“I’m Scared To Say This… But It’s Coming” Here's What's Next for BTC & Crypto in 2025" - Cathie Wood

A lot of forecasters predicting the dollar continuing to go down, but if we are right, the dollar will turn up decisively this year. Here you can see Bitcoin to gold. This one isn't as clear-cut. There's been a lot of fear around quantum computing, around Michael Saylor selling. Many people saying, "Oh my gosh, his debt to asset ratio, or debt to market cap ratio, is in the 40-45% range. He may be forced to sell more and more Bitcoin." We shall see. We shall see. As I said, we think gold will continue to come down. That will put upward pressure on this ratio. And as far as Bitcoin, there are a few on-chain indicators that are saying the bearishness has reached an extreme. We shall see. Maybe this is going to be a test.

Here, we're on to markets. Fascinated by this chart still. The gap that opened up, and I think when history is written and has enough hindsight, will look at the 2022 rate hikes as a massive mistake. It caused a lot of harm. The metals to gold ratio in the green there went straight down. It is now starting to recover. That's good news. It's consistent with the economy starting to recover. As you can see, interest rates have pretty much been range bound in the last few years despite the charts I showed earlier in terms of the disgorgement of Treasury securities around the world. They're buying gold. If we're right, that's going to be a major mistake. Because if you notice, the day that Kevin Warsh was appointed, President Trump appointed Kevin Warsh, the gold price peaked. The gold price peaked. I do believe that Kevin Warsh, just like Greenspan, will keep a very close eye on gold as an important inflation gauge. Here, S&P to crude oil bouncing back. This is very reassuring. You saw what happened in the '70s, it absolutely imploded. And that created a bear market that lasted from 1966 to 1982. You can see we're not continuing down. We're moving in the other direction. We think that will continue, especially if we're right on oil prices. Here is the S&P to gold. Again, I reference this because I respect GaveKal, a research house out there. They tuned us into this many years ago. You can see again in the '70s what a disaster. You can see we're stabilizing here, S&P picking up relative to gold because the S&P is going up and gold is going down. We do think that's going to continue today, notwithstanding if we've got Kevin Warsh right, and I think we do. Here you can see Bitcoin to gold. This one isn't as clear-cut. There's been a lot of fear around quantum computing, around Michael Saylor selling, many people saying, "Oh my gosh, his debt to asset ratio or debt to market cap ratio is in the 40-45% range. He may be forced to sell more and more Bitcoin." We shall see. We shall see. As I said, we think gold will continue to come down. That will put upward pressure on this ratio. As far as Bitcoin, there are a few on-chain indicators that are saying the bearishness has reached an extreme. We shall see. Maybe this is going to be a test. You can see here where the dollar is. It's a little above 99. So Kalshi or the prediction markets are expecting an appreciation in the dollar despite all of the narratives out there that the dollar is in a death spiral. That's a bit of an exaggeration, but a lot of forecasters predicting the dollar continuing to go down. And you can see here it has actually stabilized. Continuing to go down because of whether it's the end of American exceptionalism or our twin deficits, the budget deficit and the trade deficit. But if we are right, the dollar will turn up decisively this year as the impact of the tax package, which started last year, filters through into booming economic activity and the returns on invested capital in the United States continue to go up relative to those in the rest of the world. Now, one other thing I'll say about the dollar here, high energy prices typically help the dollar, and it should have stabilized, if not gone up, because oil is priced in dollars for the most part. That didn't happen and we have to recognize that. But look what is also happening on the other side of that. Here are the holdings of Treasury securities by countries in the world. We have China, Japan, and India. We also have Turkey. Turkey's in the green. I saw the headline a couple of weeks ago which said Turkey has effectively drawn down its Treasury reserves to almost nothing as it's been supporting its currency. So, what's it doing? It's selling Treasury securities, getting dollars for those, and then selling the dollars and buying Turkish lira to try and support the currency. They're almost at the end of that road. They're also selling gold, as is Japan. I'm sorry, Japan has not been selling gold. Japan has been selling Treasury securities to support its currency. It does not want the yen to depreciate below 160. Well, below really is above 160. So, we've been getting more and more yen per dollar. It's been trying to hold the line at 160 because that's where its economy in 1989, 1990 started to unravel. The problem is, as they sell Treasury securities, get dollars, put the dollars out there and buy yen, to the extent they cannot control their currency, their inflation rate is going up. And they, like the US, will have a monetary decision in the middle of June. They may take their interest rate to 1%, which is still lower than where we are at 3.75% for the Fed funds rate. But the gap has been narrowing significantly. Japan is in the purple there. We just got the latest month. They sold $76 billion worth of Treasury securities. You can also see China and India taking down their Treasury securities. And yet, our bond yields have been holding pretty steady in this 4.4 to 4.5, 4.6% range at the long end. These Treasury securities are typically at the short end. We're surprised that there hasn't been more pressure on Treasury yields given how much selling of Treasury securities there is out there. Now, the other thing to note is, when they are selling dollars and buying their own currencies, what is really happening? Dollar liquidity out there is going up. Many people are puzzled as to why the US market continues to hit all-time highs. Today, an exception very notably, but I think one of the reasons is there is more dollar liquidity out there. The other side of this, I remember from the '80s, when we saw emerging markets especially supporting their currencies as aggressively as Turkey is right now, there were probably crises brewing. We saw it in the '80s. We saw it in the '90s with the Asian crisis. So, I'm tuned into this because there could be some brewing crises out there if these countries are being forced to sell Treasuries. In the case of Turkey, sell gold. We've seen Russia selling gold recently. I think this week someone within Russia was saying, "Hey, we can't afford this war anymore." That to us is very interesting. And then of course, in the case of China, China's being starved of oil. They got so much of their oil through the Straits of Hormuz. They've had to cut back. There may be something going on there as well that is causing some disturbances. Stay tuned for these foreign currency moves. They are important.

