Central Banks Put Wind at Bitcoin's Back

“Russia, Russia, Russia,” the current President used to sarcastically chastise opponents for wondering about 2016 election tinkering from Putin’s Principality. Recent MAGA rallies featured “Covid, Covid, Covid,” with President Trump complaining that the press could think of nothing else. 

In investmentland, it’s “Bitcoin, Bitcoin, Bitcoin,” again knocking on dollar door number 20,000, where it ventured in late 2017. Bloomberg’s November 21st edition features this flashy headline sure to inspire FOMO (fear of missing out) the predecessor of the more quaint Keynesian Animal Spirits, “Bitcoin Revival Unleashes Animal Spirits and $300,000 Forecast.” Imagine, if I could retrieve the Bitcoin I lost years ago when my phone went dark. 

Considering 2017, David Grinder posits “History doesn’t repeat, but it rhymes,” Grider, Fundstrat Global Advisors’ head of digital asset strategy, told Bloomberg. “The audience is bigger, the market is bigger, it’s a little more institutionalized -- you have different fields of capital coming in.”

Famed billionaire investor Mike Novogratz says he sees “tons of new buyers” amid “little supply.” Adding little actual weight to the new buyer tons is none other than  5 foot 1 inch “Game of Thrones” star Maisie Williams, who began portraying Arya Stark when she was but 14 years old. Williams, not savvy in the ways of finance, but with likely plenty of money to experiment with, asked her 2.7 million Twitter followers for advice and it was a resounding “go for it.” Bloomberg reports she is now an owner.  Or hodlr as they say in cryptoland. 

As for the little supply, Almost Daily Grant’s explains, “Chinese bitcoin miners, who make up 72% of the blockchain’s computing power, have been unable to sell cryptos for the RMB needed to pay for electricity.” The reason being the Chinese government is not hip to private miners elbowing into the government's money-making monopoly. “Regulators in the Middle Kingdom have ordered banks to freeze accounts associated with cryptos, CoinDesk reported on Monday,” writes Philip Grant. 

Casey Wagner adds, “The most bullish mainstream projections are those that see Bitcoin reaching $100,000 or higher. Tom Fitzpatrick, a strategist at Citigroup Inc., made a splash this month when he said the crypto could potentially reach as high as $318,000.”

But, Bitcoins and tripwires seem to go together. For instance, Grants sites a June 2018 paper from University of Texas at Austin professors John Griffin and Amin Shams, who wrote, 

Overall, our findings provide substantial support for the view that price manipulation may be behind substantial distortive effects in crypto-currencies . . . More generally, our findings support the historical narrative that dubious activities are not just a by-product of price appreciation but can substantially contribute to price distortions and capital misallocation.

ADG also mentions tether, so-called stablecoin, which Grant’s says “is something of a crypto Grand Central Station, with $57 billion in trading volume over the past 24 hours. For context, bitcoin, which boasts a total stock nearly 20 times higher at $343 billion, has seen just $36 billion in trading volume over that period.”

Stablecoin has its own legal troubles as ADG explains, “including a class action suit last year accusing Tether and Bitfinex of undertaking ‘a sophisticated scheme to fraudulently inflate the price of crypto commodities [including] bitcoin.’ The class action litigants accuse Tether (the entity) of issuing some $3 billion worth of tokens without any dollar backing, a move which allegedly played a key role in skyrocketing crypto prices during late 2017.” Unbacked currency, only governments can do that.

Grant‘s also mentions that New York state Attorney General Leticia James, filed “an April 2019 lawsuit accusing Tether and closely affiliated crypto exchange Bitfinex of improperly commingling funds under the broad Martin Act, then in September demanding documents related to the disappearance of $850 million in customer funds to Panama-domiciled Crypto Capital.” 

Tether’s attorney insists that complying with AG James’s request is “impossible.”  

Meanwhile, Edward Moya, a senior market analyst at Oanda, has doubts about the rally’s resilience, pointing to the last time crypto fans overestimated a Bitcoin rally. “Today’s outlandish calls seem primarily based on momentum mania,” he said. “I doubt institutional traders will allow Bitcoin to only go in one direction.”

Grant’s puts its finger on the reason for the rally, plain old human error. The Financial Times editorialized,

It may be precisely because the Federal Reserve has done such a good job of meeting the world’s need for dollars that investors feel comfortable taking a punt on bitcoin and venturing away from the comparative stability of fiat currency. If so, cryptocurrency advocates have the central bank to thank for their recent success.

The central banks can be thanked for all bubbles.