Wednesday's Market Minute: Bitcoin Looks Poised For Another Big Drop
One of the most important debates around crypto is whether investors should think of bitcoin as a “safe-haven” asset like gold and bonds. It kinda looks like it’s trading like one this year, and it sure as heck traded like one last year, rallying in unison with bonds and gold during the Great Paranoia Trade of 2019.
There’s no perfect answer, but putting the massive speculative bubble aside, bitcoin’s overall trends look quite similar to bonds over the last year. But bitcoin is best thought of as a *subset* of traditional safe-haven assets. Because bitcoin is viewed by enough of its investor base as a way to bet on excessive central bank activity that will one day undermine the value of fiat currencies, it moves in relation to expectations of central bank activity. It has rallied when things look rough out there, because right now, the market equates uncertainty to central bank activity.
Fed cuts also support bond bulls and gold bulls. This is why bitcoin has been trending lower since the summer of last year as trade deals came to fruition, the Fed was able to pause its cut cycle, and the global economy turned toward stability. Bonds and gold followed, until this year’s concerns sent Fed cut odds spiking again. But bitcoin doesn’t have the same track record as gold, and bonds attract buyers for all kinds of reasons. Bitcoin has the most to prove, the biggest hype to live up to, and right now, it’s looking weary.
Gold broke out to a new seven-year high this year, bonds are the highest since October, but bitcoin is struggling to break 10,000. Overhead pressure from bubble-buyers and whales likely remains, and unless the economic impact of the coronavirus gets worse, the odds of a rate-cut will likely revert lower, and the trend lower in king crypto will resume. If that happens, expect bitcoin to be the ugliest haven trade to the downside.
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