Did Cryptocurrencies “Win” the Trade War?
Long time readers of Markonomics101 know that No One Wins a Trade War. “Can Anyone Win a Trade War?”. (https://markonomics101.com/2018/07/09/can-anyone-win-a-trade-war/).
Trade Wars do have winners, however. Most notably are the industries and workers in sectors most threatened by lower cost foreign competition.
Traditionally, the imposition of Tariffs was used to protect heavily unionized industries from their non union overseas competitors.
Trade tariffs, like sanctions or any kind of taxes whatsoever, invite cheating. In order to be successful, cheating requires anonymity. Enter Cryptos!
Large Capitalization Cryptocurrencies See Surge In Demand
The rally in Cryptocurrencies would come as NO SURPRISE, if you have been keeping up with Markonomics101. Just days before the rally began in earnest, we noted the very favorable chart patterns which had been developing. “Cryptocurrency Sector Ready to Rally Despite Reports of Fake Bitcoin Volume”. (https://markonomics101.com/2019/03/31/cryptocurrency-sector-ready-to-rally-despite-reports-of-fake-bitcoin-volume/).
A slide show of the updated charts of the major currencies are below. Some key takeaways are as follows:
- Bitcoin has already blasted through its first target and resistance at $6,100 and just reached its next resistance level at $8,500. It is severely overextended at the very least. Bitcoin now represents nearly 60% of the value of the entire market. This is up from 50% just a few weeks ago.
- Ripple, which has lagged the market badly until very recently, finally broke out of a Triangle at 32 cents. Its next upside target and resistance is 60 cents.
- Ethereum has also lagged the rest of the market substantially but has recently broken out from an ASCENDING WEDGE to its target resistance of $250.
- Bitcoin Cash (BCH) and Litecoin (LTC) have been superior performers, with early breakouts. BCH has reached its target resistance of $400 and Litecoin has reached its target of $100.
The temptation to conclude that Cryptocurrencies are ready to re-assert themselves as some sort of valuable asset class has overwhelmed enthusiasts. Projections for Bitcoin $100,000 have sprung up again. (https://www.ccn.com/max-keiser-feds-endless-printing-press-will-launch-bitcoin-to-100000).
Or, Are Cryptocurrencies Now “Flight” Capital?
Another casualty of the US/China Trade struggles has been China’s currency, the Yuan. It has fallen against the USD for a record 12 straight days as prospects for normalized trade have evaporated. This has led to speculation that Bitcoin has become a “temporary store of wealth” for rich Chinese to secretly move their capital to safer pastures.
This explanation DOES make sense. Coincidentally, Bitcoin bottomed when the situation in Venezuela began to noticeably deteriorate and their currency became effectively worthless. Chinese Capital, many times that of Venezuela, could drive crypto valuations substantially higher. But, the conversion to Bitcoin will eventually need to be unwound. This makes the recent spike VERY, VERY SUSPECT and prone to a nasty and violent reversal.
Gold, or even Dollars, make nice flight assets too, but Bitcoin actually DOES have some distinct advantages. Physical Gold can’t be wired and is quite heavy. $1 Billion of Gold weighs 25 tons! Dollars have to wired and that leaves PAPER TRAILS. Bitcoin is swift, easy, can absorb tremendous sums of capital, and is basically anonymous.
There is circumstantial evidence to support this idea. Bitcoin is the MOST liquid cryptocurrency with a market capitalization of nearly $150 Billion. Bitcoin has SUBSTANTIALLY outperformed the rest of the cryptocurrency market. It now represents 60% of the market, up from about 50% a few weeks ago. This is the EXACT OPPOSITE of what has been experienced historically. Typically, during overall market rallies, Bitcoin’s proportion of the market has FALLEN as more speculative alt-coins have performed relatively better. That Bitcoin is larger and appreciated more is indicative that various parties have needed to park a lot of capital.
Don’t Be Fooled
NOTHING has changed to make Cryptocurrencies suddenly much more valuable. But, that said, there is NO reason they can’t head even higher. If the Federal Reserves manages to re-ignite an asset bubble, and with it, stoke inflation, a mighty resurgence of the Cryptocurrency Sector is very plausible. “Federal Reserve Stokes Another Asset Bubble”. (https://markonomics101.com/2019/03/22/federal-reserve-stokes-another-asset-bubble/).
And don’t be fooled by the never ending scams which continue to plague the sector. The latest scam is an email claiming to have infected the recipient’s computer from visiting a pornographic site. The email claims the blackmailer has taped the user masturbating and demands payment in Bitcoin or the embarrassing footage will be placed on social media. The email is clearly bogus and a form letter, yet reports are the “sextortionists” have received $1 million from their hapless victims. (https://www.ccn.com/embarrassed-wankers-cough-up-1-million-in-bitcoin-to-sextortinists).
Take Your Money Off The Table, Before the Table Takes Your Money Off You
If you followed the charts and are now sitting on a nice profit, the prudent thing to do is to take those profits. The possibility is high the hysteria which drove Bitcoin up 50% in just a few days has passed. Whether this move is temporary or not, the risk/reward ratio is no longer as favorable as it was a few weeks ago when the charts told us something interesting was brewing.
Bitcoin STILL has NO assets, NO patents, NO technology, NO shares, NO profits, NO dividends, and 25% of them end up stolen or lost. Buyers of Bitcoin have to count on subsequent buyers who have nothing but “blind faith” that yet another buyer will show up and not care that they are paying thousands or even millions for computer code.
Be Informed, Not Misled!