janis on Nostr: Here are my two € cents. The market is pricing in the scenario of “a ...

Here are my two € cents.

The market is pricing in the scenario of “a protectionist USA in a multi-polar world”. In this scenario USA is overvalued, and Europe is undervalued.

Let me elaborate. The US vs the rest trade war is seen here as something that will primarily hurt the US. Because the rest will increase trade among themselves to offset trade lost with the US, while in the US not only imports will become pricier, but internal products as well due to the wrecking ball being put to the North American supply chains. Eventually this might lead to some US sectors becoming stronger, but I don’t think the market believes that this eventually is anywhere near now.

The second factor is US tech stocks. That’s what, 40% of SP500, which is 80% of the US economy, right? While not affected by tariffs, these are affected by the general loss of trust of the US here (won’t find this in US news outlets, but do take a look at BBC). First, there’s the issue of Privacy and Civil Liberties Oversight Board. There is a scenario in which it’s weakened enough that using US clouds becomes illegal in the EU due to the lack of alignment with EU data privacy rules. But also, nobody is using the Alibaba cloud here, because it’s Chinese. There is a timeline on which the Europe - US relationship becomes adversarial enough where AWS or Google Cloud becomes a similar no-no as Alibaba.

And then there’s the elephant in the room that is security. From this side of the pond it looks like Putin is being appeased, and he might get away with what he has done to Ukraine. We also know that his long term goal (and wet dream) for decades has been to undermine NATO. Preferably see it fall apart. Spooks from both Ukraine and Denmark have warned that Russia is preparing a (likely limited) attack on a NATO country as soon as this year. Likely one of the Baltics (where I’m currently writing from). The rationale being that IF the US - Europe relationship becomes strained enough, this would be a good moment to challenge NATO on article 5. If the US fails to react, NATO is effectively dead. Which is, I repeat myself here, an openly stated long-term goal of Russia.

You probably see how this relates to the economy. Faced with this existential threat, the EU voted for an 800 billion defence spending package. But more importantly, relaxed the EU budget rules in a way that defence spending doesn’t count towards the deficit limit that EU countries have (imagine that, we actually have a working deficit limit). And, given the last week’s antics, we are going to try and spend as little as possible of it buying American. Because America is not being seen as a trustworthy and dependable defence partner anymore. Sadly.

So, with a 500 million population, and a total economy slightly smaller than that of the US, Europe almost seems forced to grow to quickly fill in the defence and tech void that an isolationist America is leaving behind.

What does all of it mean to Bitcoin?

Bearish in the short to mid term because it’s still correlated to the stock market. Especially the US stock market. Very bullish in mid to long term. Lower DXY, and all that defence spending is bound to push the global M2 much higher.