Bitcoin rallied back to $4k from recent lows and crypto followed as stock markets around the world continue to fall into a state of decline.
While the two facts aren’t necessarily related (consider btc has been in a bear market longer, was more oversold, and charts showed some positive indicators, while stocks seem to be reacting to a string of FUD and bearish charts), it is none-the-less notable.
In theory and on paper crypto is arguably supposed to act as a hedge against bubbles in classical markets affected by speculators + the monetary and fiscal policy of bankers and states.
In words, Bitcoin is meant to be the peoples’ money of the internet, deflationary and ruled by code, as opposed to some inflatable widget of bureaucrats and bankers who can print money at will.
i.e. that is at least one ideal promised long before excited speculators started promising each other lambos… it isn’t the whole story.
Anyway, point being, at a time when markets are panicking over Brexit, US rate hikes, tensions, and trade wars, and in a time when Bank stocks, industrials, big tech, and major indexes are looking like sad altcoins, it is encouraging to see crypto rally in response.
In the last cycle, in 2016 – 2017, both stocks and crypto were in full on bull mode, it was Trump pumps and lambo dreams for days.
In the second half of 2018 both stocks and cryptos have been mostly bearish, but in general the stock market looked more like the playground of the wise while crypto markets looked suitable only for speculators set on shorting.
However, in this moment in time, things are a little less grim for crypto and much more grim for stocks.
At the moment crypto is acting as a hedge against a stock market looking like it might be, all fundamentals and merits aside, suited only for speculators shorting.
This is, from that one perspective, a nice sign for crypto.
With that said, there are some important side notes:
- Stock markets (i.e. equities markets, and the price of goods like oil, corn, and gold, etc) aren’t the same as Forex markets and bond markets. The reality is the US dollar is strong, interest rates are going up, and thus bonds aren’t in bad shape. Meanwhile, US job growth and economic growth is there. The US is hardly collapsing. Although I hope we never get to test this out, the ultimate power move of crypto would be to act not as a hedge against Netflix and oil, but as a hedge against a tanking USD or Euro.
- Just as often if not more often in the past, crypto and stocks have correlated. Crypto seems to take on different moods, it certainly hasn’t always acted like a hedge, it likely won’t always act like a hedge moving forward.
- When the world’s stock markets collapse it ruins many of the earth’s 7 billion plus lives (even more would be ruined if dollars collapsed… and we can see this in states where dollars do collapse). It is not funny or cute in my opinion to watch declines in stock markets. Wild speculation in crypto that results in a bubble pop makes some of us nerds, fools, and gamblers sad and makes good headlines, wild speculation in EVERYTHING markets is bound to leave a wake of destruction.
- Although crypto wasn’t built only as a hedge per say (it was a technology in the works anyway) Satoshi did align the launch of Bitcoin with the 2007 – 2010 financial crisis and denote such in the notes of the Bitcoin Genesis block. This matters because it speaks both to the happy fact that crypto is currently acting as a hedge, and also speaks to the severity and grimness of financial collapse and the hands speculators and states.
All that said… In my opinion the chances that the stock markets going into great depression mode while crypto goes straight to the moon are probably near zero.
The moral of the story: In this moment in time it is interesting to see the correlation with stocks and crypto… but in both markets a sound strategy devoid of emotion trumps overreacting to FUD and FOMO. Markets rarely move in straight lines and moods change.