Chief Investment Strategist, The Freeport Society
After climbing 55% this year, the world’s first cryptocurrency now trades at $68,517.
That’s about $5,000 below its all-time high of $73,835 on March 1.
And this month alone, bitcoin is up about 9%.
We’ve held bitcoin in The Freeport Investor model portfolio since we launched the service in November 2023.
So far, subscribers who acted on our recommendation to buy are up 64%.
And we expect even bigger gains to come.
As we’ll explore today, bitcoin is, above all, a hedge against a weakening dollar. And as Washington continues to rack up trillions of dollars in new debt, more and more people are looking for protection.
First, let’s look at some of the other factors behind bitcoin’s recent ascent…
Crypto Capital of the Planet
Some of the recent rally reflects Donald Trump’s improved electoral prospects.
According to Election Betting Odds, which aggregates information from major markets, Trump has a 57% chance of winning the White House. That’s up from a 48% chance of winning at the end of September.
This is the man, after all, who has pledged to make America the “crypto capital of the planet.”
He’s also promised to establish a strategic crypto reserve not too different from the gold held at Fort Knox.
The Fed’s pledge to keep cutting interest rates also be a factor. The lower rates go, the more “risk on” the markets tend to get.
Also, bitcoin doesn’t pay out any income. So, when rates are high, capital tends to flow into higher yielding assets.
Bitcoin was born in the zero-rate environment that followed the 2008 meltdown. Some of its greatest moves have happened when the Fed was in ultra-dovish mode.
Or maybe the animal spirits were reawakened by the announcement that Sam Bankman-Fried’s bankrupt FTX crypto exchange has finally been cleared to start repaying its customers.
But as I mentioned up top, bitcoin is and always will be a dollar hedge. Whether Trump or Kamala Harris wins on November 5, the underlying trends undermining the dollar won’t change much.
U.S. Interest Burden at 28-Year High
Don’t just take my word for it…
Yesterday, Bloomberg ran the following headline:
“U.S. Interest Burden Hits 28-Year High, Escalating Political Risk.”
It’s talking about the interest the federal government pays on its outstanding debt. According to the report…
The U.S. debt interest-cost burden climbed to the highest since the 1990s in the financial year just ended, escalating the risk that fiscal worries limit the policy options for the next administration in Washington.
Since when have fiscal worries slowed down Washington? We’ll just borrow more, right? Uncle Sam already owes $36 trillion. What’s a couple trillion more among friends?
Well, maybe.
But that’s getting harder now.
The U.S. Treasury paid $882 billion in net interest payments during the fiscal year ending in September. That’s an average of $2.4 billion a day in interest payments.
And that works out at more than 3% of annual GDP.
Let’s break that number down further.
Uncle Sam’s budget deficit is about 6% of GDP. About half of that is current spending. The other half debt service.
And a 6% budget deficit is something generally only seen in times of war or deep recessions, when tax payments fall and the government boosts spending to stimulate demand.
Well, we’re not fighting a war right now.
And last I checked the economy was growing at a brisk 3% clip.
The reason our budget deficit has blown out – and the reason this is all but impossible to fix – is that half of the budget deficit is going to pay the interest on prior years’ ill-advised spending.
If our government were to balance the primary budget tomorrow – and odds are better of you winning the lottery – we’d still be looking at deficits of 3% of GDP due to interest expense on existing debts.
So, to really balance the budget, we’d need a budget surplus of 3% of GDP. And even that wouldn’t pay down the debt. It would simply cover the interest payments.
Inflate or Die
This is the hole our leaders have dug us into.
Neither Trump nor Harris has a viable plan to get us out of it. Both have pledged to find extra-large shovels to dig us even deeper.
The only way those debts get paid down is in dollars that have been deeply depreciated due to inflation.
It’s inflate or die for Uncle Sam.
This is why bitcoin, gold, and other dollar hedges are core, long-term holdings for us at The Freeport Investor. And it’s why you should keep some in your portfolio, too.
As the value of the dollar continues to inflate away, dollar hedges will continue to climb.
To life, liberty, and the pursuit of wealth.