Market Commentary: Transitory or Not, Inflation is Here

Market Commentary

Market Commentary: Transitory or Not, Inflation is Here

Schedule a demo

Thank you! Your submission has been received!

Oops! Something went wrong while submitting the form.

July 19, 2021

Key Takeaway: Subjective monetary policy despite decade-high inflation numbers illustrates the attractiveness of bitcoin's fixed, disinflationary supply schedule.

While Jerome Powell and the Federal Reserve battle the media, traders, and investors on whether inflation is transitory or not, the truth is, inflation is here for now. Last Tuesday, the headline US Consumer Price Index rose 5.4% year-over-year (the highest since 2008) with the core measure rising 4.5% (the highest since 1992). On a month-over-month basis, both headline and core numbers rose 0.9%, reflecting the economic reality many Americans have experienced over the last couple of months.

Despite decade-high numbers (or even longer) in the CPI print, Federal Reserve Chair Jerome Powell said it was still too soon to scale back the central bank’s aggressive support for the U.S. economy.

So what will it take? The cost of living continues to rise while the Fed remains lackadaisical in their Average Inflation Targeting regime. Members of the Senate Banking Committee questioned Chairman Jerome Powell for two days last week, as US citizens face the brunt of rising cost such as gas, groceries, used autos, and homes.

Even so, the FOMC maintains a subjective, broad stance on the timing and size of their tapering plan, creating continued uncertainty from traditional investors. The Fed's Balance Sheet currently stands at $8.2 Trillion, with the NY Fed maintaining purchases of $120 billion in assets per month.

‍

So Why Bitcoin?

Inflation uncertainty is one reason why bitcoin remains attractive in the current environment. Bitcoin has a known, finite, and immutable supply structure. While the Federal Reserve remains subjective, bitcoin investors find reassurance in owning a scarce, disinflationary asset. With bitcoin, it is certain that there will only be 21M bitcoin in existence, with annual supply inflation now below 2% for the foreseeable future.

In the chart below, we illustrate Bitcoin’s expected circulating supply increases over the next 5 years:

‍

Please join us on Thursday, July 22nd at 1PM to discuss Bitcoin’s Role in Model Portfolios and how RIAs are allocating to digital assets.

About Eaglebrook Advisors

Eaglebrook is a tech-driven investment manager specializing in bitcoin and digital assets. The firm offers various Bitcoin and Digital Asset SMAs serving financial advisors, registered investment advisors (RIAs), family offices, and institutions. Eaglebrook is backed by wealth management executives and institutions.

For more information, please contact us at +1 (202) 798-1880 or send an email to contact@eaglebrookadvisors.com.

DIGITAL ASSET RISK DISCLOSURES
There are several risks associated with digital assets and digital asset trading. By accessing and using the website www.eaglebrookadvisors.com, you as the investor hereby represent and warrant that you have read the following Digital Asset Risk Disclosure.

Investing in digital assets is speculative and investors need to be prepared to lose some or all of their investment in digital assets. Digital asset prices are highly volatile, and the value of digital assets can rise or fall dramatically and quickly. Investors should carefully consider their financial circumstances and risk tolerance before investing in digital assets and should not trade digital assets unless they have the financial capability to sustain significant losses. The price of digital assets may be influenced by many factors, including the performance of the economy as a whole, liquidity, legislative and regulatory changes or actions at the state, federal, or international level which may adversely affect the use, transfer, exchange, and value of digital assets; flash crashes, market manipulation, changing supply and demand for digital assets, social media environment, inflation, interest rates, national and international political and economic events, the presence of hacking or cybersecurity incidents, technological developments, and overall prevailing psychological sentiment toward digital assets.

Importantly, markets and exchanges for digital assets are not regulated with the same controls or customer protections available in traditional equity, option, futures, or foreign exchange investing. The features, functions, characteristics, operation, use and other properties of any specific digital asset is complex, technical, and may be difficult to understand or evaluate. Information regarding any specific digital asset may be unclear or opaque.

Digital assets are not covered by FDIC or SIPC insurance. Accounts at digital asset custodians and exchanges are not protected by the Securities Investor Protection Corporation (“SIPC”) and are not FDIC insured.

Digital assets carry significant liquidity risk. Investors may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a particular digital asset suddenly drops, or if trading is halted due to recent news events, unusual trading activity, or changes in the underlying digital asset system. In the event an exchange venue has limited liquidity, there will also be limited liquidity to trade investor assets. The greater the volatility of a particular digital asset, the greater the likelihood that problems may be encountered in executing a transaction.

Clients of Eaglebrook Advisors custody their assets with Gemini Custody, a New York Trust Company and qualified custodian licensed by the New York State Department of Financial Services. At present, all trading of an investor’s digital assets will be executed by only one exchange venue, currently Gemini. In the event that an investor’s digital asset custodian and exchange ceases operations, the investor will be required to transfer their digital assets to another custodian and doing so will cause delays in the ability to trade, liquidate or access their digital assets.

Digital assets are vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the digital asset’s blockchain or other underlying technology. In addition to normal market risks, investors may experience losses due to one or more of the following: system failures, hardware failures, software failures, network connectivity disruptions, and data corruption. There is no guarantee for continuous availability of quotes or trading for digital assets.

Eaglebrook Advisors and the exchange venues that trade digital assets also rely heavily on computer software, hardware and telecommunications infrastructure. These computer-based systems are vulnerable to disruption, delay or failure which can cause investors to lose access to the trading platform, delays or inability to receive quotes or may negatively impact all aspects of Eaglebrook Advisors service deliverables. As such, Eaglebrook Advisors’ systems and services are offered “As-Is”.