Gold and Bitcoin: The Ultimate Winners of the Fed’s End Game?

As markets teeter with uncertainty, both gold bugs and bitcoin aficionados are perking up, spurred by murmurs of a potential change in policy

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Wit Olszewski/Shutterstock modified by Blockworks

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The Federal Reserve has been executing an aggressive plan over the past year, hiking rates in a concerted effort to quell runaway inflation. With ten consecutive increases beginning in the spring of 2022, it’s the steepest series of rate hikes America has witnessed since the 1980s.

As 2021’s near-zero interest rates fade from sight in the rear-view mirror, questions are percolating about how soon the current tightening cycle may end. Both gold bugs and bitcoin aficionados are perking up, spurred by murmurs of a potential change in policy amidst wavering markets.

On the Blockworks’ On the Margin podcast, host Mike Ippolito interviews Luke Gromen, founder and president of Forest for the Trees, about the Federal Reserve’s end game and how a possible change of direction might affect hard assets; both metallic and digital in nature.

Gromen loves gold and bitcoin in the current scenario, suggesting “both win” in the end. 

“People say the Fed’s gonna raise rates a lot and that’s bad for gold.”

“Historically that was,” Gromen acknowledges, but things are different now. “There has been no time in the last hundred years where if the Fed raises rates too much, they will bankrupt the United States government.”

Nothing is more bullish for gold and bitcoin, he says, than the moment when markets say, “Oh my God, they can’t raise rates more.”

“Obviously, the US government’s not going to go nominally bankrupt,” he says. “The Fed will print the difference.”

Tax receipts are coming up short against government spending, Gromen observes. “Health and Human Services, Social Security, Treasury spending — if you add those three categories up, they were more than first half tax receipts.”

The point at which the government can not pay “true interest expense” is already here, Gromen says. “We were there in 2020. We were there in 2021.” 

“We’re there again.” 

Which is normally “great for gold and bitcoin,” Gromen says, but there’s a catch. “If the Fed does not print the money,” given the dollar’s incumbent role as reserve currency, “the US government’s gonna crowd out global dollar markets, which we are seeing.”

Gold and bitcoin win either way

As the dollar goes up against other currencies, some pressure could be exerted upon bitcoin and gold “in the short run,” according to Gromen. But at some point, rising rates and restrictive printing policy become too much of a threat to stability. 

Markets could panic at the prospect of a default if the Federal Reserve continues to hold off on printing, he says, which “ain’t bad for gold or bitcoin.” Alternatively, the Fed could be forced to “finance the gap with printed money.” 

“Ultimately, they win either way.”

With that said, Gromen admits he’s taking a “barbell approach” to the current situation. “I’m overweight gold, overweight bitcoin, overweight gold miners along with some energy plays and some industrial equity plays.”

“But I’m also overweight cash — US dollar cash and short-term Treasuries — and we have been all year.”

Flying the plane into the ground to fight inflation

Gromen suspects Federal Reserve Chair Jerome Powell doesn’t understand the “second and third derivatives of what he’s doing” as he appears to be committed to “flying the plane into the ground to fight inflation.” 

“There’s not been a lot of instances where I’ve seen US policy-makers understanding the second and third derivatives of what they do for a long time, by and large.”

“I need to be flexible in terms of managing my own liquidity and in terms of keeping my firepower dry,” Gromen admits. “That’s the better way to hedge the volatility that will ensue if the Fed continues to not print.”


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