The Dollar Milkshake Theory and How It Can Affect Your Crypto Profits

Dollar Milkshake is a theory focused on the USD and its global influence, and as such it also affects cryptocurrencies such as bitcoin (BTC). However, there are arguments that if the US Federal Reserve were to swing, crypto could rise – and there are arguments that BTC may not benefit from the rise in the USD.

According to a Tokenhell report, investors and analysts found that the price movement of bitcoin and other cryptocurrencies has moved in inverse proportion to the rise in the USD. The report notes that “the main reason behind this is […] Dollar Milkshake because people have [begun] withdraw their investments from Bitcoins and put them into USD accumulation.”

But every time there is a speech by Jerome Powell, the chairman of the country’s central bank, the Federal Reserve (Fed), the crypto world and those outside it are focused on the talk for signs of the next pivot.

The argument from many analysts here is that the pivot is really coming – and that this will boost crypto portfolios.

But there is more to this story.

What is the Dollar Milkshake Theory?

The so-called ‘Dollar Milkshake Theory’ was created by Brent Johnson, CEO and portfolio manager at Capital city of Santiagoan investment advisory firm he founded.

In accordance The Investor’s Podcast Network,

The theory “is a strong counterpoint to the narrative that the next currency crisis will result in a weaker dollar. Brent’s theory highlights that the opposite may be true.”

Per True vision, Johnson argues that before 2018, global central banks injected liquidity into the “milkshake” of the global market. What is happening now is that the combination of higher relative interest rates, the deep capital markets, tax policy, regulatory policy, the USD payment system and the US military have “traded a syringe for a straw.”

It said that,

“Johnson argues that the deck of cards in the global monetary system is stacked in favor of the US dollar, and that it does not matter which central bank starts quantitative easing (QE) – but rather which central bank catches the QE.”

In July of this year, the Investor’s Podcast discussed two scenarios that could happen:

1. The USD’s days as the world’s reserve currency are numbered: many investors, such as Ray Dalio, argue that US power is declining, that the US has flooded the world with dollars, and that its value will decline. The worst case scenario is that the dollar is hyper-inflated.
2. Debt will matter at some point: Johnson disagrees with the idea of ​​the US falling from its superpower status. While central banks have done everything in their economic power to “kick the can down the road”, the debt will have to be repaid. Almost all central banks have flooded their economies with liquidity, and they have created a huge “milkshake” of liquidity with their unprecedented monetary easing, adding around $30 trillion of reserves to the economy since 2008.

As the Fed shifts its policy from easing to tightening, it will begin to siphon liquidity from global markets and the dollar will strengthen against other currencies, putting enormous pressure on countries with dollar-denominated debt.

It added,

“In other words, the USD will vacuum up many foreign currencies and could cause a global currency crisis that wreaks havoc on the global economic order. This is the risk that very few people see coming as most investors seem to be leaning towards the Ray Dalio camp where the dollar falls in value relative to other major currencies.”

What does Johnson say about BTC?

In a November 2021 episode of The Investor’s Podcast, Johnson discussed his famous theory and also touched on bitcoin.

He argued that bitcoin has certainly benefited from all the stimulus plans, bailouts, money printing, etc., which may have “taken some of the allure away from gold”, for example. There is “no question” that gold is “lagging behind” bitcoin over the past year, he said.

He went on to say that his company has had “a number of clients who have done very well” in their bitcoin and other portfolios, and they are reallocating some of their profits over the past 18 months to their hedges, adding:

“Is it the right decision for everybody? Not necessarily, but the point is that even though the hedges haven’t done well, they haven’t done well at all, which they shouldn’t. They shouldn’t good when the world is generally doing well. They are designed to do well when the world is generally doing badly.”

When people think of the Milkshake Theory, Johnson said, they tend to think only of the dollar going higher and the deflationary hedges. Nevertheless, the deflation hedges are only part of the theory.

“The overarching theory is to own assets because the US is going to outperform the rest of the world, and that’s exactly what’s happened over the last 12 months, 18 months,” Johnson said, adding:

“I think it’s already happening to some degree, I think it will continue to happen. And again, I don’t think it’s going to be easy. I’m not going to say we’re just going to sit here and stocks are going to continue to go higher, bitcoin will continue to go higher, gold will continue to go higher, and there won’t be any scary moves. that way, but I just think that’s how it’s going to end up. So I don’t just think that it’s already started , but I think it will continue.”

Listen to the podcast here:

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– Ray Dalio prefers Bitcoin to bonds, but gold to Bitcoin
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