There’s something about the timing of this Bitcoin rally that should have your attention. It’s happening in the wake of President Trump’s big push to remake the world economy along his lines.
It’s also happening as central banks stand exposed as having no answers for the continued deflation and collapse of money velocity a decade of QE and zero-bound (or negative) interest rates were supposed to cure.
Trump’s Trade and Tariff War will not solve this. He won’t address the real problems but rather blame China. And now he’s putting upward pressure on Bitcoin while the yuan is under serious pressure.
The Dow’s Volatility Since Trump Opened his Trade War has Doubled
Bitcoin, on the other hand, doesn’t have deep pools of liquidity. As I talked about in my weekly article for Money and Markets,
The signs are everywhere that a dollar short squeeze is only just barely being held in check right now. And Bitcoin will respond positively to seeing its meager liquidity overwhelmed by people trying to avoid a big fall in their local currency.
For all of the hype about the size of Bitcoin’s “market cap,” this still remains an incredibly illiquid market. Most coins are simply not for sale. A lot of these well-designed alt-coins don’t have a lot of available supply for trading.
In some ways it makes Bitcoin the biggest penny stock in the world. Couple that with the fact that you don’t need a full “share” to trade it but can trade fractional bits of coins means that the supply of buyers in a rally can easily overwhelm the supply of available coins.
It doesn’t take a lot of money to move the Bitcoin market $1000, especially during the early stages of a massive bout of capital flight due to an incipient short squeeze in the U.S. dollar.
Every time Trump tweets anymore Bitcoin jumps $200.
But the real question is why Bitcoin and not something else, like gold? Bitcoin is rallying hard while gold languishes at $1300.
Because Bitcoin, though similar to gold, performs a different market function than gold. It and other alt-coins are the last mostly unregulated assets that can move freely around the world.
Gold isn’t. In fact, gold is highly regulated through the use of futures, ETFs, etc. That has been the plan for Bitcoin from the beginning, to create paper bitcoins that exert powerful downward pressure on the price through the creation of synthetic supply.
Moreover, digital gold can move freely but that is a pittance compared to the total gold market. It’s also cumbersome and expensive, period. You cannot compare moving money via Bitcoin for, at most, 1-2% versus moving in and out of gold.
Then compare that to something like DASH or even Litecoin and you’re looking at negligible costs.
And still, then, all gold accounts are KYC and AML compliant. Those still wanting any amount of financial privacy have bitcoin and other cryptocurrencies as alternatives.
Gold today, unfortunately, only helps protect those that don’t want to move physically but still see a real problem on the horizon. They can hedge their currency bets while not blowing up their entire life.
And gold will have its day once the central banks are fully exposed as frauds and need a bailout themselves. But I’m mostly convinced cryptocurrencies will perform better in the long run because they can be used as a smooth substitute for national currencies.
The rising Bitcoin and Gold price are proof that the national currencies like the U.S. dollar, Chinese yuan and euro are struggling with massive debt obligations dragging them down.
Why else would ECB president Mario Draghi be out there saying “a euro is a euro.”
— European Central Bank (@ecb) May 8, 2019
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