While some analysts are pointing to inflation fears to explain bitcoin’s recent rally, there are so many other factors at play that affect the cryptocurrency’s rise.
Neil Johnston was a creature of habit, and it was one of the things which his wife of twenty-four years Dorothy, both loved and loathed about him. While Dorothy appreciated Neil’s dependability, she was wondering if things were getting a little stale.
So naturally Dorothy grew a little worried when Neil, who would walk through the door almost like clockwork at 7 pm every evening for dinner, started to get home late from work.
“Late from work?” she thought to herself.
Neil was a man of schedule and precision.
As the quality manager at plastics molding company, Neil’s routine was more precise than a German train schedule.
Yet over the last few weeks, Neil kept coming home later and later and Dorothy started to get suspicious.
Were her worst fears coming true? Was Neil having an affair?
Try as she might, she just couldn’t get the nagging suspicion out of her head husband might be cheating on her.
So one evening, when the children were staying over at a friend’s house, she went early to Neil’s office to follow him home.
True enough, he got off work exactly on time but instead of making his way home, he boarded a bus in the opposite direction, with Dorothy following at a distance.
After a few stops, Neil got off the bus and disappeared into a dance studio.
“Dance studio?” Dorothy thought.
But instead of confronting Neil, she peeked through the window of the studio and saw a tall blonde and very attractive woman smile to greet him.
“So that’s who he’s been seeing!”
Before she could charge into the dance studio with indignation, to Dorothy’s surprise, the tall blonde started to put Neil through some warm up paces — she was teaching him to ballroom dance!
But why keep it a secret?
Dorothy, her face pressed against the glass window of the dance studio, watched as her husband practiced the Waltz, the Tango, the Foxtrot and the Bolero, and each move was taken with precision and determination.
When he was finally finished with his personal class, Neil was shocked to find his wife waiting outside for him,
“What are you doing here?” he asked, somewhat shocked.
“I should be asking you that.”
Sheepish, Neil looked at the ground,
“You’ve ruined the surprise.”
“Remember how you said when we were first dating that you wish I knew how to dance, how you wished we could maybe one day go on a glamorous cruise and dance in the ballroom. So I wanted to surprise you on our 25th wedding anniversary. I wanted to learn how to dance.”
Dorothy, by now tears welling in her eyes, reached out and kissed her husband, a long passionate kiss of the sort that the couple had not shared for a long time.
Because nothing is ever as it seems at first blush.
And often times the explanations we come up with to explain our circumstances, can be far removed from the reality of the situation.
Inflating The Price Of Bitcoin
Which is why bitcoin watchers who have witnessed the most recent surge in the dollar-price of bitcoin may have inadvertently noticed that it also coincided with a period when investors became increasingly concerned over inflation.
But are fears of inflation fueling bitcoin’s ascent?
The short answer is yes, and no.
Since the beginning of this year, bitcoin has rallied some 57%, and over 130% from its low in March, after investors digested the havoc caused by the coronavirus pandemic.
Although the computational design of bitcoin is deflationary — there can never be more than 21 million bitcoins ever created, and the rate of mining that bitcoin halves on average once every four years — that in and of itself doesn’t immediately make bitcoin a hedge against inflation.
Given bitcoin’s relatively short history — about 11 years or so — its relationship with its dominant trading pair, the dollar, has not been consistent.
To be fair, Tudor Jones termed his bitcoin investment a “great speculation,” particularly with regards to its value as a hedge against inflation.
And in many ways Tudor Jones is right.
The Great Inflation Speculation
When interest rates fall, non-yielding assets such as bitcoin typically become more attractive because the opportunity cost of leaving money, in the cryptocurrency, become lower.
And when inflation rises, the narrative that fuels demand for these non-yielding assets also gets a boost.
But where inflation really matters is as a component of expected real rates — a closely watched measure of interest rates which are adjusted for inflation.
The market’s favorite gauge of real rates are yields on the U.S. Treasury Inflation-Protected Securities or TIPS, which provide investors built-in compensation for the effects of rising price levels.
To figure out whether investors think that inflation will rise in the future or not, breakeven inflation rates — measured by the gap between nominal yields on U.S. Treasuries (bonds) and TIPS yields, serve as a proxy for future inflation.
As the U.S. Federal Reserve took unprecedented monetary and fiscal policy measures to battle the economic effects of the coronavirus pandemic, real rates fell to historic lows at a time when nascent assets like bitcoin started to appreciate dramatically.
Feeding the inflation-hedge narrative, some investors suggest that the dollar has been losing ground to assets like bitcoin this year, in part at least, because the Fed has been purchasing so much of the U.S. government’s record debt sales — potentially debasing the dollar and diminishing its allure as a haven.
