Bitcoin has been weak this week. Wall Street got more moved. Medical breakthroughs and Federal Reserve inflation target announcements for this year were received with gusto. But Bitcoin didn’t react in the same way. It’s not the end of the world. The power of news and its correlation with other markets is often overrated. Bitcoin also has a life of its own. Calm down, people. Happiness rewards the patient.
Now let’s talk about the most read crypto news of the week.
Obviously the stock market is overvalued. Today’s prices do not reflect reality. In fact, this dissonance between the price and the underlying asset lasts for years. Of course, this separation was reinforced during the crisis. The real economy goes in one direction and the markets in the other. The Buffett indicator is not an accurate indicator. It doesn’t tell us the moment of collapse. But it can give us a general idea of the ratings. The point is to compare the total market value with the gross domestic product. If the market value relative to GDP rises sharply, we are facing a bubble.
Well, it’s not really difficult to spot a bubble. The difficult thing is to pinpoint the timing of its collapse. It is not easy because as long as we continue to have cheap money, prices will continue to rise. Financial and monetary policy is primarily responsible for this. As long as inflation doesn’t rise, liquidity will keep falling from the sky. In this case, the markets are the first beneficiaries. Bitcoin included.
I have to confess that the obsession of many Bitcoiners with gold has always found me curious. Bitcoin and gold are very different assets. However, many insist on presenting them as twin brothers. It’s like a Rorschach test. The psychologist pours the black ink on the paper and the patient suddenly sees what he wants. This is exactly what happens to gold in the crypto community. It’s a mania that refuses to go away. Data, history or reality don’t matter. Bitcoin and gold are always linked.
I speculate that this pathological insistence has political roots. In other words, it’s inherited from American libertarians obsessed with going back to the gold standard. The Cypherpunks and early Bitcoiners build the narrative of Bitcoin as “digital gold” against the evil system. According to this logic Bitcoin is a safe haven like gold (but better because it’s digital) and the downtrodden people will hoard Bitcoin due to the impending collapse of the dollar. So gold and bitcoin are brothers in arms because during the collapse everything will be a haven.
Over time, this narrative has become an article of faith. That is, a dogma. However, dogmas are refutable with evidence. Gold is a highly liquid and stable market. And it is used by countries as an international reserve. It is widely used to demonstrate solvency in the bond market. It is a safe haven that is considered safe because of its liquidity, stability and government support. It’s not just about being scarce. Bitcoin, on the other hand, is the opposite of gold in many ways. How do we know an asset is unsafe? Lack of liquidity, immaturity and volatility. Volatility is basically indecision. I mean there is no such thing as security. But that’s not necessarily a bad thing. Because volatility implies risk, but also higher returns. The beauty of Bitcoin lies precisely in its uncertainty.
Ironically, there is talk of an alleged correlation between spirited Bitcoin and boring gold. But a correlation is often mistaken for causality, which makes the essence more absurd. It claims delusions: Warren Buffett bought shares in a mining company. Your purchase increases the price of gold. And the rise in the price of gold will push the price of Bitcoin to $ 50,000. Even Pixar doesn’t have that kind of imagination. It’s just ridiculous.
Personally, I have never heard a successful businessman recommend collecting Fiat. In fact, everyone says it’s crazy. “Cash is Trash” today, yesterday and always. Before bitcoin and after bitcoin. The dollar is primarily a medium of exchange and a unit of account. It is not designed for accumulation. Here’s a secret. The very poor think that cash is rich. The middle class believes that an education and a good job are rich. But the rich know it’s about contacts and investments.
To say the dollar is not a good investment is like saying that the rain makes it wet. To say it once is fun. But to repeat it every day with the great revelation is idiotic. Yes, sea water is salty. Yes, fire is burning. The advantages of an investment are obvious. Buy stocks, buy goods, buy assets, buy bitcoin. It’s called investing. It’s not an invention of today.
Buyers usually buy because they think the price will eventually go up. Sellers, on the other hand, can sell for many reasons. A whale selling now isn’t necessarily a bad omen. He wants to buy something. They do business. A million possibilities. I dont know. Many whales selling are a matter of concern. But a whale using liquidity to sell, no. The truth is that he made a lot of money by waiting two years. Good for him.
Our fairy godmother is the United States Federal Reserve. And our patron saint is Jerome Powell, its director. Impulses drive the markets and raise prices. Bitcoin got on that boat, of course. And we should stop crying and raise money to build a statue for friend Jerome. Despite all the odds, Bitcoin, like everything else, took a nosedive during the crash. In the midst of the panic, people fled to the dollar and government bonds. Hurts whoever hurts. That happened.
In the midst of this cascade of invoices, anything is possible. Deflation would have eaten us alive, but liquidity is helping us grow. Right now there is more money than can be spent. Ironically, the Fed will inject more money to accelerate it. The problem is that money is not circulating. It gets stuck in the financial markets and does not reach the real economy at the desired speed. The solution? Inject more.
Of course there is a problem. Many believe that these extraordinary measures will last forever. So you’re talking about 2024 with today’s numbers, but that’s a mistake. When the tap stops, we will feel the blow. And sooner or later the faucet will stop. These are extraordinary times.