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

Brent Johnson. Source: a video screenshot, Real Vision / YouTube

The Dollar Milkshake is a theory centered on the USD and its global influence, and as such it touches on cryptocurrencies such as Bitcoin (BTC) as well. There are, however, arguments that if the US central bank pivots, the crypto could rise – and there are arguments that BTC may not benefit from the rising USD.

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

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

The argument of many analysts here is that the pivot is indeed coming – and that it 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 of Santiagoan investment advisory firm he founded.

According at The Investor 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 could be true.

By real vision, Johnson argues that prior to 2018, global central banks were pumping liquidity into the global market “milkshake”. What is happening now is that the combination of higher relative interest rates, deep capital markets, tax policy, regulatory policy, the USD payment system and the US military has “traded a syringe against a straw”.

He said that,

“Johnson argues that the deck of the global monetary system is stacked in favor of the US dollar, and that it doesn’t matter which central bank starts quantitative easing (QE) – but rather which central bank capture this EQ.

In July of this year, the Investor Podcast discussed two scenarios that can occur:

  1. The days of the USD as the world’s reserve currency are numbered: many investors, such as Ray Dalio, claim that the power of the United States is in decline, that the United States has flooded the world with dollars and that their value will fall. The worst case scenario is that the dollar hyper-inflates.
  2. Debt will matter at some point: Johnson does not agree with the idea of ​​the United States losing its superpower status. While central banks have done everything in their financial power to “kick the streets”, debts will have to be repaid. Almost all central banks have flooded their economies with liquidity, and they have created a big liquidity milkshake with their unprecedented monetary easing, injecting some $30 trillion in reserves into the economy since 2008.

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

He added,

“In other words, the USD will suck up many foreign currencies and may cause a global currency crisis causing chaos in the global economic order. This is the risk that very few people see coming because most investors seem to lean towards the Ray Dalio camp that the dollar is losing value against other major currencies.

What does Johnson say about BTC?

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

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

He went on to say that his company has “a number of very successful clients” in their bitcoin and other portfolios, and they reallocate some of the profits made over the past 18 months into their hedges, adding:

“Is this the right decision for everyone? Not necessarily, but the fact is that even if the hedges didn’t work well, they didn’t work well at all, which they shouldn’t. They shouldn’t do well when the whole world is doing well. They are designed to do well when the whole world is going badly.

When people think of the milkshake theory, Johnson said, they tend to think only of the rising dollar and deflationary hedges. Yet deflationary hedges are only part of the theory.

“The global theory says own assets because the United States is going to outperform the rest of the world, and that’s exactly what’s happened over the last 12, 18 months,” Johnson said, and added :

“I think it’s already happening to some extent, 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 that stocks will keep going up, bitcoin will keep going up, gold will keep going up, and there won’t be any scary drawdowns along the way, but i just think that’s how it is And so I think not only has it already started, but I think it’s going to continue.

Listen to the podcast here:


Learn more:
Crypto Expert Believes This Catalyst Can Trigger New Bull Market – Inbound Market Rebound?
Bitcoin and durable assets will gain as inflation rises, says Novogratz and sees BTC at $500,000

Ray Dalio prefers Bitcoin to bonds, but gold to Bitcoin
Fed, inflation ‘will dictate whether or not Bitcoin breaks’ – Analyst

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