Posted 7 months ago | by Ben Armstrong
A Few Days isn't a Trend – But Things may be Changing in the Markets
The massive risk-on rally that started earlier this year as central banks pumped loads of EZ money into the markets might be on the edge of a collapse. While crypto did participate in this rally – it looks as though tokens may be trading along side of other alternative assets – like gold.
To be sure – tokens didn't get the same level of interest that other 'risk' assets did – as is shown by the Bitcoin and NASDAQ charts below. While Bitcoin did recover from the spring selloff – it failed to rally as hard as tech equities – which are really just a small number of mega-cap tech companies.
While Bitcoin did recover – it wasn't able to post record highs like the NASDAQ. In fact, ETH posted better performance coming off the spring selloff, and it has been hit harder than Bitcoin in recent weeks.
While some in the crypto community were disappointed that Bitcoin seemed to be left behind by the summer rally, the lack of a big move up could be a great thing for Bitcoin as an asset class. Major investors don't necessary want to hold assets that have loads of volatility, which also means sharp upward movements.
Bitcoin is Coming Into its Own as an Asset Class
One thing that we did see during 2020 is a rotation into Bitcoin as a means of savings by non-crypto companies who are looking for protection from the extraordinary monetary conditions that have manifested in the markets this year.
Microstrategy, a publicly listed company in the US, bought $250mln in Bitcoin over the summer, as the investment strategy firm sees Bitcoin (not necessarily altcoins) as being superior to fiat currency. It isn't hard to understand why this shift is happening – or why more major investors could prefer to hold actual Bitcoin as opposed to derivatives.
The CEO of Microstrategy, Michael J. Saylor commented after the Bitcoin buy,
“This investment reflects our belief that bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash...Microstrategy has recognized bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made bitcoin the principal holding in its treasury reserve strategy.”
A New Store of Value
As the NASDAQ (and other risk assets) have hit what looks to be a near-term top, crypto appears to be trading as a different asset class. Bitcoin appears to be steady above the $10,000 level – although given the lack of a central liquidity provider in the token markets, anything can happen – even gold gets hammered on when there is a rush to liquidity.
However, Bitcoin does appear to be shifting gears, and broadening its appeal to a much wider market. The idea that an established strategy fund would sink all its working cash into Bitcoin in 2016 was preposterous – and today it makes a lot more sense.
As lot of this has to do with what crypto is doing right – but a huge influence is what central banks are doing wrong. In a world where the social fabric is fraying – and monetary systems are all but planned – crypto makes a lot of sense for any person or group that wants to know that the next wild move by a government or central bank won't leave them holding the bag.
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