Daily Briefing: A Crypto “Renaissance”

Druckenmiller hinted that crypto could enjoy a rise despite the worsening macro outlook.

Druckenmiller Hints at “Renaissance”

Yesterday, macro legend Stanley Druckenmiller had some choice words to say about the global economic situation, predicting the U.S. will enter a recession in 2023 that could lead to a decade of stagnant growth. While the overall tone of his chat with CNBC’s Joe Kernen was pessimistic, Druckenmiller surprised with an offhanded quote about cryptocurrencies toward the end of the talk. Although he acknowledged owning crypto assets during a period of monetary tightening was difficult, he also predicted that the asset class could see a “renaissance” if trust in central banks waned.

If you’ve been watching the global currency charts, it’s not hard to see where Druckenmiller is coming from. Throughout 2022, the dollar index has gained a whopping 22%. But on the other side of the trade, almost every other currency is down bad. The Japanese Yen, hampered by the Bank of Japan’s Yield Curve Control policy, has dropped over 23%, and the British Pound is now down 22%, thanks to Prime Minister Liz Truss’ paradoxical move to print more money in the face of 10% inflation.

This crazy situation has inspired some spicy takes over on Crypto Twitter. A common jibe has been to compare one of the several failing world currencies to the unsustainable Ponzi-style crypto token farms that defined the DeFi summer of 2020. “BREAKING: UK announces staking program for gbp/usd LP tokens, 300% APY paid out in tax credits,” tweeted hype_eth. “Soon they’ll do a buyback and burn program on GBP,” replied sungjae_han, riffing on the joke. 

Since national monetary policy is out of the average person’s control, it can be cathartic to make light of the situation through jokes like this. However, I think it also exposes the realities of the financial system that those in the crypto space have long understood.

Those in power often tell us that crypto and DeFi are on the dangerous fringe of finance where Ponzi schemes flourish and assets are liable to plunge to zero at a second’s notice. But situations like the one we currently find ourselves in show that “traditional finance” can be just as bad. Politicians and central bankers may like to pretend their shit doesn’t stink, but the U.S. bond yields and the value of the British Pound are starting to look more like crypto meme coins than sound financial instruments.

While there are certainly reasons for the public distrust in central banks to increase, is there any reason to believe crypto could benefit? Druckenmiller’s comments imply that crypto could take on a new role as a safe haven asset, unconnected to central bank-backed currencies. Whether this will come to pass is not yet clear. But if you receive your paycheck in pounds, euros, or yen, there’s a good argument to say it already has.

Disclosure: At the time of writing this newsletter, the author owned ETH, BTC, and several other cryptocurrencies. The information contained in this newsletter is for educational purposes only and should not be considered investment advice.