One might pontificate that the recent bullish price action in Bitcoin is because Bitcoin and other cryptocurrencies are finally starting to decouple from equities.
I don’t agree.
For the past few months, Bitcoin has been relegated to a status of just another lousy tech stock as the price movement mimicked the Nasdaq index but in a more exaggerated form.
I would argue that the decoupling moment hasn’t materialized yet and the industry needs to mature to exhibit more idiosyncratic characteristics.
Once they shake off that convenient moniker, it will allow the incremental investor to define it by its merit.
Defining it through the prism of its current strategic position relative to an entirely different industry just doesn’t make a whole lot of sense.
Bitcoin has roared back from the dead and it’s about time.
The bears can’t hold down the secular drivers underpinning the asset forever.
I believe the outperformance of late that has seen Bitcoin elevate into the mid-$40,000s is more of a result of interest rate expectations being pushed to the upper limit in the short-term and investors expecting a small reversion to the mean.
The U.S. 10-year Treasury yield is now a smidge below 2% after a pulsating move from 1.3% in the past 3 months.
The 35% move down had a funny way of distorting pretty much every asset class as consumers rushed into real estate, sold off technology stocks as fast as they could, and triggered a flight to safety.
No doubt that interest rates will most likely blow past the 2% threshold, but the reversal in bitcoin is signaling that the ensuing pace of yield appreciation will be orderly and smoother than what we just witnessed the past few months as the Fed tries to catch up.
If the Fed can wrestle back the narrative and actually do their jobs, Bitcoin is sitting pretty as we move forward.
The Fed has finally indicated they will finally act and that shakeout penalized crypto as the goalposts narrowed.
The sad fact is that in times of panic, high-risk assets are usually the first to be sold to supplement the losers or a cascade of stop-loss orders being dismantled can cause contagion that overflows into other areas.
As Bitcoin stabilizes and marks a short-term floor of $40,000, we could experience another buying wave as calm waters mean it's time to set sail aboard the crypto speed boat.
There are more green shoots occurring beneath the surface as more organizations are embracing bitcoin.
Earlier today, KPMG Canada, the Toronto-based branch of professional services firm KPMG, announced that it had purchased some Bitcoin and Ethereum.
Even more important, automaker Tesla (TSLA) revealed in a recently filed 10-K that it held almost $2 billion in bitcoin at the end of last year.
Tesla’s 10K SEC filing update was released yesterday, reaffirming notions that Tesla held onto their Bitcoin holdings amidst declines in Bitcoin’s price to the lower $30,000.
Combined with the news of KPMG Canada adding Bitcoin onto its balance sheet, encouraged a sharp rise in positive Bitcoin price sentiment.
These events mean that market confidence is coming back quickly, and people are realizing that we have finally arrived at an entry point.
These events are simply the latest sign of progress for cryptocurrencies.
On the legal front, I believe a huge source of momentum comes from Congress, with many members of the U.S. Senate speaking favorably on Bitcoin.
On Friday, Texas Sen. Ted Cruz disclosed that he invested in $50K worth of bitcoin during its dip back last month and spoke positively about Texas being the next bitcoin mining hub.
Sentiment has climbed back from the dead and we could experience short-term rapid upside price action in this highly volatile asset class.
