outlook. You don't need to have 100% in gold. Uh you don't need to have 100% in Bitcoin. But, you need to have both those assets. And you probably need to have uh decent amount in crypto because that is the best monetary inflation hedge, according to recent history. Uh, it's you know, it's four times better than gold or uh silver. So, that's what I would be thinking about. And by the weakness, you don't No one's ever going to get the bottom. Uh clearly it's dangerous, as they always say, to catch a falling knife. But, once you start to see some stabilization, uh, it's worth going back in.
>> The biggest mistake in crypto isn't buying the wrong coin. It's watching the wrong signal. While millions of investors spend every day obsessing over ETF flows, Federal Reserve meetings, on-chain metrics, exchange balances, whale wallets, and endless social media predictions, one force has quietly almost every major move in Bitcoin and the broader crypto market. It's invisible to most retail investors, ignored by countless influencers, and yet it may explain why this cycle has felt so frustratingly different from the explosive rallies many expected. Liquidity hasn't simply influenced the market. It has been setting the rules of the game. That's exactly why Michael Howell believes so many investors have misunderstood what's happening. Instead of asking whether Bitcoin is broken or whether this cycle has somehow changed forever, he argues we're asking the wrong question. According to Howell, crypto has been reacting to the same monetary forces that have driven every major asset class for decades. The real story isn't fear, greed, or hype. It's the availability of money itself. And if his analysis is correct, the difficult environment we've lived through may actually be laying the groundwork for the next major move. In today's video, Howell explains why global liquidity has become the single most important variable for understanding crypto, why Bitcoin remains one of the strongest long-term monetary inflation hedges despite painful corrections, and why investors should pay less attention to headlines and more attention to the monetary tide that's moving underneath every market. His conclusions aren't based on optimism, they're based on decades of liquidity research. If you enjoy research-driven macro analysis that goes beyond the daily headlines, make sure to like this video, subscribe, turn on post notifications so you never miss an update, and let us know in the comments, do you think liquidity matters more than news when it comes to Bitcoin?
>> This is looking at weekly changes. It look It looks a very busy chart, but this looks This looks at weekly changes, uh 6-week changes, in fact, in uh global liquidity, which is the GLI dollar side. And BES, which is Bitcoin, Ethereum, Solana, in a 60% 30% 10% weighting. So, that gives, you know, some broad measure, imperfect but broad measure, approximately right measure of uh the crypto universe. And what that's showing is the 6-week changes compared, and what I've done is to advance the global liquidity line, the black line, forward uh by 13 weeks, only 3 months, to show that it's a predictive indicator. And what that shows is that uh the tracking is, you know, remarkably good. Uh it's good until it isn't, of course, but it's been uh not a bad steer so far. And what that indicates is that um the two assets have moved very closely together. Now, if you look at the sensitivity of that basket, the BES basket, to liquidity, uh in comparison, uh the sensitivity of gold would be about two times. Uh gold and silver, let's say, on average about two times. In other words, every 10% increase in uh liquidity means something like a 20% increase in precious metal prices. In the case of these assets, crypto, it's about eight times. So, what you find is that uh for every 10% move in liquidity, you get 80% move in uh in cryptocurrencies. And that's what the history has shown. That's been remarkably stable. So, it isn't just a sort of uh sudden uh experience. It's been remarkably stable over time, as we show in that report. Um and the key thing is if that is sustained, uh assuming it is, you need very little crypto in a portfolio to give you uh pretty comprehensive coverage or uh protection against monetary inflation. Uh you you only maybe uh as but most 5% of a portfolio in crypto and that gives you a pretty good insurance policy. Um and 5% is probably something that people would be prepared to risk anyway. But, there could be quite a lot of upside if you get a monetary inflation boom, which I think is inevitable given the fact that, you know, governments have basically uh run out of money. What they could do uh they can only print it. And they can, you know, they can print money. Uh if you're comparing, you know, dollars with yen or dollars with Swiss francs or dollars with pound sterling, you don't want to see that move particularly. But, if you start looking at um uh dollars against things like gold or commodities or hard assets, you'll see it immediately. But, the best hedge is going to be from experience, it's going to be cryptocurrencies. That's what the data says.
