Cryptocurrencies, stocks, FX: who is hero, who is zero?
We live in a period of the the bubbles. Booming, stimulus-fed economy rebounding from the COVID-19 pandemic seems to send some inflationary shocks through financial markets in coming months.
Sudden surge in demand following a supply shock will obviously pickup an inflation. And the first signals are already here: asian stocks is falling today (April, 9, 2021), after China reported a stronger than expected rise in prices that could prompt authorities to act to cool inflation.
Consumer prices in China rose in March (+0.4% compared with -0.2% in February) due to a jump in fuel prices (+12% from a year earlier), while producer prices climbed at the fastest pace in more than 4 years.
Stronger growth and economy recovery might spur inflation that central banks in many major economies would then move to cool by raising interest rates. But higher interest rates means higher costs of debts, and those we saw before the 2008 collapse had happened.
Stocks have benefited from the stimulus QE program - the S&P 500 index gained +10% since the beginning of 2021, to 4,097.17, new record high. The Dow Jones Industrial Average DJIA, gained 10% as well to 33,503.57. The tech-heavy Nasdaq Composite COMP, climbed to 13,829.31.
The stock market is in a bubble that is being fueled by the policies out of Washington. It’s hardly to say - when, actually, but the next financial crisis may be coming soon.
In the situations like that, investors want to find an alternative for diversification - cryptocurrency is one of them. And this is not a surprize: over the last decade, the highest performing asset class was not stocks, bonds, or even real estate, it was Bitcoin.
Bitcoin’s market cap of $1 trillion makes it too important to ignore. One of the most important factors driving bitcoin’s increased demand was the entrance of hedge funds and other institutional investors. As long as asset managers and companies continue to enter the market, Bitcoin prices could continue to rise.
At the beginning of 2017, bitcoin prices were below $1,000 per coin. In December of the same year, bitcoin reached nearly $20,000. Then came the fall and by February 2018, the price had dropped to $7,000. In a year only, prices surged from $4,900 in March 2020 to hit a new high of $60,000 year later.
The pre-programmed, finite supply of all bitcoins determines the value of each bitcoin.
While in many fiat currencies central banks control the supply and have been increasing it in recent years via their huge QE programs, higher supply should drive down the price of that currencies in the long run.
That is the answer one of the biggest question: Why are Bitcoin transactions and tradability so limited compare to the capitalisation? People prefer to invest, but not ti use BTC, because of its volatility.
Bitcoin is a store-of-value and safe-haven asset. In terms of total currency in circulation, Bitcoin is the third-largest in the world, after the US dollar and the euro.
But very few bitcoins change hands. Currently, Bitcoin transactions average about 0.5 billion per day, which is minuscule. This is only 0.02% of the euro and 0.009% of transactions in dollars. The average daily traded value for USD is 5.8 trillion and for the euro is 2.1 trillion. Thus, Bitcoin is comparable to the smallest currencies.
However, central banks and governments understand that Bitcoin and other cryptocurrencies are here to stay. Among central banks, 86% are researching and developing central bank digital currencies (CBDCs). The Bahamas launched the first nationwide CBDC last October, and both Sweden and China launched pilots in early 2020. In the long run, central banks are unlikely to give up their monopolies.
Who knows, maybe we’re at the beginning of the new crypto currency era, when traditional instruments failed and debts is extra-huge, some new instruments should be a solution. Let’s see.
Sudden surge in demand following a supply shock will obviously pickup an inflation. And the first signals are already here: asian stocks is falling today (April, 9, 2021), after China reported a stronger than expected rise in prices that could prompt authorities to act to cool inflation.
Consumer prices in China rose in March (+0.4% compared with -0.2% in February) due to a jump in fuel prices (+12% from a year earlier), while producer prices climbed at the fastest pace in more than 4 years.
Stronger growth and economy recovery might spur inflation that central banks in many major economies would then move to cool by raising interest rates. But higher interest rates means higher costs of debts, and those we saw before the 2008 collapse had happened.
Stocks have benefited from the stimulus QE program - the S&P 500 index gained +10% since the beginning of 2021, to 4,097.17, new record high. The Dow Jones Industrial Average DJIA, gained 10% as well to 33,503.57. The tech-heavy Nasdaq Composite COMP, climbed to 13,829.31.
The stock market is in a bubble that is being fueled by the policies out of Washington. It’s hardly to say - when, actually, but the next financial crisis may be coming soon.
In the situations like that, investors want to find an alternative for diversification - cryptocurrency is one of them. And this is not a surprize: over the last decade, the highest performing asset class was not stocks, bonds, or even real estate, it was Bitcoin.
Bitcoin’s market cap of $1 trillion makes it too important to ignore. One of the most important factors driving bitcoin’s increased demand was the entrance of hedge funds and other institutional investors. As long as asset managers and companies continue to enter the market, Bitcoin prices could continue to rise.
At the beginning of 2017, bitcoin prices were below $1,000 per coin. In December of the same year, bitcoin reached nearly $20,000. Then came the fall and by February 2018, the price had dropped to $7,000. In a year only, prices surged from $4,900 in March 2020 to hit a new high of $60,000 year later.
The pre-programmed, finite supply of all bitcoins determines the value of each bitcoin.
While in many fiat currencies central banks control the supply and have been increasing it in recent years via their huge QE programs, higher supply should drive down the price of that currencies in the long run.
That is the answer one of the biggest question: Why are Bitcoin transactions and tradability so limited compare to the capitalisation? People prefer to invest, but not ti use BTC, because of its volatility.
Bitcoin is a store-of-value and safe-haven asset. In terms of total currency in circulation, Bitcoin is the third-largest in the world, after the US dollar and the euro.
But very few bitcoins change hands. Currently, Bitcoin transactions average about 0.5 billion per day, which is minuscule. This is only 0.02% of the euro and 0.009% of transactions in dollars. The average daily traded value for USD is 5.8 trillion and for the euro is 2.1 trillion. Thus, Bitcoin is comparable to the smallest currencies.
However, central banks and governments understand that Bitcoin and other cryptocurrencies are here to stay. Among central banks, 86% are researching and developing central bank digital currencies (CBDCs). The Bahamas launched the first nationwide CBDC last October, and both Sweden and China launched pilots in early 2020. In the long run, central banks are unlikely to give up their monopolies.
Who knows, maybe we’re at the beginning of the new crypto currency era, when traditional instruments failed and debts is extra-huge, some new instruments should be a solution. Let’s see.
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