But if that argument were valid, Japan, where over 70% of Japanese government debt is owned by the central bank, would have experienced runaway inflation by now, and the Japanese yen would be near worthless.
Instead, inflation has remained low in Japan, and the Japanese yen is seen as a safe haven currency in times of economic turmoil.
So is real yield all we need to forecast bitcoin’s price?
Right now the inflation story is the one that has taken over the dollar-bitcoin narrative.
Over the past four months, real rates have been observed to be correlated with bitcoin’s ascent.
When bitcoin crashed in March, it demonstrated a strong negative correlation with the dollar.
And since that time, the dollar has slid against other major currencies, while bitcoin has continued to rise.
But the correlation isn’t so simple.
Complicating the correlation between the dollar and bitcoin is that the dollar itself is affected by a slew of factors, including geopolitics, social issues, economics, health and elections.
And this year has provided a plethora of factors to upset the dollar, including, in no particular order of panic, the coronavirus pandemic, rising unemployment, racial and social unrest, law and order issues, political gridlock, economic recession and Sino-American tensions.
On any given year, America usually has to deal with one or more of these crises —but it’s never had to deal with all of them at once and at the worst possible time as well.
At a time when strong leadership is needed from Washington (and it’s not just the White House), politicians on both sides of the aisle are demonstrating just how inept the American political system has become at dealing with crises on a national level.
In the past, times of national crises have tended to unite Americans, not highlight their divides.
No such luck this time.
At the worst possible time, the current occupant of the White House is accentuating American differences, instead of focusing on what should unify the nation.
What should have been a health and safety issue — something as simple as wearing a mask — has been hijacked by ideologues to be recast as a battle for personal freedom.
But surely the right to be free from the coronavirus is a freedom as well?
And while America debates whether wearing a mask is a political statement or not, the coronavirus has completely ignored the argument and ripples through the population virtually unchecked, leaving an ocean of caskets in its wake.
Against this backdrop, policymakers have had to undertake unprecedented fiscal and monetary policy measures, essentially printing money that flows into the financial system.
But although America has never had to deal with so many crises simultaneously, its institutions have proved resilient in the past, so the jury is out on whether they will persist in the future.
And the U.S. economy is still the world’s largest.
Try as the rest of the world might, American consumption and profligacy is still the perpetual motion machine that keeps the rest of the global economy running.
Which is why the dollar hasn’t completely collapsed worthless.
It’s why Japan and Germany which have negative interest rates and a high level of sovereign debt (in the case of Japan) haven’t seen the implosion of their economies the way Zimbabwe and Venezuela have.
And it’s for that reason why the dollar won’t implode suddenly, but some are buying bitcoin, just in case.
No Easy Answers
Which is why there’s no easy answer for whether or not bitcoin’s rise is due to inflation fears.
Over the past four months and based on its correlation with real rates, bitcoin has demonstrated its value as an asset to hedge against future inflation.
But four months do not an inflation hedge make.
And while investors who doubt the dollar may move into other assets, that doesn’t necessarily mean that they’ll be moving lock stock and barrel into bitcoin either, especially not purely on the basis of inflation.
Because bitcoin is a Veblen good — which means that as its price increases, it can become even more desired — when bitcoin rallies, it excites analysts and investors, it makes headlines and generates buzz.
With everything in the world so uncertain right now, that bitcoin is rallying speaks to the investor consciousness that it is a desired and desirable asset — because it is perceived to be resilient.
It’s sort of like why the rest of the stock market rallied on the news of tech stocks delivering better than expected second quarter results in 2020 — everyone loves a winner.
And right now, bitcoin looks like a winner.
So more is written about bitcoin, more analysis is done, and more money flows in.
At times like these, the bitcoin rally can be self-perpetuating — which provides incredible opportunity, but also increases risk.
And unlike in 2017, a lot more people are paying attention in the bitcoin rally with institutional investors throwing their hat in the ring in a way not seen before — institutional bitcoin trust Grayscale saw inflows of US$1 billion, half of which were in the first three months of this year alone.
Which might help explain bitcoin’s propensity to trend upwards.
Like so many things in life, things are almost never what they appear to be, even something as simple as coming home late from work.
Former Chief Digital Officer of design house LVMH, Ian Rogers, will join the French digital asset security company – Ledger – as its first Chief Experience Officer. With this appointment, Rogers will focus on consumer interaction and user proficiency and “accelerate” Ledger’s Business to consumer development. Further, Rogers will be involved in “reinventing the user experience” of Ledger’s products, according to a release shared with AMBCrypto.
Rogers worked at LMVH from 2015 onwards and focused on e-commerce strategy at luxury brands and implemented new technologies, such as big data and AI. Headquartered in Paris, LVMH Moët Hennessy Louis Vuitton, commonly known as LVMH, is a well known French multinational corporation and conglomerate specializing in luxury goods.
