Weekly Market Pulse: The Crypto Distraction

It was hard not to hear about cryptocurrencies last week what with the bear market and all. Actually, you can make the case that bitcoin has had two bear markets since mid-April. There was a 27% decline followed by a 27% rally, followed by last week’s rout. From its intraday peak in April to its intraday low last week, bitcoin fell over 53%. Is that the end of the sell off? Anyone who tells you they know anything about where this goes from here is either lying to you or to themselves. Given the number of scams in crypto land the former is highly likely. Given the quality of the “analysis” in crypto so is the latter.

I got an email from a young reader this weekend asking if this was the crypto crash I wrote about a few weeks ago. What I wrote then was that I would treat crypto just like every other bubble type asset I’ve witnessed in my three decades of watching markets. I will wait for the crash and pick through the debris to find the survivors. Is this that crash? Not even close, my young friend. As I’ve said before I think there will be many applications for blockchain – smart contracts if you will – but most of them will be mundane, mere replacements of non-digital processes of today. Still, those changes could have a profound impact on productivity and economic growth. But the idea that bitcoin or some other cryptocurrency is going to replace the dollar (or Yen or Euro)? Yeah, I don’t think so and China just showed you why. Entities with power don’t give it up easily.

But enough about that. What’s going on in the crypto space is a distraction for everyone except the people who have money at risk there. There were some potentially important developments in markets last week and none of them had anything to do with bitcoin. Doubts about the post-virus boom scenario that has dominated markets since November are creeping into markets. Nominal bond yields have stalled since mid-March while real yields have continued to fall. The result is that inflation expectations have been rising while real growth expectations have been falling. Copper made an all time high a couple of weeks ago and commodities in general have been on fire and commodity stocks too. Materials and energy stocks are two of the biggest winners year to date and over the last year. 

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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