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

Sead Fadilpašić
Last updated: | 4 min read
Brent Johnson. Source: a video screenshot, Real Vision / YouTube

The Dollar Milkshake is a theory focused on USD and its global influence, and as such, it touches upon cryptocurrencies such as bitcoin (BTC) as well. There are arguments, however, that should the US central bank pivot, crypto may go up – and there are arguments that BTC may not benefit from the rise of USD.

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

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

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

But there is more to this story.

What is the Dollar Milkshake Theory?

The so-named ‘Dollar Milkshake Theory’ was created by Brent Johnson, the Chief Executive Officer and Portfolio Manager at Santiago Capital, an investment advisory firm he founded.

According to 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 might be true.”

Per Real 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 mix of higher relative interest rates, the deep capital markets, tax policy, regulatory policy, the USD payment system, and the US military has “swapped out a syringe for a straw.”

It said that,

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

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

  1. The USD’s days as the world’s reserve currency are numbered: many investors, such as Ray Dalio, argue that the 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 hyper-inflates.
  2. Debt will matter at some point: Johnson disagrees with the idea that the US is falling from its superpower status. While central banks have done all in their financial power to “kick the can down the road,” the debts will have to be repaid. Nearly every central bank has flooded its economies with liquidity, and they have created a big “milkshake” of liquidity with their unprecedented monetary easing, injecting some $30 trillion of reserves into the economy since 2008.

When the Fed transitions its policy from easing to tightening, it will start sucking up 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 hoover 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 as most investors seem to lean towards the Ray Dalio camp of the dollar falling 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 touched upon bitcoin as well.

He argued that bitcoin has certainly benefited from all the stimulus plans, the bailouts, the money printing, etc., which may have “taken some of the lures away from gold,” for example. There is “no question” gold is “trailing” bitcoin over the last 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 the profits made over the last 18 months into their hedges, adding:

“Is that the right decision for everybody? Not necessarily, but the point is that even despite the fact that the hedges have not done well, they’ve not done well at all, which they shouldn’t do. They shouldn’t do well when the overall world is doing well. They’re designed to do well when the overall world does poorly.”

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

“The overall theory says 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,” said Johnson, and added:

“I do think it’s already happening to a certain 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 that we’re just going to sit here and equities 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 drawdowns along the way, but I just think that’s how it ends up. And so I think not only is it already started, but I think it will continue.”

Listen to the podcast here: 


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