Prior to his role in LVMH, Ian Rogers had held roles with brands such as Sephora. 24Sas as well as Apple Music, Beats Music and Yahoo! Music. The executive remains in an advisory role for LVMH and sits on the board of Lyst.com. However now, whilst sharing his plans with regard to his new role, Rogers said in a statement:
I remember when you couldn’t simply say ‘go to my website. You had to first explain the concept of the internet[…] I remember when you couldn’t simply send someone a link to your new song. […] I love those moments when technology moves from science fiction to mainstream. Digital assets are standing on the verge of this move[…]
In addition to this, Rogers noted the “inevitable transformation” of technology and referred to the cryptocurrency “revolution” with regard to Ledger as well as the nascent digital assets industry.
J.P. Morgan Analysts Foreshadow Further Bitcoin Declines
For context, the bitcoin (BTC) price started off last week with a significant increase, arriving at a new yearly high of $19,500 before suffering a sharp (almost 14%) drop on Nov. 26. The decline coincided with Black Friday, as BTC/USD fell at roughly the same time as the famous discount shopping day, leading many to … Continued
Bitcoin’s recent price drop has wiped away some speculative “froth” but further downtrends remain possible, according to analysts at JPMorgan Chase.
For context, the bitcoin (BTC) price started off last week with a significant increase, arriving at a new yearly high of $19,500 before suffering a sharp (almost 14%) drop on Nov. 26.
The decline coincided with Black Friday, as BTC/USD fell at roughly the same time as the famous discount shopping day, leading many to note the comparison.
According to an article in Bloomberg, the primary causes of the slump were profit-taking, concern about new regulations, and the unwinding of Bitcoin futures. Since then, the price has recovered from the mini-crash and has been moving upwards again.
Per BeInCrypto analysis, the increase is likely a retracement rather than the beginning of a new upward trend.
Although bitcoin has bounced back from precipitous price losses during the Thanksgiving holiday, analysts from JPMorgan Chase also forecasted further declines.
As cited in Bloomberg, Nikolaos Panigirtzoglou, Managing Director at J.P. Morgan, said, “momentum traders have room to further propagate” [a bitcoin price decline].
The Importance of Grayscale
Panigirtzoglou also highlighted Grayscale, and its sizable Bitcoin Trust, as playing a central role in future BTC price developments.
The cryptocurrency asset management company has long been important because it’s said to be favored by institutional investors wanting to get exposure to bitcoin (and other digital assets).
Grayscale has added significantly to its crypto holdings since the start of 2020. After an eleven months filled with ever higher prices, as of November 27, Grayscale’s assets under management (AUM) have risen to yet another all-time high.
The interest (or lack thereof) towards the Grayscale bitcoin trust in the coming months will be a key signal as to whether there indeed is strong institutional interest in BTC.
As the JPM analysts put it,
“a failure by the Grayscale Bitcoin Trust to receive additional inflows over the coming weeks would also cast doubt to the idea that institutional investors such as family offices have embarked on a trend of embracing Bitcoin as digital gold replacing traditional gold as a long-term investment.”
While this may be true, bitcoin is still up more than 150% on the year. Many Bitcoin advocates will feel vindicated by this and point to the need for additional inflation hedge assets during the pandemic as fuel for further gains.
Colin is a writer, researcher, and content marketer with a keen interest in the future of money. His writing has been featured in numerous cryptocurrency publications, and his holdings don’t amount to more than a handful of BAT.
Chainlink (LINK) Falls Putting Bullish Structure In Doubt
If the price were to break down from the longer-term channel, it would likely confirm that the trend is bearish and the price is heading lower. LINK Long-Term Rejection During the week of Nov. 23-30, the LINK price created a small-bodied bearish candlestick with wicks on each side. The price failed to reach a … Continued
The Chainlink (LINK) price has broken down from a short-term parallel ascending channel but is still trading inside a longer-term channel.
If the price were to break down from the longer-term channel, it would likely confirm that the trend is bearish and the price is heading lower.
LINK Long-Term Rejection
During the week of Nov. 23-30, the LINK price created a small-bodied bearish candlestick with wicks on each side. The price failed to reach a close above the previous support area at $14 and instead created a long upper wick and fell back to validate the area as resistance.
Even though the RSI is above 50 and the MACD is above 0, the Stochastic oscillator has made a bearish cross. This is a sign that the long-term trend might be bearish, especially if LINK fails to reclaim the $14 area.
LINK Resumes Channel Trading
The LINK price has been increasing since reaching a low of $7.22 on Sept. 23. The upward movement culminated with a high of $17.30 on Nov. 24.
