Something big is happening. We are at the “cliff of death” of a global currency crisis and no-one has noticed, according to macro investor Raoul Pal.
Pal is famous for predicting the 2008 recession and he now believes we’ve arrived at one of the “biggest junctures for markets in history.” In a series of 19 tweets, he explains why the global FX market is so precarious right now, and why bitcoin could provide a hedge to the chaos.
Just hours after Pal’s tweetstorm, China devalued its yuan even further, fixing the rate above $7 for the first time in 11 years, cementing his theory that global currencies will weaken against the dollar.
Pal’s premise is that the dollar’s value is about to explode higher. But in doing so, almost every other currency on the planet will plunge off a cliff, creating a global currency crisis.
To back his theory, he posts 10 different currency charts on the brink of historical breaking points. Crucially, he says, we are at the “CLIFF OF DEATH” for the ADXY – an index of Asian currencies on the brink of falling 20% against the dollar.
Pal then cycles through the currency charts outside Asia. The British pound moving close to parity with the dollar. The Australian and New Zealand dollars breaking lower. The Canadian dollar and euro inching closer to currency crisis levels.
As all major global currencies fall against the dollar, Pal expects “an enormous deflationary wave.” As the Financial Times explains:
“[Deflationary waves] start in the foreign exchange markets before making their way through others: commodities, debt, equity and finally the real economy.”
We’re already seeing the pressure hit commodities markets. Within an hour of Pal’s tweet, the oil price tanked.
Pal ends his assessment with five words:
“Bonds. Dollars. Bitcoin and Gold.”
As he explains, gold is “rightly doing its job, sniffing out a BIG problem and exploding higher.” If his currency crisis theory is right, gold will offer a safe haven as global currencies fall. Bitcoin also has a role to play. Pal goes into detail:
“Bitcoin is doing its job of suggesting an alternative system is gaining in probability.”
As CCN.com reported, we’ve seen bitcoin pop over the last week in broad correlation with China’s move to devalue its yuan currency. Although the data isn’t conclusive, there’s some reason to believe capital flight out of Asian currencies could be moving into bitcoin.
The narrative of bitcoin becoming a ‘safe haven” is building traction, even in traditional financial outlets. It might be a self-fulfilling prophecy, but the looming currency crisis will truly put this theory to the test.
Last modified: June 23, 2020 2:38 PM UTC