09/03 update below. This post was originally published on September 1
Bitcoin has lost steam from its recent rally, falling back from an all-time high of $124,000 per bitcoin amid a sudden crisis at the Federal Reserve.
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The bitcoin price is up almost double from this time last year, with bitcoin braced for $20 million to $28 million of daily buying pressure that some think could create the new “Rockefellers or Rothschilds.”
Now, as a surprising celebrity suddenly jumps on the crypto bandwagon, the former chief technology officer at bitcoin and crypto exchange Coinbase has predicted bitcoin will “end the Fed.”
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Jerome Powell, chair of the Federal Reserve, is battling stubborn inflation that’s pushed the bitcoin price higher.
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“When bitcoin wins, it ends the Fed,” Balaji Srinivasan, the author of The Network State who left Coinbase in 2019, said during a speech at Bitcoin Asia. “And what does that mean? When bitcoin wins, the Fed loses control.”
Srinivasan, who made headlines with his incorrect $1 million bitcoin price prediction in 2023, said bitcoin’s fixed supply of 21 million will see the Fed’s “gyrating rates” get replaced by “algorithmic” monetary policy government debt continues to surge.
“This is only going to get worse as inflation picks up,” Srinivasan said, referring to the U.S. debt pile that’s ballooned to $37 trillion this year following out-of-control Covid-era spending, feared to be spiralling into a debt “doom loop” as higher interest rates force the government to print money to service the debt.
09/03 update: Hedge fund billionaire Ray Dalio, the founder of Bridgewater Associates, has warned the spiraling U.S. debt pile is “likely cause a debt-induced heart attack in the relatively near future—I’d say three years, give or take a year or two.”
Dalio, posting responses to Financial Times questions on X after claiming its reporting had mischaracterized his position, pointed to the $1 trillion a year interest on the $37 trillion debt and $9 trillion needed to roll over the debt as squeezing “out other spending. The more that happens, the closer the country is to a debt-induced economic heart attack.”
According to Dalio,”the Federal government will spend about $7 trillion and take in only about $5 trillion, so it will have to sell an additional roughly $2 trillion in debt,” in addition to the $1 trillion it has to sell to pay interest plus the $9 trillion it has to raise to roll over the debt.
The Federal Reserve, which is under attack from U.S. president Donald Trump’s White House due to Fed chair Jerome Powell’s refusal to reduce interest rates, is widely expected to restart its interest rate cutting cycle this month—risking the Fed allowing inflation to “run hot” after prices have begun to rise again over the summer.
“[This] would lead bonds and the dollar to go down in value and, if not rectified, would lead to them being an ineffective storehold of wealth and the breaking down of the monetary order as we know it,” Dalio said.
Dalio went on to predict the bitcoin price and other cryptocurrencies would likely be a beneficiary of the Fed’s weakening of the U.S. dollar.
“Crypto is now an alternative currency that has its supply limited, so, all things being equal, if the supply of dollar money rises and/or the demand for it falls, that would likely make crypto an attractive alternative currency,” Dalio wrote.
“I think that most fiat currencies, especially those with large debts, will have problems being effective storeholds of wealth and will go down in value relative to hard currencies. This is what happened in the 1930 to 1940 period and the 1970 to 1980 period.”
Meanwhile, the looming debt crisis has been seized on by bitcoin price bulls who are predicting it will turbo-charge bitcoin.
“The $200 trillion debt spiral means the U.S. can’t stop printing,” Max Keiser, a financial contrarian and bitcoin supporter who has advised El Salvador on its bitcoin strategy, posted to X.
Keiser predicted, “the gap between have-nots & have-yachts (assets) will grow rapidly,” leading to bitcoin exploding to a $2 million price.
The Fed and its chair Jerome Powell have been sharply criticised by U.S. president Donald Trump this year, with Powell refusing to cave to Trump’s demands for lower interest rates.
The row between Trump and the Fed has been brewing for years, with accusations of political bias beginning when Powell incorrectly called post-Covid lockdown inflation “transitory,” holding back from increasing interest rates in response to rising prices.
The battle was turbo-charged when Powell surprised markets with a 50 basis point inflation hike in September last year, seen by some as a gift to Trump’s Democratic Party election rival Kamala Harris.
Inflation fears have continued to chip away at confidence in the U.S. dollar, with this month’s Federal Reserve interest rate decision expected to see it cut by 25 basis points.
“Bitcoin is now sitting on major on-chain support and a key technical level—but with this being one of the most pivotal weeks of the year for crypto, the stakes could not be higher,” analysts with 10x Research, led by Markus Thielen, wrote in an emailed note.
On Wednesday the Fed’s Beige Book will give insight into U.S. economic fundamentals while Friday’s August jobs report is expected to show an increase of 75,000, according to a Reuters poll, and will be closely watched for its impact on Federal Reserve officials’ thinking ahead of their September interest rate meeting.
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The bitcoin price has rocketed to an all-time high of over $124,000 per bitcoin this year, with some bitcoin price predictions forecasting it could climb much higher.
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“With this week and next packed with critical data that will shape the Fed’s September 17 decision, being positioned correctly now will separate the pros from the amateurs. This is not a week for standing still or being complacent,” 10x Research analysts wrote.
Last month, researchers with crypto-friendly Xapo Bank predicted the so-called “great wealth transfer” that will see $84 trillion passed from older generations to younger people will lead to the creation of new “bitcoin dynasties,” families like the Rockefellers or Rothschilds who build up generational wealth through bitcoin and crypto.
“When bitcoin wins, fiat billionaires get flipped,” Srinivasan said, adding that, “several years ago at Coinbase, we calculated that somewhere between $100,000 and $1 million per bitcoin, half the world’s billionaires” are made up of those that hold bitcoin.
“All wealth becomes crypto, all property becomes cryptography and that means global wealth becomes crypto. And so that’s what we call the billionaire flipping and that’s kind of already underway and you’re going to see that in the next few years.”