Bitcoin, Haven or Tulip Mania?

Bitcoin rally continues

Bitcoin’s inexorable march higher continued overnight, climbing 1.55% to USD17,912.00, disguising yet another USD1000+ daily range. Bitcoin has been on a steadily upward track since well before the US elections, and more so than gold, has become perhaps the preferred safe haven of choice of the digital age.

I will not debate the merits of Bitcoin versus gold, which contains as many shoot-first-ask-questions-later haters as both sides of a US election campaign. Undeniably, Bitcoin was used as a hedge into the US elections, and a digital flak vest is as good a haven as anything made of gold or Kevlar. The increasing steepness of the rally since though is causing some concerns, resembling an exponential curve. Even a Tesla chart looks sensible by comparison.

The steepness of the rally contains several USD1000/USD1500+ range days, which I struggle to reconcile with as either a haven or a legitimate financial product. The November rally has also been accompanied by the usual noise of a new asset class, institution money piling in, supply limited to 21 million Bitcoins forever, it’s going to USD300,000. Any institution that is “piling” and crossing a USD1000 intra-day range probably shouldn’t be in business. And theoretically, any Bitcoin can be divided into an unlimited number of teeny little Santoshis.

The noise surrounding Bitcoin at the moment resembles the Dutch tulip mania-type noise we saw as it approached its previous all-time high around USD19740.00. The rally of the past two weeks looks much more like FOMO money talking their books, rather than fundamentals. If it really is haven flows, the scale of the rally would suggest that there would be inevitable spill over into other haven assets.

That is not evident and if anything, the world is a happier place, than at the start of November. Covid-19 spikes or not, vaccines are on the way, and markets have quickly put the US election behind them. Equity markets are higher, oil is higher, the US dollar is weaker. Not the signs of a defensive market.

If you are long Bitcoin, then congratulations. But the tulip-mania noise is increasing with the steepness of Bitcoin’s rally. It all went horribly wrong the last time Bitcoin ascended USD19,000.00, and the potential is real that history could repeat itself. I see scant evidence for the acceleration of the rally of the past two weeks in the world as a whole, that justifies the moves by the “new haven asset class.” Keep your hard drive disconnected but close, but not too close to magnets; be prepared to run at the first sign of trouble.

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