Bitcoin’s Rally Exposes Central Bank Weakness
Bitcoin’s Rally Exposes Central Bank Weakness by Tom Luongo for Gold, Goats and Guns
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.
Because while Trump is out tweeting this morning about how bad it will be for China, he’s also moving to label anyone with a trade surplus with the U.S. a ‘currency manipulator.’
So, there is no escaping Trump’s ignorance on trade. And now he’s trapped.
So much for “trade wars are easy to win.”
Now that the trade war is in full flower because Trump doesn’t get basic economics things will get worse from here.
The major capital markets stare on in disbelief, hoping for a last minute miracle in China trade talks. They’ve priced in Trump folding at the last minute and he hasn’t done so. The big markets resist big moves because of both deep liquidity pools and investor normalcy bias.
And, even then, volatility in the Dow Jones Industrials has more than doubled since the beginning of 2018 versus the previous two years, as I discussed in a post recently.
Last week’s 1000 point range in the Dow Jones wasn’t even a 2-sigma event over the past seventeen months since Trump began his “Easy” war to win.
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.