>> Mhm. Can you walk me through this you wrote today? The R squared exceeds 32% implying that almost 1/3 of the variation in the crypto basket can be linked directly to changes in global liquidity. And so,
>> Yeah, so that that's what this data is showing. And what it says is, I mean, in statistics, um uh you can clearly never uh you You never prove uh causation. You you prove correlation or you can establish correlation. We've tried to do prove causation through another mechanism called which is a wonky idea, but it's called Granger causality testing which is showing whether you get consistent leads in the data from shock to liquidity whether it comes through passes through into crypto and the answer is it does, but the R squared is more test of correlation or association. And the way to read the R squared figure and that's just the R correlation coefficient squared is to say that gives you an idea of the extent of the variation in the data that is explained by the other variable. So if you've got an R squared of 50% 50% of the variation would be joint variation between those two factors. So you've got commonality if you like. And what this is saying is a 30% or so R squared is saying there's a common factor which you can associate which is driving those two factors they those two variables. And so it looks as if global liquidity is a key driver consistently key driver of crypto. Now although people may pick me up and say well of course you know 30% not 100% I'll fully take that. Anything that in financial markets anything beyond about 5 to 10% is considered to be extremely extremely powerful. You can make money out of that consistently.
>> That's going to do you have any inclination what the the other drivers are outside of just natural adoption or
>> Yeah, we did an analysis sometime ago of actually looking at what at what goes on. And broadly speaking the other factors the other important factors if you broke down the the the degree of variation in these things the other factors were risk appetite and we proxied that by looking at something like Nasdaq to say that, you know, if there's a euphoria towards tech or whatever it may be, you can find that will influence crypto. And the other factors, which or the other two factors in fact, were both associated with gold and precious metals. And what they basically said was that if you get, and this is a sort of mathematical result, but he said there's like an error feedback system with gold. And what it basically means that is in the long term, gold and Bitcoin and other crypto are are correlated very strongly. So in other words, they both trend together. But in the short term, they're negatively correlated. So it means that they trend together, but they cycle apart. So those are the other factors that come into it. So you've got, if you like, four factors in that cocktail. You've got global liquidity, which is the dominant part, but it accounts for about 45% or thereabouts of that total variation. Or that that that pie chart, if you like, of the variation. Then you've got gold in the short term, the anti-cyclical effect. Then you've got gold in the long term. And then you've got risk appetite effects. So that those are the four factors that we found were dominant in the case of crypto.
>> How was point isn't that liquidity explains every single price movement. Markets are far too complex for that. But his research suggests something far more useful for investors. Liquidity consistently provides the dominant backdrop against which almost everything else happens. Adoption, regulation, asset demand, technological breakthroughs, and investor psychology all matter, but they tend to amplify or suppress trends that liquidity has already set in motion. In other words, liquidity creates the environment, while everything else determines how markets behave within it. That naturally raises the next question. If liquidity really is the primary driver, what happens once today's tightening conditions finally begin to reverse? Howe believes the answer lies in a much larger monetary problem that governments around the world can no longer avoid. As debt continues to expand and policy makers increasingly rely on monetary inflation to manage it, he argues that Bitcoin's next major opportunity may not be driven by hype at all, but by the unavoidable consequences of the global financial system itself.
>> There's no alternative of monetary inflation. And, you know, at the end of the day, I mean, one can be cynical and say, "Look, if you're if you're a politician, would you accept a regime a future regime where you've got let's say 1 to 200 percentage points faster Main Street inflation?" Um, you probably would. Uh, you could disguise that in various ways or you could dumb it down in terms of your rhetoric and try and pretend, um, you know, extend and pretend and whatever and say it's around 2 to 3 or whatever they they come out with, but in reality it's a tad more. And I think that's the reality we've all experienced over the last 5 years, that inflation simply ain't the 2% that the Fed has been targeting. Uh, it's higher than that. It's probably appreciably higher. Uh, but what that means is that if Main Street inflation is running at let's say 4 to 5, monetary inflation or asset price inflation is running at a figure which is another 2 to 300 basis points higher, maybe 7 to 8% per annum. But after all, that's the likely um growth rate path of US federal debt. Now, US federal debt has been a great proxy uh for the gold price uh over the last 25 years. So, if you look to what the the debt load has done, I mean, the debt load is up, you know, whatever it may be, 12 times over that period uh over the last 25 years. Uh the gold price is up a similar amount if not a tad more, uh, and Bitcoin is up considerably more. Now, what I'm trying to say here is that the trend, you know, you've always got to pay attention to cycles in markets for sure, but you also got to think about the long-term trend, uh, particularly if you're a younger generation, you got to think about this. And you need ways of protecting your wealth. Now, monetary inflation hedges in a world where we're likely to get monetary inflation, a lot more of it, uh, for the reasons that I've already suggested, uh, it's clearly got to be part of your investment outlook. And, uh, you don't need to have 100% in gold, uh, you don't need to have 100% in Bitcoin, but you need to have both those assets, and you probably need to have a decent amount in crypto because that is the best monetary inflation hedge according to recent history. Uh, it's, you know, it's four times better than gold or uh, So, that's what I would be thinking about. And by the weakness, you know, no one's ever going to get the bottom. Uh, clearly it's dangerous as they always say to catch a falling knife, but once you start to see some stabilization, uh, it's worth going back in.
