Nicolas Chéron: "Our economies are running on ever more debt".

Nicolas Chéron: "Our economies are running on ever more debt".

With global inflation continuing to fall, some believe that central banks could resume injections of liquidity to boost growth...... A risky policy, according to Nicolas Chéron*, an independent financial analyst.

The Big Whale: Bitcoin has risen 15% in one week. What can we attribute this meteoric rise to?

Nicolas Chéron: This sharp rise can be explained by a combination of several factors. Firstly, Bitcoin is catching up with the US Nasdaq and S&P500 indices, which had fallen behind even though their dynamics are traditionally fairly similar.

Secondly, I think that the over-mediatisation of ETF projects, and in particular that of BlackRock, has played a huge role. If these products are accepted by the SEC, tens of millions of Americans will have access to them, and that will have an impact on the markets.

Thirdly, the buying back of short positions must certainly have helped to accentuate the rise, at a time when we were witnessing a fine technical configuration at the end of the downtrend channel. All this looks like fuel for a nice rise in bitcoin.

Resistance at $31,000 again halted the movement. Could there be a real upturn if this is breached?

If we want to be precise, resistance is in a price zone between $31,000 and $32,300. This one dates back to the first half of 2022, and it's a hurdle that won't be crossed easily.

But even if it were, I'll remain moderate. The entire crypto market is struggling apart from Bitcoin... We are still a long way from a widespread "Bull Run" setup.

Afterwards, as the SEC considers that it is the only crypto that is not a financial security, perhaps we are witnessing the recomposition of a sector where Bitcoin would become ultra-dominant... In the event that Bitcoin breaks its resistance, we can envisage it going towards $38.000-40.000 dollars.

As you said, Bitcoin is correlated to other "risky" assets like the Nasdaq. Why has it underperformed against the Nasdaq in recent months?

Large exchange platforms such as Coinbase and Binance have suffered the wrath of the SEC. Even though it's not directly related, it's bad news for bitcoin, it's a negative signal for the wider market.

Instead of going to cryptos, investors have, for some, gone to speculate on the Nasdaq and obviously artificial intelligence stocks, but things are rebalancing.

Is the Fed's halt to rate rises good news for bitcoin?

At the risk of disappointing some, let me remind you that the halt to rate rises is only temporary! Rates are likely to rise again in the future, as the Fed indicated at its last monetary policy meeting.

The market always wants to see the glass as half full: some people think that rates will peak, but that's a figment of the imagination. The Fed has not succeeded in cooling the economy, inflation has come down, but it remains high.

What future monetary policy decisions do you anticipate?

Rate cuts are not around the corner. And if it comes sooner than expected, then there has been a market accident. But it's not so much rates that interest me, as liquidity.

With the failure of some US regional banks in the spring, the Fed kept rates high while injecting liquidity into the economy, and this drove up the value of risky assets.

This is proof that central bankers can boost asset prices despite high rates. If rates were to fall, it would mean that we were witnessing the end of a cycle, a recession, rising unemployment, falling purchasing power and so on. In short, a scenario that is not conducive to risk-taking.

In my opinion, I think we will see exceptional measures, as in 2022, 2021 and 2020, i.e. central banks will find a way to support the markets while the economy falls, in order to artificially maintain the wealth of the "holders" while "Main Street" drools (Main Street refers to the rest of society in opposition to Wall Street, editor's note.)

Why is the launch of an ETF not necessarily good news?

I don't like product launches at the height of the hype. If we look at other sectors, the launch of the first uranium ETF coincided with its market top. The launch of Bitcoin futures at the end of 2017 also coincided with its market top at the time.

The mention of a Bitcoin ETF after a 100% rise in its price since November while the indices have gained 40% makes me question the relevance of the thing.... but I'm often wrong too (laughs).

Will the slowdown in growth in Europe and the US force central banks to inject liquidity back into the market?

A slowdown in the economy, or worse, could necessitate injections of liquidity. These injections would neutralise risk aversion, but would they be enough to push up risky assets, such as bitcoin, when the economy is in freefall? Not so sure!

Have our economies become too dependent on ultra-accommodative monetary policies? In other words, is the system broken?

The system has been broken for a long time. Since 2008 central banks have been injecting money, just look at the Nikkei, which has been rising since 2012 in total correlation with the Japanese central bank's balance sheet.

Our economies are running by creating ever more debt, the markets are supported by more and more money creation via injections of liquidity and therefore debt. It's a headlong rush that can't end well...

Which assets provide long-term protection against the consequences of all this. Gold and Bitcoin?

I don't think any particular asset will protect us from the consequences of this monetary madness. It's asset diversification that protects you.

Personally, I have shares, I'm invested in crypto in case this asset class performs well, I'm also invested in gold in case the geopolitical climate deteriorates, and what has happened in recent months can only prove me right!

* Nicolas Chéron is an individual minority shareholder in The Big Whale

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