Passa ai contenuti principali

Ex-Bridgewater Analyst: Yes, Bitcoin Is A Giant Bubble... But The Global Fiat System Is An Even Bigger Bubble

In December 2017 I wrote a paper titled "What causes asset bubbles" featuring the chart below. A few days later, Bitcoin prices peaked and fell 85% within a year. It seems Bitcoin is back. I believe we are in the midst of another bubble, but this time I am not confident in calling its top. My updated chart and thoughts are below1.

First, let's not kid ourselves. Bitcoin in its current form is not a viable candidate as a currency replacement. If we measured the US annual inflation in Bitcoin instead of dollars, you'd have seen 275% inflation in 2018, -50% deflation in 2019, -75% deflation in 2020. A healthy society cannot function with that kind of price volatility. The currency must be stable enough that if you get paid on Friday you know what kind of dinner you can buy on Sunday. While it may mature in the future, Bitcoin as it exists is largely a speculative asset.

Bitcoin is almost certainly in another bubble and its current growth rate is not sustainable. If 2021 turns out like 2020, the market cap of Bitcoin would be greater than all US currency in circulation.

That said, I'm not as confident in calling the top this time around. The global fiat system is itself in an even bigger bubble. Investors are forced to hold $18 trillion of negative yielding debt while $trillions are being printed all around the world. Investors are drowning and are grabbing onto cryptocurrencies as a lifeline.

While the sustained low yields will increase prices and suppress expected returns across all markets, many investors will choose the unknown expected returns of risky assets over the guaranteed losses in bonds. Like panicked prey chased by predators, investors prefer to hide in markets that either have no fundamental metrics, like Bitcoin, or assets with growth stories that leave ample room to imagination, like Tesla.

In the short-term, there is still a lot of dry powder from stimulus checks and some institutions are also making the leap into the crypto space. So this Bitcoin party could continue as long as rates remain low and the printing press hot.

Bitcoin is the flip side of the same coin as fiat currencies, pun intended. Its long-term fate depends on the future of our fiat system. Since the 1980s, deflationary pressures have suppressed interest rates and ultimately necessitated money printing around the world. As long as this trend continues, investors will run away from guaranteed losses in government bonds. Capital will flee up the risk spectrum, pushing up prices, dropping yields and producing asset bubbles along the way. 

As long as the world is flooded with money and safe assets offer poor compensation, Bitcoin will be relevant. Volatility and asset bubbles will be a fact of life. Calling the tops of these bubbles will be difficult because the fiat currency yard stick by which we measure prices is itself in a bubble.

Commenti

Posta un commento

Post popolari in questo blog

Fwd: The Looming Bank Collapse The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.

After months  of living with the coronavirus pandemic, American citizens are well aware of the toll it has taken on the economy: broken supply chains, record unemployment, failing small businesses. All of these factors are serious and could mire the United States in a deep, prolonged recession. But there's another threat to the economy, too. It lurks on the balance sheets of the big banks, and it could be cataclysmic. Imagine if, in addition to all the uncertainty surrounding the pandemic, you woke up one morning to find that the financial sector had collapsed. You may think that such a crisis is unlikely, with memories of the 2008 crash still so fresh. But banks learned few lessons from that calamity, and new laws intended to keep them from taking on too much risk have failed to do so. As a result, we could be on the precipice of another crash, one different from 2008 less in kind than in degree. This one could be worse. John Lawrence: Inside the 2008 financial crash The financial...
Posta un commento
Continua a leggere

3 Reasons Why Gold Will Outperform Equities And Bonds

3 Reasons Why Gold Will Outperform Equities And Bonds https://www.forbes.com/ 3 Reasons Why Gold Will Outperform Equities And Bonds For centuries, gold has played a major role in human history and has become interwoven into the financial fabric of society. Beyond its investment following, gold has become synonymous with wealth. Historically, gold's early use cases revolved around money – a form of "medium of exchange". After the second world war however, several countries and their respective currencies, started to shift away from the gold standard and migrated towards a fiat currency system. Today, gold remains largely a "Store of Value", and due to its unique properties and large number of use cases, it has managed to distance itself from other asset classes in terms of correlation, demand / supply drivers, and investment purpose. Gold's idiosyncrasies function as a double-edged sword, as it is challenging to predict ...
Posta un commento
Continua a leggere

China Market extends fall on talks of less stimulus

Headline indices of the Mainland  China  equity market closed down for second straight day on Tuesday, 23 April 2019, as profit booking selloff continued after a flurry of comments from policymakers signaled they're less comfortable about adding stimulus. At closing bell, the benchmark Shanghai Composite Index declined 0.51%, or 16.45 points, to 3,198.59 The Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 1.32%, or 23.05 points, to 1,728.86. The blue-chip CSI300 index shed 0.16%, or 6.60 points, to 4,019.01.  Top-ranking policymaking bodies including the Politburo, the State Council, the central  bank  and the  Central Financial and Economic Affairs Commission  have all held meetings in the last two weeks.  China  should fine-tune monetary policy in a pre-emptive way based on economic growth and price changes, according to a top-level meeting reports chaired by  President  Xi Jinping.  Monetary po...
Posta un commento
Continua a leggere