While the increase was substantial, the price was rejected by the 0.618 Fib retracement level of the entire decrease and fell sharply afterward.
While the LINK price initially broke out from the level, it failed to reach a close above it and created a long upper wick instead. In addition, the movement since making the lows has been perfectly contained within a parallel ascending channel, indicating that it is likely a corrective movement.
At the time of press, LINK was facing resistance from the middle of the channel.
Technical indicators provide mixed signals:
For the bullish case, there is a hidden bullish divergence in the RSI, which is above 50.
For the bearish case, both the MACD & Stochastic oscillator are decreasing.
However, the Stochastic oscillator has not yet made a bearish cross, nor is the MACD negative.
A breakdown from the aforementioned parallel channel would likely cause both of these events to occur and confirm that the trend is bearish.
Cryptocurrency trader @CryptoTony_ stated that the current price level of $14 will be a major determining factor for the direction of LINK’s trend.
The level is the middle of the channel we have outlined, increasing its significance.
A closer look at the price movement shows that LINK has already broken down from a shorter-term parallel ascending channel and is currently in the process of being rejected from its support line.
The current price level is the:
0.618 Fib retracement of the most recent decrease.
The middle of a long-term parallel channel.
The support line of a short-term parallel channel.
A rejection could cause a drop all the way to the $9.90 support area.
Measuring from the $20.11 high reached on Aug. 16, LINK seems to be trading in the C wave of an A-B-C corrective structure (shown in orange below). The sub-wave count is shown in black.
If the count is accurate, LINK is nearing the completion of its second sub-wave, after which a sharp drop will likely follow. In the most bearish scenario, the entire downward move would take LINK back to the range of $5-$5.26.
An increase above the B wave high of $16.39 (red line) would invalidate this particular wave count.
LINK is trading at a crucial resistance level, which is expected to reject the price and initiate a downward move.
Successfully reclaiming the $14 area would put the bearish outlook in doubt.
Disclaimer: Cryptocurrency trading carries a high level of risk and may not be suitable for all investors. The views expressed in this article do not reflect those of BeInCrypto
Valdrin is a cryptocurrency enthusiast and financial trader. After obtaining a masters degree in Financial Markets at the Barcelona Graduate School of Economics he began working at the Ministry of Economic Development in his native country of Kosovo.
In 2019, he decided to focus full-time on cryptocurrencies and trading.
Yearn Finance Continues Growing with Latest DeFi Acquisitions
Decentralized finance (DeFi) protocol Yearn has had an eventful week of new mergers, acquisitions, and further tweaks to its farming strategies. Yearn Finance has been expanding its reach in the DeFi ecosystem by absorbing a number of smaller protocols, the latest of which being Cover, a market coverage provider. In the announcement, founder Andre Cronje … Continued
Decentralized finance (DeFi) protocol Yearn has had an eventful week of new mergers, acquisitions, and further tweaks to its farming strategies.
Yearn Finance has been expanding its reach in the DeFi ecosystem by absorbing a number of smaller protocols, the latest of which being Cover, a market coverage provider.
In the announcement, founder Andre Cronje stated that it was a natural collaboration since Yearn developers have been working with Cover Protocol coders since its inception. Cover will be providing a wider range of coverage and accepting more types of collateral in addition to making its native CLAIM token a borrowable asset.
Cover will also be used as a provider for other DeFi protocols, allowing communities and developers to create their own coverage ecosystems with no additional overhead, the blog post added.
“This is an exciting new development for us as we have been evaluating how to incorporate a lending platform natively into our ecosystem, and also find a suitable partner to help us launch StableCredit.”
Governance token lending platform PowerPool integrated Yearn’s native YFI token last week. The protocol oversees the PowerIndex, a decentralized ETF consisting of eight governance tokens.
The mergers have generally been seen as a good thing for the DeFi sector though some have questioned the lack of governance voting for such large decisions;
It appears that Yearn is also amassing resources in terms of developers that come with these new partnerships:
“Yearn is a yield-aggregator and relies on composability of many different protocols within DeFi on the Ethereum blockchain. This translates to a developer community that encourages collaboration between other developers and protocols in order to create new, innovative technology.”
YFI Price Outlook
Yearn’s native YFI token is up almost 6% on the day as crypto markets recover from a weekend attack of the bears.
Trading at just over $26,000, YFI prices have over doubled in November as the token leads a DeFi recovery. In terms of total value locked, Yearn Finance has $445 million which places the protocol at tenth in the TVL list according to DeFi Pulse.
Collateral on the platform has fallen to half of what it was in early September, however.
Martin has been writing on cyber security and infotech for two decades. He has previous trading experience and has been actively covering the blockchain and crypto industry since 2017.