Want to start a newsletter today?

Crypto Down Under is powered by beehiiv. If you want access to the amazing tools available in email to help you launch, scale, and monetize your newsletter, use this link to sign up!

Before I start, I'd like to ask a favor:

If you enjoy this newsletter, please forward it to a friend who might enjoy it as well.

Thank you! 🙏 

Good morning everyone,

As investors, we're betting on the future. And while there's no perfect prediction, there are certain patterns and behaviors we can observe in the market.

If you're on X/Twitter, you may have come across the term "banana zone" recently. Popularised by crypto investor and founder of macro research firm Global Macro Investor, Raoul Pal, it is used to describe the moment in an early bull market before things literally go bananas.

I am often asked, especially by my wife, what information feeds my bets on the future.

While I try to steer clear of making too specific short-term predictions, I do believe that Raoul Pal's "banana zone" theory is an excellent model for understanding where markets are heading directionally.

The "banana zone" theory describes a confluence of three elements: the Bitcoin halving, the US presidential election, and the global debt cycle. It just so happens that all three elements move in four-year cycles.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

Also, this newsletter contains affiliate links. This means that I may receive a commission from them. But for Crypto Down Under, I only choose products I use myself and can recommend wholeheartedly. Don’t forget to do your own research.

1. The Bitcoin halving

I've talked about the Bitcoin halving several times in this newsletter, so I won't bother you with too much detail.

The most important thing to remember about the halving is that it changes the supply and demand equation behind Bitcoin. Every four years, it halves the amount of Bitcoin coming into circulation, creating a supply shock. Like clockwork, fewer coins are put into circulation every four years until all 21 million coins are in circulation around 2140.

It usually takes a few months for the supply shock to sink in, but if demand keeps up, the price tends to push higher.

Ultimately, the halving is the purest manifestation of Bitcoin's scarcity.

The last halving happened in April 2024.

2. US presidential elections

The US is (still) the world's undisputed superpower. Its president is the most powerful man on the planet.

As I pointed out in last week's newsletter, presidential elections tend to boost markets. Between 1928 and 2020, there were only four US presidential election years in which the stock market fell. In an election year, US presidents favor low inflation and falling interest rates to stimulate the economy.

Put simply, presidential candidates promise a lot of candy in election years, essentially trying to bribe voters.

The next US presidential election is in November.

Want to buy bitcoin? Go to one of Australia's most trusted crypto exchanges, CoinSpot.

Use this link and the code 83T6H2 to create an account at CoinSpot today!

3. The global debt cycle

As mentioned in several newsletters, we have a global debt problem.

Many major economies are running deficits, which means they are spending more money than they take in. The US is running a deficit, Australia is running a deficit, Germany is running a deficit. The list goes on.

All these economies have to go into debt to finance their budgets.

The problem is that their economies are not growing enough to pay off their debts. That's mainly because their workforces are shrinking as the baby boomer generation ages, and fewer people produce less economic growth.

This creates a vicious circle in which countries take on more debt to pay the interest on existing debt. It's a classic debt cycle.

The worst example is the US.

The US is almost USD35 trillion in debt and the debt pile is growing by a remarkable USD1 trillion every 100 days. At some point, interest payments become a real stranglehold on the economy. This year the US will spend more on interest payments than on defense.

4. The silver bullet

As you can see, there is no easy solution to the debt cycle problem. The US, like Australia and Germany, will never be able to pay back its debt at current levels of economic growth.

What these countries are doing instead is increasing the money supply.

An easy way to increase the money supply is to cut interest rates. A less visible way to increase the money supply is through quantitative easing, where central banks buy government debt with newly printed money.

When the money supply is increased, the debt remains the same in nominal terms but falls in terms of purchasing power because the money has been debased.

Currency debasement is not the same as inflation.

Inflation is what you feel when the price of goods goes up and your purchasing power goes down. You're getting less bang for your buck.

Currency debasement manifests itself mainly as asset inflation. It makes assets such as shares and property more expensive. It's one of the reasons why stock and property markets have soared over the past 15 years.

According to Raoul Pal, the global money supply has grown at an annual rate of 8% since the 2008 financial crisis. This means that, on top of inflation, your money has lost 8% of its value every year over this period.

Currency debasement creates a lot of problems in society.

It punishes savers and rewards investors, widening the wealth gap between the haves and have-nots as it erodes savings and inflates asset prices.

5. The "banana zone"

The "banana zone" is when the above three elements come together. The Bitcoin halving meets a US presidential election meets the need of major economies to refinance their debt by expanding the money supply.

It creates this cycle, according to Raoul Pal:

As you can see, based on this thesis, we are in early summer, which is an early bull run.

Summer marks the peak of the "banana zone", when we experience the exorbitant price jumps we saw in 2021, 2017, and 2013.

6. What if …(enter black swan event)… happens?

No forecast is foolproof and the world is full of uncertainty.

China could invade Taiwan, another health crisis could disrupt supply chains and bring the global economy to a standstill, and major financial institutions could fail.

A lot of bad things can happen.

The irony is that bad news can be good news for financial markets because governments will have to spend more money to contain the crisis.

More money means more debt means more currency debasement means more asset inflation.

Remember 2020 when Covid broke out? The S&P 500 crashed, only to go on a mad rally and end the year at an all-time high.

That's because governments were pumping record amounts of liquidity into the economy.

Nothing plays out perfectly, but I hope this newsletter has convinced my wife of my investment thesis.

Ultimately, the market is full of mysteries, but the "banana zone" is a good framework for understanding liquidity and how it's driving assets.

Enjoy the weekend everyone!

Want to store your bitcoin yourself in a cold wallet? Use the link below to purchase a Ledger Nano S Plus wallet.

Before you go, please help me get better!

Feel free to drop me an email or dm me on Instagram, LinkedIn, or Twitter with any feedback or topics you'd like to see covered in this newsletter!

Thank you!