This economy is moving into boom territory. We've been talking about this for a while. But the markets are plummeting. What the heck is going on? We think we have the answer. I think it has to do with Kevin Warsh, our new Fed chairman, who is not saying anything, at least not yet. And maybe he won't until June 17th, which is when the Fed announces its next interest rate decision. So, we've got roughly 12 days. I do hope he says something in the meantime. He may not. But if I understand who he is, he has much more of a supply-side policy bent, and he does not believe that strong employment and strong growth is bad news. In fact, people who do believe that adhere to something called the Phillips curve. When growth grows up, they think inflation goes up as well. That's just not true. The most vibrant growth periods have been associated with much lower than expected inflation. Why? Because of productivity. I think the same thing's going to prove true now. We have a bunch of hawks on the Fed and they may not be talking as much as they did under Chairman Powell. And I think Kevin Warsh is going to stymie that a bit because it just causes volatility unnecessarily. But they are out there whispering. A lot of people are afraid they're going to make another interest rate decision that is not conducive to growth and lower inflation. And believe it or not, that would be higher interest rates. We think that where this all will end is a clear understanding, and we'll show you in charts what's going on. It's clear that productivity is driving this economy and that inflation is going to break to the downside. If the Iran war is settled anytime soon, we're beginning to see oil prices peak and come down already. That anticipation means inflation will probably go negative sometime this year. First of all, the oil price unraveling. But second, the impact of productivity enabling companies to actually lower prices. We are seeing some companies lower prices. I featured a couple of months ago Frito-Lay, which is owned by Pepsi, cut the price of some of its products by 15%. And we're hearing other companies like Walmart and Costco saying that they are not passing price increases through as much as one would expect because they are seeing efficiency gains in productivity thanks in large part to AI and robotics. So here we are. Let's get into monetary policy. We did fiscal policy impact on the dollar, monetary policy now, then we'll get into economic indicators and market indicators. So here in the purple line you can see M2 moved ahead 18 months for monetarists who believe that inflation is a monetary phenomenon. And it is to some extent, but it depends what velocity is doing around this. We've talked about that before. Money growth seems to have stopped at roughly 4.7% or 8% as of April, the last month for which we have data. If you take a look at this chart, it's really in the lower half to lower third of where it has been historically. And you can see in the green line CPI inflation has tended to be below M2 growth. The reason, especially since 1997, velocity has been coming down secularly with some cyclical moves to the upside, but has been coming down. The only other thing we can find that looks similar to velocity is the labor participation rate, which has come down and is stabilizing here. We don't think this kind of money growth is going to increase inflation. You see the CPI here in the mid-threes because of energy prices recently. It was in the low threes, I think it got below three at one point before the Iran war. This is definitely an impact mostly because of oil prices. We'll give you a sense of why we think inflation's going to come down significantly. We really want and hope that Fed Chairman Kevin Warsh is paying close attention to this because we are at a very important period. The Fed cannot make another mistake. The mistake in '22, consider the source, was the Fed trying to solve a supply shock with higher interest rates. Higher interest rates hurt supply even more. You need to encourage or incentivize increased supply in order to get more supply. So, we ended up with the supply shock lasting three years unnecessarily. I don't think that's going to happen again, but the market is behaving especially today like it is. We disagree. That was a very tough period for our kinds of strategies. Given my understanding of Kevin Warsh, he does not agree with that point of view. He'll pay more attention to some of these other variables. He does believe in quantitative tightening because he worries that banks will start lending aggressively at just the wrong time. He takes away the kindling, which is reserves. I think we're down quite a bit. We're down since the peak 30 or 40%. You can see bank loan officers here are on the tight side. They're tightening. For much of the time after 2000, and after '08, '09, the banks were pretty lenient when it came to lending, encouraged by the Fed, as we were trying to come out of the tech and telecom bust in the '08, '09 crisis. Now, what's happening is the private credit drama is causing more conservatism.