A Matter of National Security

Hi Everyone,

 

It seems like everybody’s talking about Libra lately, and I do mean everybody.

Yesterday afternoon, the Secretary of the United States Treasury Steven Mnuchin held an emergency press briefing to address the issue of cryptocurrencies which have been exploited to facilitate “billions of Dollars in illicit activity” and he even went as far as to call it a “matter of national security.”

These comments came on the back of similar sentiments expressed by the President on Twitter last Friday and ahead of a much-anticipated appearance from Facebook’s head of Blockchain development, David Marcus, before the US Congress that will be held later today.

(Marcus’s hearing will be live-streamed at this link at 10 AM in Washington DC. His prepared statement is already available here.)

Make no mistake, the US government’s top objective is to protect “the role of the US Dollar as the world’s reserve currency” (timestamp: 6:10).

What I found most fascinating was to see the reaction of the price of bitcoin in real-time during the briefing, which can be seen below in the purple rectangle.

 

 

As we can see, throughout the speech and in the subsequent 30 minutes, bitcoin surged by 5%.

In the beginning, it did seem as if the USA was about to crack down on the entire crypto market but later on, it became clear that the attack was directed specifically towards Libra and the possibility that it might be used to bypass existing laws and regulations.

On the other hand, he did clarify that using bitcoin for speculative purposes (i.e. a store of value), especially through regulated entities is completely fine.

In short, institutional involvement in the bitcoin market from major Wall Street firms is still very much on schedule. The CFTC has been approving bitcoin-backed derivatives at a rapid rate over the last month and very soon every portfolio manager on the planet should have easy access to diversify their clients into bitcoin.

The timing couldn’t be better too. With the stock markets looking overvalued, and bond markets giving extremely low yields at the moment, and crypto outperforming the rest of the markets by far, there’s no reason to doubt that investors will be thrilled to take a bit of risk on this new asset class.

 

 

Today’s Highlights

• Fed Policy on the Dollar…
• …and on Stonks
• Bitcoin Greed to Fear

 

 

Traditional Markets

Stocks took a tiny dip in Asia this morning but the European opening is on track for a solid day of moderate gains.

The Forex market has also been historically boring lately, save for the GBP, as we can see the US Dollar hasn’t done much of anything over the last year. Kind of strange considering the Fed’s sudden shift in monetary policy during this time frame. Perhaps it’s because the other central banks have also gone along with the Fed’s easing strategy.

 

 

Good For Stocks

Look out for the retail sales data before the US opening bell. Then later this evening we’ve got speeches from the Fed’s Powell and Evans. IMHO, the Fed is about to make the biggest policy mistake since the great depression.

However, don’t let that put you off from investing. The Fed cutting interest rates into a strong economy is insanely bullish for stocks. So the forecast for the near term is that many analysts believe stocks will continue to rise ever higher.

Just be on alert, because the excess liquidity could be dangerous long term. If you’re not on top of the news and such, then maybe look into copying others who are.

 

 

Bitcoin’s Greedy Range

Mnuchin’s comments, as explored above, couldn’t have come at a better time as far as technical analysis is concerned. As he spoke, bitcoin has bounced off the now significant level of $10,000.

After testing the top twice and the bottom twice, we can now safely say that the market is trading in a range between $10,000 and $13,000.