The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Risk jitters
Bitcoin fell hard last night and traditional capital markets took note. The Bank of Japan hinted that they might hike rates in December, a notably hawkish turn. This pushed investors further towards risk-off actions. The Fed Funds market is now pricing a 25-bip cut on Dec 10th with 96% certainty but the long end of the Treasury curve rose significantly. The new narrative is that Trump will get his wish of a dovish Fed but the market will price in future inflation and send the back end of the curve higher, a decidedly bad outcome for markets. Among the doom and gloom, dip-buyers still showed up, catching the S&P twice in the morning and repairing almost all the damage by the afternoon. Interestingly, the buyers of the S&P 500 appear to have acted around the same time as the buyers of Bitcoin.
The headlines today didn’t blare out accounts of a significantly changed world. Bitcoin, the poster boy of risk-taking, continues to suffer. The currency is down 32% from the high in early October. If you look at the chart, it’s looking scary. Who knows whether the traditional bullish and bearish interpretations of charts and markets apply to a novel asset like cryptocurrency… but regardless, it sure looks like Bitcoin is in a bear market. There *should* be support in the 80k to 74k range. That’s the good news. But that support is still 7-15% lower than present prices! And if the support breaks, hoo-boy, things could get mighty ugly. 60k might be the next stop.
Bitcoin only matters to stocks and bonds *if* it affects traditional markets psychologically. The amount of leverage to the long side there is unknown but frequently whispered about as huge. If that unwinds, the worry is that players with feet in both worlds will also have to liquidate traditional capital market holdings. It’s a valid concern. Sadly, we just don’t know the size of the market linkages. We’re all going to find out together, and that’s a bit scary.
For the usual dip-buyers, a Bitcoin-inspired market selloff will be yet another opportunity. A vaporization of Bitcoin value doesn’t appear to have real-world economic implications, just short-term capital market ones. I hope the dip-buyers have enough capital just in case. They hold this tape up and they prevent slightly scary events from becoming very scary ones.
For the moment, I think likely capital market volatility will be crypto-driven and exploitable. Just watch the headlines. If some big players show up in the press as going under because of their huge Bitcoin losses, that could start some panic.
See you tomorrow.
-Mike
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