Noelle Acheson is a veteran of business analysis and director of research at CoinDesk. The opinions expressed in this article are those of the author.
The following article was originally published in Institutional crypto by CoinDesk, a weekly newsletter focused on institutional investment in crypto assets. Register for free here.
If there ever was a week when cryptographic stories got confused, it was last week.
Those who believe in the story of the bitcoin refuge (fewer in number per hour) have a hard time understanding the correlative slump that has lowered the price of bitcoin (BTC) even more in percentage in the last two weeks than the S&P 500 (-15% vs -12%). Gold, the “analog” counterpart of bitcoin, actually increased (4.5%).
Those who maintain it is a risky asset (increasing in number per hour) are pierced by the correlation jump between bitcoin and S&P. What happened to the talk about the importance of having an uncorrelated asset in your portfolio? (It’s true, it’s still low, but it’s no longer negative.)
While analysts and fund managers argue that bitcoin is both risky and risk-free at the same time, the greatest story of crypto unfolds beyond our markets. And it’s worth paying attention to.
The stock market bombing last week appears to have been triggered by concerns about the economic impact of supply chain disruptions and production slowdowns caused by coronavirus prevention measures. Although these factors are unlikely to have a significant impact on the fundamentals of bitcoin (regardless of the delay in the deployment of mining equipment, the protocol will continue to do its job), in times of fear, investors leave riskier assets. They also take out liquid assets, and bitcoin is probably easier to discharge than other high-risk assets such as under-traded stocks or private equity.
Supply chain impact
Beyond the markets,
disruptions will have a deeper and more lasting impact on global supply
Chains. This threat, combined with mounting tensions elsewhere, could
possibly consolidate the crypto risk status and endow it with the use case
the market was waiting.
Unless the coronavirus
spread is quickly contained, global supply chains will need to be reconfigured
to more local variations. This will most likely speed up the
unfolding (due to trade tensions and increased border controls) of globalization
a trend in the manufacturing sector which had led to a drop in costs all around.
likely higher costs for consumers because low-cost manufacturers
Asia) are replaced by less efficient or more taxed local suppliers. This
could finally produce the inflation long awaited by central bankers.
However, this inflation could manifest itself just as central banks lower rates again and flood the fresh money markets to fight the market crisis. Last week’s fall may be temporary – but it was the largest since the 2008 crisis, which, of course, sounds like an alarm.
At the same time, we have political uncertainty. The rout of the market, if it continues, could end up having a significant impact on the next American elections. One of the main drivers of Donald Trump’s support has been the strength of the S&P 500. If it were to evaporate, support could oscillate. And an increased likelihood of a win for Bernie Sanders, for example, could further scare the markets, perhaps making that victory even more likely.
Climate of uncertainty
Uncertainty in the
The United States, both economic and political, is expected to spread to other regions,
perhaps pushing countries toward populism as economies struggle and
tensions are increasing.
You see where i am
head with that? It is not towards a fog of doom and despair. It’s about growth
realization that there is an alternative. The mix of rising inflation plus
the impression of money and the growing populism should increase the world interest for
alternative asset sheltered from inflation, currency depreciation and
The likely end result,
after tragic suffering and the destruction of wealth which is never a good thing,
to be a new type of narrative, with greater clarity and acceptance, of not
mention the urgency.
Bitcoin can be a risky asset now, as the uncertain stories contained cash and limited awareness placed it in the “optional” compartment of most portfolios. But as its use case becomes even more obvious, given the macroeconomic developments that highlight the vulnerability of fiduciary finance, it could finally become the “refuge” or “necessary cover” that we talked about. This is the kind of scenario for which bitcoin was created.
Disclosure: the author holds a small amount of bitcoin and ether, and no short positions.
Disclosure Lily More
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