The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Relief
Bitcoin appears to have bottomed as of yesterday. The cryptocurrency hovered around 87k overnight and in the early morning before catching a strong bid around 8 AM. That rally didn’t pause until 92k, although it gave back some in the afternoon. The robust move provided a sigh of relief. Stocks didn’t react directly to Bitcoin. The S&P opened +20 and wandered around all session, closing slightly worse than its open. Treasuries wandered around today as well, climbing during the day and then falling back to early morning levels. Whatever drama the climbing rates introduced, it melted away by the close.
News was fairly unnewsworthy again. The markets bounced around on their own, perhaps with technical factors at work. One thing is clear, markets are less worried today. Is this purely a Bitcoin phenomenon? It appears so but it is not certain. The worry in the stock market is mostly two-fold currently.
The first concern is the AI investment thesis. Valuations are worrisome *if* the AI expenditures and returns fall short. This worry has always been present but over the last month, it has been more consensus. Why this is the case is unknown but the why doesn’t matter much to us. The fact is that the market is no longer resolute in its projections for the AI investment thesis. The psychological ground is shaky. Will the house fall or stand? Both outcomes are possible and investors are searching for signs.
The second concern is an *exogenous* event. That could be anything of course but in the last two months a candidate event has emerged, a large drop in Bitcoin. The linkages, between the aggregate value and risk in the cryptocurrency space and traditional markets, are unknown. When Bitcoin was climbing, nobody cared about the linkages. Now that Bitcoin is down a lot, the struggle is real. Perhaps there is no material linkage or perhaps the linkage is substantial. We won’t know until a calamity is upon us… and that is a scary too.
So returning to today, the concern about AI hasn’t changed. There’s no big positive or negative news to move the needle on that issue today. But the Bitcoin rally relieves the psychological pressure concerning that second risk.
How much longer will traditional markets be watching crypto? I don’t know. For sure we’ll be watching tonight and tomorrow though.
See you then.
-Mike
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