Luongo: Bitcoin’s Breakout Confirms a Fear Trade Is Brewing in US Dollar
It still amazes me that people don’t see how interconnected the world truly is. The moment tensions between the U.S. and Iran escalated to missiles flying, capital begins moving in ways that are very predictable if you know where to look.
Bitcoin is an asset and a market that a lot of people make the mistake of dismissing because they don’t believe in it.
Bitcoin is an asset and a market that a lot of people make the mistake of dismissing because they don’t believe in it. Their personal bias or even animus to it blinds them to the signals it gives and, therefore, they miss critical moments in a market.
The fact that Bitcoin, which was tracing a neutral to bearish pattern on the weekly chart coming into 2020, began moving higher the moment Iran’s missiles left their launchers should tell even the most ardent crypto-naysayer that something of value is happening there.
This chart was sent to me by one of my Patrons and I think it’s incredibly telling.
Note how the volume isn’t even that much higher compared to before the strike. This is important because it says quite clearly that Bitcoin went into hiding in people’s accounts. Supply dried right up as people didn’t just anticipate higher prices, but felt they may need those coins in a time of unfolding crisis.
Since that strike, Bitcoin has piled on an impressive $1,900 move higher, breaking through overhead resistance between $7,500 and $7,700. It is now ready to make a move on the $10,000 level in the coming days if momentum longs force more short covering.
Last year’s rally in gold and Bitcoin, I felt, established Bitcoin as a safe-haven asset alongside gold.
As the macro-junkie I am I cannot help but see this rally in Bitcoin as the flip-side to the political and economic turmoil happening around the world. Bitcoin has always rallied farther and faster than most rational people think possible whenever there has been a strong need for people to move money to circumvent local capital controls.
It happened in China in 2012 and 2015. It was part of what drove 2017’s bull market thanks to heavy traffic coming out of Europe.
And the timing of this rally is suspicious to me, especially in response to Trump’s slapping massive tariffs on China, threatening to sanction anyone who buys anything from Iran at all and the continued rotting of Europe’s core economy, c.f. Germany’s collapsing car sales.
All of those themes expressed in that article from May 2019 are in evidence today. Now we add in the ongoing dollar liquidity crisis necessitating daily repo market interventions by the Fed, outright monetization of nearly all short-term U.S. Treasury issuances and U.S. President Donald Trump facing an impeachment trial in the Senate.
The equity markets jump from one record high to another, gold continues to languish below its all-time high, just barely making new highs on the most dangerous moment in recent history. Silver is moribund.
And the markets are screaming at the Fed to raise interest rates. The daily pressure from the repo and bond markets may finally force the Fed to abandon targeting 1.55% for the Federal Funds rate.
This week we got a major signal on this front. FOMC Chair Jerome Powell told us he was considering letting hedge funds belly up to the Repo Window. This was a stunning admission. It means that to maintain asset prices the Fed is going to allow private investors to use the repo window. This is Long-Term Capital Management level stuff here.
That means the problems in the dollar markets are far worse than anyone in officialdom wants to admit.
And, ultimately, the Fed will have to bow to the market pressure and allow short-term rates to rise or its staring at an abyss as equity prices spiral out of control.
Remember, the Fed began raising rates previously because it didn’t want to be blamed for a stock market bubble. But now it’s openly admitting to blowing a stock market bubble. They call it “having an effect on asset prices” — but let’s cut through the Fedspeak, shall we?
Bottom line here is Bitcoin is looking both undervalued amidst geopolitical uncertainty and uncontrollable in the face of growing monetary concerns. The next crisis that is well underway will call into question the competence of the central banks.
We’re already reaching the point of no return with respect to our government leaders on all sides of the fence.
Democrats won’t accept Trump, Republicans won’t accept getting rid of him.
It’s shaping up to be a huge battle this year.
And it will only intensify from here. If you think the Democrats have gone crazy, you ain’t seen nothing yet.
And smart money gets out of the way of that and looks for options to move money around when the time comes. Next week we get major policy statements from all of the top central banks. Don’t be surprised if one of them breaks ranks, like Sweden did recently, repudiating the wholly moronic use of negative interest rates.
That will send global rates higher and prick the rally in equities. But it will likely propel both bitcoin and gold higher as the scramble for dollars intensifies.
Bitcoin is rallying because the definitions of what are and are not safe-haven assets is changing. The naysayers have it wrong. They always do in the face of disruptive technology. Between these events and the upcoming halving of Bitcoin’s block reward, we’ll likely see this rally continue.
The big question will be whether it can best last year’s high. If so, that confirms the 2019 bottom as the one for the two-year bear market and sets Bitcoin up for a challenge then of the all-time high.
• Money & Markets contributor Tom Luongo is the publisher of the Gold Goats ‘n Guns Newsletter. His work also is published at Strategic Culture Foundation, LewRockwell.com, Zerohedge and Russia Insider. A Libertarian adherent to Austrian economics, he applies those lessons to geopolitics, gold and central bank policy.