As investors and traders were winding down for Christmas eve, taking some much needed time off, little did they know that as Santa commenced on his North Pole journey, Bitcoin commenced on its own journey to the outer stratosphere! All the eggnog and tryptophan ingested was enough to stir the nausea already from looking at a parabolic chart on the morning after, as Bitcoin moved from $23000 to heights of $28000 in a matter of a day ~ +22%! That would be most Hedge Funds performance for the entire year! So, what caused this rally over the quiet Xxmas period?
After first suggesting that he would not pass the $900 billion Covid Relief Bill which had more miscellaneous items to foreign countries than actual assistance to the American people, President Trump decided to sign the bill which got the market excited as a sign of more debt and dollar debasement. Bitcoin has been on an upward trajectory for its own secular story as supply is limited to 21 million coins and demand is rising at a rapid rate. Before it was an asset dabbled by gamblers and day traders, but the investor type is getting more and more sophisticated as the story unfolds. Institutions and Hedge Funds are now allocating part of their funds towards this asset. A 0.5% may be puny in some respects compared to their other positions, but in the world of Bitcoin, whose market cap is about $350 billion, this can be a game changer.
Vaccine or not, the global economy is far from improving. When we say global economy we mean the actually economy not the stock markets. If the latter was the case, then QE would have been gone a long time ago. Central banks are nowhere close to easing their foot off the pedal, nor normalizing their bloated balance sheets. There is so much debt in the system, the only way to get rid of it all is to inflate it away. Hence the store of value moves to another asset class, other than Fiat currency. China has been lining all its ducks in a row in order to be able to launch its own central bank digital currency, perhaps even next year! This will certainly be a game changer as this means more monetary control internationally and domestically. Also, less need for dollars as their medium of exchange will be their own version of CBDC yuan. Other Western central banks have also been suggesting this with the Fed now openly acknowledging they were looking into digital currencies. Hence, Bitcoin is here to stay for now. Regulation can be an issue, no doubt, which is why it is possible to see Bitcoin open down 30%+ on any given day, but it does not take away from its secular growth story. Also, it is too "little" for the central banks to take notice of it today, but as more and more institutions own it, it means they will be less inclined to do so.
Gold and silver are the much shier brethren of Bitcoin. They share the overall top down macro themes of dollar debasement and inflation a near certainty in the system. What central banks did not manage to do over the past decade they may just accomplish it this time around. And why not with the U.S. central bank having printed about $4 trillion in a few months what took decades to do before. However, what is still up for debate is that they might get the inflation but may not manage to get the desired growth.
Gold and silver have been consolidating over the past few months especially since the U.S. elections post vaccine related recovery unwind. Despite all the market shenanigans and most being obsessed with chasing 100%+ returns, they have forgotten about the more "boring" asset classes. The physical market during this entire time has been extremely tight as physical silver has been trading at a 30%-70% premium in some places. It is only a matter of time before the paper market catches up to the physical market.
Investing in Bitcoin is a seriously volatile proposition. Right as it may be, it requires a completely different risk management approach. Gold and silver are more mature asset classes with both physical and financial use and the chances of it opening down 50%+ on any given morning are rare compared to Bitcoin. Investors need to size their asset allocations according to their risk metrics, but it does not mean boring ones should be ignored from the portfolio altogether. It may require more patience than the new generation of traders that are used to seeing 100x returns in a day, but it is only a matter of when, not if, these sleeping giants shall awaken from their deep slumber.