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Money Matters: Debasement vs. Inflation - Understanding the Difference
Your Money's Silent Erosion: What Every Investor Needs to Know
Welcome to Financial Fluency - a newsletter designed to boost your understanding of financial terms and provide you with investment ideas for long-term financial success.
In today’s newsletter:
A look at the markets: Bitcoin
Money Matters: Debasement vs. Inflation - Understanding the Difference
Bitcoin Price to Reach ‘Multiply Millions’ According to Brian Armstrong
Poll - Your Feedback is Important!
Word of the Day: Dilute

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A Look at the Markets: Bitcoin

Bitcoin / USD February 2024 - January 2025
Bitcoin seems to be forming another consolidation zone between $92,000 and $108,000. However, it’s important to remember that the price could potentially break in either direction.
Even during a bull market, a 33% correction down to the previous resistance level at $72,000 would not be an unusual occurrence.
On the other hand, positive cryptocurrency fundamentals from the new Trump administration could potentially lead to a breakout above $108,000. It’s worth noting that there were no mentions of a strategic Bitcoin reserve in the initial days of the administration.

Money Matters: Debasement vs. Inflation - Understanding the Difference
A common misconception is that debasement of currency is the same as inflation. However, this is not the case. Here is former hedge fund manager, Raoul Pal, thoughts on the subject:

Raoul Pal on X (formerly Twitter) October 2024
Understanding the Key Differences
Currency debasement and inflation are related but distinct economic phenomena. Here's how they differ:
Currency debasement is a specific action such as - typically when a government or central bank increases the money supply without a corresponding increase in economic output. This is known as monetary policy. Think of it like adding water to juice - you're diluting the value, and hence purchasing power, of each unit of currency. We discussed this in more detail in last week’s newsletter.
Inflation, on the other hand, is the broader rise in prices of goods and services across an economy. While debasement can lead to inflation, inflation can occur for many other reasons, such as:
Supply chain disruptions (as in the Coronavirus pandemic)
Changes in consumer demand (also as in the Coronavirus pandemic)
Resource scarcity
Wage increases
Economic growth
A Practical Example
Imagine you're running a small café. If the central bank debuts significant amounts of new money (debasement), you might eventually need to raise your coffee prices because each euro is worth less. That's inflation driven by debasement.
However, if you raise your coffee prices because coffee beans became more expensive due to a poor harvest in Brazil, that's inflation without debasement.
Why This Matters for Your Investments
Understanding this difference helps you make better investment decisions. Different types of assets respond differently to debasement versus other forms of inflation.
During currency debasement, assets like gold, commodities, and certain cryptocurrencies often perform well because they can't be "debased" - their supply can't be artificially increased.
During inflation caused by economic growth, assets like stocks might perform better because companies can often raise prices to maintain profitability.
Understanding Official Inflation Figures
An important insight for investors is that government inflation figures primarily focus on consumer goods and services. These are everyday items such as food, health expenses, transport or monthly rent. However, these official figures don't capture the full impact of currency debasement because they exclude asset prices such as equities, gold, property or cryptocurrencies.
This creates an interesting situation: while official inflation might appear moderate, the effects of currency debasement often show up first in asset prices, which can rise dramatically. For instance, while consumer price inflation (CPI) might show 2-3% annual increases, assets like stocks, property, or gold might rise by 10-20% or more during the same period.
This "hidden" impact of debasement is one reason why keeping too much cash in savings accounts can be riskier than many people realise. I will conclude with a statement from Larry Fink, chief executive of Blackrock Inc, speaking from the World Economic Forum in Davos this week.
“If you’re afraid of the debasement of your currency, or you’re frightened of the economic or political stability of your country, you can have an internationally based instrument called bitcoin that will overcome those local fears.”
Business English Vocabulary Focus
Money Supply: The total amount of money in circulation
Monetary Policy: The actions of a central bank to control money supply
Purchasing Power: The amount of goods and services you can buy with a unit of currency
Consumer Price Inflation (CPI): A rise in the general level of prices
I want to examine this topic further next week by examining the “Cantillon Effect”.

Bitcoin Price to Reach ‘Multiple Millions’ According to Brian Armstrong

Brian Armstrong
This week, Brian Armstrong, a key figure in the crypto world, shared his thoughts about Bitcoin's future price potential.
"I think overtime we will see Bitcoin get into the multiple millions price range. Its being adopted by more and more institutional customers, the ETFs brought in a huge amount of inflow."
Who is Brian Armstrong?
Brian Armstrong is a pioneering figure in the cryptocurrency industry and has made it more accessible to everyday investors. He is the co-founder and CEO of Coinbase, the largest cryptocurrency exchange in the United States by trading volume. Coinbase is listed on the NASDAQ stock exchange.
Should We Consider His Market View?
When we evaluate market predictions, it's helpful to think about both the insights and potential biases behind them. Let's break this down:
Armstrong's perspective comes from running one of the largest cryptocurrency exchanges in the world. This gives him valuable insights into market trends, much like how the CEO of a major bank would understand traditional banking trends. However, just as a restaurant owner might be optimistic about the future of dining out, Armstrong has natural reasons to be positive about cryptocurrency's future.
Remember that Coinbase generates revenue when people trade cryptocurrencies. Higher Bitcoin prices typically lead to more trading activity, which benefits cryptocurrency exchanges. It's similar to how increased house prices usually benefit real estate agencies through higher commissions.
Understanding Price Predictions
When we look at Armstrong's prediction, two important aspects stand out.
First, saying ‘multiple millions’ is not very precise. Technically, two million dollars is ‘multiple millions’.
Second, the prediction doesn't include a timeframe.
In other words, if the Bitcoin price reaches 2 million dollars in a century, it will have satisfied Armstrong’s prediction.
This is quite different from Michael Saylor's more specific forecast of €13 million in 21 years. While both predictions are optimistic, Saylor's provides clearer parameters for evaluation.
I'll craft a concluding paragraph that summarizes the key takeaway for investors while maintaining a balanced, informative tone:
Navigating Market Predictions with Wisdom
While it is interesting to listen to financial predictions, it's crucial to develop a more sophisticated approach to investment decision-making. Every prediction comes with its own set of biases and limitations. Professional investors understand the importance of:
Checking the potential biases of the source
Gathering multiple perspectives
Considering the fundamental drivers of value
In Bitcoin's case, the fundamental driver remains adoption. This means looking beyond price predictions and examining:
Institutional acceptance
Technological developments
Real-world use cases
Regulatory landscapes
Instead of chasing a single prediction, build a balanced investment strategy that considers multiple expert views, fundamental analysis, and your personal financial goals. Remember, the most successful investors don't just listen to predictions - they critically evaluate them.

Poll - Your Feedback is Important!
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Word of the Day: Dilute
Dilute - verb - to make something weaker
"In manufacturing, it’s common to dilute concentrated cleaning solutions with water to achieve the desired strength for use."
Financial Context: to make something less strong or less valuable.
"In business, issuing additional shares can dilute the value of existing shareholders' equity, as the total ownership is spread across a larger number of shares."
When applied to currency, dilution refers to reducing the value or purchasing power by increasing the money supply.
"Currency debasement can dilute the purchasing power of your savings, making each euro or dollar worth less over time."

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Do you have any Financial Questions?
Please email me and I will do my best to answer them in future newsletters.
Until next Friday - have a great weekend!
Iain.
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Disclaimer:
This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.
Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.