First Mover: Stimulus Bet Wins Even as Bitcoin Slips Below $18K

Bitcoin (BTC) was lower for a second day, slipping below $18,000 to the lowest in almost two weeks. 

“The momentum that characterized bitcoin throughout October and November seems to have cooled down,” Matt Blom, head of sales and trading for the cryptocurrency-focused financial firm Diginex, told clients Friday in a note. “Prices retrace even in light of positive news.” 

In traditional markets, European shares fell as Germany reported record virus cases and deaths, and U.S. stock futures pointed to a lower open amid fading optimism over stimulus talks in Washington. Gold weakened 0.1% to $1,834 an ounce. 

Market moves

If everyone says bitcoin is a hedge against central bank money printing, does that make it a hedge against central bank money printing?  

It looks that way. Or at least that’s one interpretation of recent news developments and market signals. 

Government-issued currencies like U.S. dollars are accepted as a form of payment because the government decrees they be so. Such tenders are often referred to as “fiat” currencies, from the Latin “It shall be.” 

Bitcoin was invented 11 years ago as a new form of electronic peer-to-peer payment built atop a blockchain network that no single government, company or person would control. But it’s the limits on the cryptocurrency’s supply, hard-coded into the underlying network programming, that have garnered so much attention recently from big investors: Only 21 million bitcoin can ever be created, a true stumper for monetary economists or analysts accustomed to the supply and demand calculations typically applied to commodity markets from gold to oil to cocoa to pork bellies.

As governments and affiliated central banks have created trillions of dollars of fresh money this year to combat the steep economic toll of the coronavirus, more big institutional investors are deciding that bitcoin will hold its value as fiat currencies become ever more abundant. 

Take the latest announcement from MassMutual, a U.S. life insurance company with $567 billion of assets under management as of Dec. 31. As reported by CoinDesk’s Danny Nelson, the insurance company said Thursday it would take a 5% equity stake in the cryptocurrency investment firm NYDIG while buying $100 million of bitcoin for a general investment account. 

“There is nothing surprising to me about MassMutual leading their industry yet again by both seeing and acting on the long-term value of the bitcoin monetary risk premium for their policyowners,” NYDIG Executive Chairman Ross Stevens said in a press release posted on the insurance company’s website. 

Notice that term: “monetary risk premium” – the idea that bitcoin will protect investors against the risk that monetary authorities just keep printing more money. It’s the linchpin of the entire announcement. 

“As we’ve seen throughout the last few weeks, the level of institutional involvement in this tiny market is growing at a very rapid pace, and it will only continue to grow from here,” Mati Greenspan, founder of the foreign-exchange and cryptocurrency-analysis firm Quantum Economics, wrote Thursday in a newsletter. 

One takeaway is that perception might be turning into reality. If enough smart, powerful people with deep pockets decide bitcoin is a hedge against the risk of monetary easing, then fiat: It shall be. 

Thursday brought the news the European Central Bank, led by President Christine Lagarde, would expand a pandemic-related asset-purchasing program by €500 billion (US$607 billion) to €1.85 trillion. It’s the European version of quantitative easing, where central banks pump money into markets to boost asset prices and stimulate economic growth. The ECB already has cut one of its key lending rates to negative levels, so the extra stimulus pushes monetary policy stance to an unprecedented level of looseness.   

“The overall policy stance is expected to remain very accommodative,” Claus Vistesen, chief eurozone economist for the forecasting firm Pantheon, told clients Thursday in a note. “This includes persistent QE, in some form or the other, and negative rates for as far as the eye can see.”

There’s also been a lot of discussion in foreign-exchange circles of a decline in the dollar’s value versus the euro, or rather the European currency’s 8.2% appreciation this year versus the dollar to $1.21.

Less often quoted is bitcoin’s price denominated in euros, which has climbed an also-dramatic 136% to €15,099. 

Such gains might play into the perception that bitcoin is an as-good hedge against debasement of euros as it is against other the dollar. Or perhaps other currencies as well, if big investors keep buying into the premise.  

– Bradley Keoun

Bitcoin Watch

Bitcoin was losing ground Friday amid a risk-off mood in traditional markets.

The top cryptocurrency by market value is trading near $17,700 at press time, representing a more than a 3% drop on the day. Meanwhile, major European stock markets and the futures tied to the S&P 500 are flashing red on Brexit uncertainty and the seemingly never-ending U.S. fiscal stimulus negotiations.

The sour mood is giving a lift to the U.S. dollar in foreign-exchange markets, putting extra pressure on dollar-denominated bitcoin. 

Short-term technical studies are beginning to roll over in favor of the bears. The widely-tracked 14-day relative strength index has dropped into the bearish territory below 50 for the first time since Oct. 6. Back then, bitcoin was trading near $10,500.

The RSI’s bearish turn comes following the cryptocurrency’s recent downside break of a narrowing price range. As such, support of the two-month rising trendline, currently at $17,000, stands exposed. Some investors have positioned for an extended pullback, as discussed earlier this week.

– Omkar Godbole

What’s hot

Crypto-friendly CFTC Chair Tarbert intends to step down from leadership position early next year (CoinDesk)

India’s banks are once more serving crypto traders and exchanges (CoinDesk) 

Bitcoin whales buy low, sell high; retail investors chase rallies, according to data (CoinDesk) 

Ethereum blockchain ecosystem boasts almost 2,300 developers on average, far outpacing No. 2 Bitcoin’s roughly 400, Electric Capital report shows (CoinDesk) 

JPMorgan completes live blockchain repo trade ahead of new product launch (CoinDesk) 

Bitcoin chart views soared along with price in November, TradingView says (CoinDesk)

Binance Smart Chain successfully integrates Chainlink decentralized oracle network (Binance) 

Analogs

The latest on the economy and traditional finance

U.S. unemployment claims rise to highest level since September (WSJ) 

No-deal Brexit more likely as dinner meeting between U.K., European Commission top officials leaves teams believing a compromise may not be possible before time runs out (Bloomberg) 

Missouri Republican Senator Josh Hawley introduces bill to provide second round of $1,200 stimulus checks (CNBC)

Mortgage originations on pace for best year ever with 30-year interest rates below 3% (WSJ)  

Stimulus talks drag as U.S. legislative leaders McConnell, Pelosi give no sign they’re ready to engage (Bloomberg)  

Pricing the S&P 500 in hourly pay shows fourfold rise in decade (Bloomberg) 

Realty investment arm of the world’s largest asset manager, BlackRock, has received an additional $53M capital commitments for its fifth Asia-focused fund (Nikkei Asia Review)

Tweet of the day