Bitcoin Futures Overshadow Record Day For Stocks
Monday saw the Dow reach its 66th all-time high this year which is 3 shy of tying the record. The S&P 500 was up 0.32% and the VIX was down 2.51% to 9.34. Even with the market putting an explanation point on its great year, Bitcoin stole the headlines its futures trading launched. Bitcoin futures were up 19% in the first day of trading as the cryptocurrency is now at $16,600. The total market cap of all the cryptocurrencies has reached $456 billion. There are reports that people are taking out mortgages to buy bitcoin as it reaches the mania stage. It’s an unusual bubble because everyone who owns it knows it will go down quickly. After it goes down, speculators don’t panic; they buy more. I’m wondering what correction size would cause people to sell, ending the hype train. As you can see from the chart below, bitcoin futures trading is much smaller than the Nasdaq 100 futures or copper futures. It will never grow that large because most traders don’t want to touch bitcoin. With futures trading beginning, I expect the calls for a bitcoin ETF to grow again. That would provide a final catalyst to get as many retail investors in the space as possible. The crash could come in tune with a recession if the speculation in bitcoin keeps going for a couple more years. It’s tough to have a forecast for how the price will look at the end of this week, let alone 2020.
Downtrend In Yields To Continue?
In a previous post, I discussed how the Fed might be bound by the downtrend in rates, preventing further hikes. As you can see, the resistance line is a little bit over 2% which means the Fed only can hike rates 3 or 4 more times this cycle. That implies 2018 or 2019 will be the end of the hike cycle as the Fed will raise rates 2 or 3 times next year. As I said, the multi-decade trend won’t necessarily continue. The ending of this bull market in stocks would cause much uncertainty, but that’s nothing compared to what would happen if the bond bull ended. The other point this chart shows clearly is the length of this hike cycle. As you can see, rates haven’t been raised much, but the cycle length is already longer than the two hike periods in the 1990s. Given how slow the Fed has hiked rates, this cycle should outlast the one in the 2000s.
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