Can Crypto Protect You Against “Stagflation”?

There are rocks and there are hard places. And then there’s the quarry in which the Federal Reserve now struggles to escape.

I do not want to bore you with the minutiae of Fed operations but allow me to briefly—and importantly—note that the Fed has two goals: maximum employment (an economic matter) and price stability (an inflation matter).

Problem is, that’s like saying Smokey the Bear’s dual mandate is to prevent forest fires while ensuring full cigarette consumption inside national forests—i.e.: the two do not necessarily go hand-in-hand.

To wit, the US today faces trouble on both fronts.

In terms of maximum employment:

• The jobs market is in decline.

• Retail sales are falling.

• Consumer confidence is down sharply.

• Jobless claims are ticking higher (a sign of increasing unemployment).

• Both high-end and low-end consumers are retrenching.

All of those are signs that “maximum employment” is not in a good place and that the Fed should probably begin cutting interest rates to jump-start an economy close to sputtering.

However, in terms of price stability:

• The Consumer Price Index is inching higher, particularly core inflation, and is now back above 3%, well ahead of the Fed’s preferred 2% target.

• Personal Consumption Expenditures, or PCE inflation (the Fed’s preferred inflation measure) is on the rise, too, and at 2.7% is also well ahead of what the Fed wants to see.

• The Producer Price Index exploded surprisingly higher with the July reading—up 0.9%, far worse than the 0.2% expectation and the highest reading in three years. It’s further proof that, as I’ve been saying, tariff inflation is going to ransack American households. The PPI is what producers are paying for the raw materials they need to make whatever they sell, and an increase that dramatic means higher consumer prices are coming.

Those statistics imply that the Fed should not cut interest rates, that inflation is more challenging than expected. Cutting rates now would pump more money into the economy, which would fuel greater inflation.

And, so, the Fed struggles in the metaphorical quarry, stuck between the rock of a stagnating economy and the hard place of rising inflation.

Or as the world named it in the 1970s… stagflation.

Which brings me to the real point of our dispatch today: Stashing away some of your wealth in crypto to benefit from what’s now taking shape.

It might seem an odd transition, but stagflation protection is all about owning real assets… which is also a bit of a mind-twister, given that crypto is digital and not physical.

But crypto is a non-fiat, non-paper asset, meaning it’s not stocks, bonds, or cash.

Bitcoin, for instance, has no ruler—no government, no central bank, no economic minions to push and pull on levers that increase money supply or impose interest rates and whatnot on crypto. Its price is purely a function of global retail and institutional investors who, at some level, are reacting to the declining worth of fiat currencies, most notably the US dollar.

Look at the assets that outperformed when stagflation raged in the 1970s: gold, silver, other precious metals, oil, agricultural products, real estate to some degree (though US real estate is not going to do well this time around).

Those same assets (aside from overpriced real estate) are primed to boom again… as is bitcoin, which will drive other cryptocurrencies higher as well.

The Fed is in a bad spot. Uncle Sam, too, broadly speaking.

If the Fed cuts rates, well, that’s just more money flowing through the economy, and crypto thrives in that world because a lot of the free cash the Fed creates ends up flowing into the crypto market.

Don’t cut, and America’s interest-payment obligations remain historically high. In the post-COVID years, market interest rates on US debt, meaning the interest rates investors demand for buying Treasury paper, have doubled… which is why the US is now paying more than $1 trillion in interest payments, about 15% of the federal budget, the highest proportion outside of war years.

That, in turn, is tempering foreign demand for US debt, which means the Fed at some point would have to step in to buy Treasuries… which requires that the Fed effectively create money to buy the debt.

And that money creation is pro-crypto.

Again, it’s new money flowing into the economy… which inevitably makes its way into the cryptoconomy.

All of this gets at a simple, yet troubling observation: Systemic instability in the fiat economy that, like water constantly eating away at a stone, erodes trust in the US dollar and central banking.

That, in turn, positions crypto as a non-fiat beneficiary.

Which means those of us who own crypto—particularly bitcoin and some other names (which I’ll be covering in a FREE presentation tomorrow, in fact)—are beneficiaries, as well.

I suspect that in reacting to the no-win conundrum it now faces with its dual mandate, the Fed is going to err on the side of caution. In this case, that means the Fed is not likely to cut interest rates this year.

Debt-servicing costs remain high, and they grow higher as federal spending keeps expanding… and that’s going to see investors continue to leave the dollar behind, which will see the greenback continue to nudge lower against global currencies… which will push people to look for non-dollar assets that can stand against stagflation—and a rotting US economy.

That’s bitcoin—and other cryptocurrencies that will ride bitcoin’s coattails much higher.