>> Last question. Do you think there's a when we hit 40 trillion in national debt here in the United States, do you think that level has a [clears throat] psychological trigger that sends people or do you think it's just a another number that we hit and nobody really cares?
>> I think it's another number and it what it means is we're going to get to 50 trillion in in a shorter space of time. I mean, that that's the reality. Um, the fact is that there's no way to curtail debt unless there's a radical overhaul of government. And that's simply not going to happen because we're an era where we need big states, uh, for, you know, for the reasons that I've said, capital wars are there and you need an active state. Uh, China has an active state and others are copying that same model in many ways. Uh, call that sort of a state-led capitalist system, I don't know, whatever you label it, but it's a reality. It means the state's got to be bigger and more active. Uh, it's got to take bigger stakes in industries. It's got, you know, it's got to have its fingers in many more pies. It's got to direct trade. It's got to encourage investment, etc., etc. But at the same time, it's got to pay the welfare bills and the interest bills and the defense bills. And that's going to take either more taxation, um, more debt issuance, or more money printing. And you choose. My view is that the path of least resistance to our politicians is printing more money. And they can do that either directly or they can do it subtly. And they don't settle subtly by issuing lots of short-dated bills, uh, lots of Treasury bills. And that's exactly what they're doing. So, bear in mind that 80% of, uh, US gross issuance now is under two years duration maturity. And, you know, it was I think three to four years ago that Stanley Druckenmiller, uh, in one of his, uh, speeches said, you know, this is crazy. This is the These are the numbers that you would apply normally to a Latin American economy. But here they are in the US. Well, that was, yeah, four years ago, four, five years ago. Uh, we're now, you know, even more so. And in actual fact, the paradox is that some of the Latin American economies have actually cleaned their act up. So, the US is going it alone, but the US is dragging everyone else with it. So, Japan is doing the same, Germany's doing the same, France is doing the same, Britain's doing the same. Um, they're just a step behind. But that's This is the new reality.
>> Michael Howell's framework doesn't promise that Bitcoin will rise in a straight line, nor does it encourage investors to ignore volatility. In fact, his entire argument acknowledges that cycles matter. Corrections happen. Liquidity contracts. Risk assets suffer. But beneath those short-term fluctuations lies a much larger trend one driven by the relentless expansion of global debt and the monetary policies required to sustain it. That perspective also helps explain why this cycle has felt so confusing. Many investors expected previous having patterns to repeat almost perfectly, yet macroeconomic conditions have repeatedly interrupted those expectations. Howell's research suggests the better question isn't whether this cycle has broken history, but whether liquidity simply hasn't been supportive enough yet. If that eventually changes, history suggests digital assets could once again respond with outsized moves. Perhaps the most important takeaway is that Bitcoin shouldn't be viewed in isolation. According to Howell, it belongs within a broader portfolio of monetary inflation hedges alongside assets like gold. The distinction is that crypto has historically demonstrated far greater sensitivity to expanding liquidity. Meaning relatively small allocations have the potential to provide disproportionately large exposure if monetary inflation accelerates over the coming years. Whether investors ultimately agree with that conclusion or not, it's a framework grounded in macroeconomics rather than emotion. Markets will always be noisy. Headlines will continue to shift by the hour. Predictions will come and go. And sentiment will swing between euphoria and panic. But if Howell is right, the investors with the greatest advantage may be those who spend less time reacting to the daily narrative and more time understanding the monetary forces quietly shaping the entire financial system. If you enjoyed this breakdown, don't forget to like the video. Subscribe for more in-depth macro and crypto analysis. Share this video with anyone trying to understand what's really driving Bitcoin. Turn on post notifications so you never miss future updates. Thanks for watching and as always, we'll see you in the next video.