Historical market drawdowns could signal the dawn of a digital currency era

Quick Take

Historical data underlines a recurring pattern of significant drawdowns in both stocks and bonds, often preceding seismic shifts in US monetary policy.

Back in 1931, the market witnessed a hefty 40% drawdown in stocks and a 7% drawdown in bonds. Two years after this event, President Franklin Roosevelt initiated Executive Order 6102, which outlawed private ownership of gold. While this action was not a direct financial rescue of the FED, as some might interpret it, it was a measure to increase the U.S. government’s gold reserves and stimulate economic activity during the Great Depression.

Interestingly, this historical event has parallels with the adjustment mechanism of Bitcoin’s mining difficulty, which takes place every 2,016 blocks, in that they both represent mechanisms designed to stabilize their respective systems during times of economic stress.

Fast forward to 1969, the markets again experienced around 5% drawdowns in both bonds and stocks. Two years later, in 1971, President Richard Nixon decoupled the US from the gold standard, ushering in the era of the fiat standard.

This recurring pattern of market drawdowns followed by significant policy changes suggests that as we approach 2024, the financial landscape could be on the brink of another major transformation. Could this be the digital currencies’ era of dominance?

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