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Bitcoin plunges but recovers

Overnight news was dominated by the capitulation liquidation in the cryptocurrency space. Depending on which crypto you were talking about, losses ranged between 30.0% and 50.0%. Bitcoin fell from USD42,500.00 of US fiat currency to USD30,000.00 before recovering more than half of that to USD38,000.00 by this morning.

You can’t keep a good dip buyer down for long in the financial markets these days, and cryptos are no different. The mass liquidation yesterday will have thinned out the ranks of “believers” massively, complicating the liquidity situation that is messy on the best of days. We saw a general meltdown in equities, precious metals, energy, and commodities overnight, and I suspect that more than a bit of cross-margining liquidation was in place.

Thankfully, even the “institutional experts” in tee-shirts and surrounded by empty pizza boxes are struggling to spin this out as the usual “healthy technical correction” and the “sign of bitcoins expanding maturity” as a “mainstream financial asset.” I shall enjoy the peace and quiet while they reformat their hard drives.

Because I look like a guru for one day at least (even Mrs Halley was impressed), and because you are all going to want to know, my outlook for the next 24 hours for bitcoin is thus. If Bitcoin recaptures USD40,000.00, those poor(er) “investors” liquidated yesterday will look to get back in. Classic dead cat bounce market chasing desperation, but probably enough to push it to USD45,000.00, perhaps more. USD30,000.00 is the line in the sand now, and another capitulation wave will follow if it breaks. I also note that the Relative Strength Index (RSI) indicator has moved into oversold territory for the first time since March 2020. That might be another straw to clutch at, although it’s not as important as Elon Musk.

But most importantly, the sell-off started as a result of the PBOC reiterating its ban on all things virtual currency and its use by local financial institutions. The crypto-market is one quasi-government negative announcement away from another meltdown, should that emerge from the US, Europe or China. I will reiterate that the crypto-space faces an existential threat of regulation or banning after the Colonial Pipeline debacle poked a sleeping bear once too often. Any meltdown will temporarily spill over into other pumped-up markets if the overnight price action is anything to go by.

Back to the real world, the other noteworthy development overnight came from the FOMC minutes. The minutes both steadied the intra-day ship by staying on super-easy until our goals are achieved message, while at the same time fraying nerves as talk to planning to start talking about tapering was mentioned. The Nasdaq had traded nearly 2.0% lower intra-day as the crypto meltdown created an open season duck shoot on asset classes with rich valuations (i.e., most of them). It can thank the FOMC for steadying the ship and allowing a semi-orderly rebound, and it was not alone.

Asia has not been idle, though, with today’s calendar probably the busiest of the week. The risk-sentiment Australian and New Zealand dollars were pummelled overnight but have steadied this morning. Australian Unemployment fell unexpectedly by 30,600 jobs but was saved but a sharp increase in full-time employment. The series is volatile at the best of times, but a look under the covers shows the lucky country remains on track.

New Zealand’s Budget 2021 has been well received, containing no surprises other than higher than forecast debt borrowing. It will still peak as a percentage of GDP at 48% in a few years, a dream scenario for most developed nations. S&P threw their lot in and said they liked what they saw and that the Land of the Long White Cloud would recover fast than most developed nations.

Interestingly, to lesser or greater degrees, both are a microcosm for the return of the 70’s style big government—a trend we see worldwide. Classical capitalism has created enormous disparities in wealth, economic and social inequalities, exacerbated by ham-fisted quantitative easing through the 2000 and teens for far too long. Along with peak globalisation, it will be interesting to see if “lunch is for wimps” being replaced with “everyone can now actually afford to have lunch” works this time around.

China left its one and five-year Loan Prime Rates unchanged this morning which was as expected. With the PBOC having been busy for some time withdrawing excess liquid from the financial system and with signs that China’s recovery is slowing a bit, there was no pressure on the PBOC. I believe China’s first-rate hikes will come in late 2021. The decision was market neutral with more focus by financial markets right now on China’s crypto warning shots and threats to temper “speculation” (read rampant buying) in commodities.

Looking ahead, we have a busy but noisy data calendar across MENA and Europe. The data is second-tier, though, ahead of US Initial Jobless Claims and the Philly Fed Manufacturing Index for April. Weekly claims could dip below 450,000 this week, with the Philly Fed Index climbing above 50.0, setting another multi-decade high. Along with the US 10-year TIPS bond auction, improving data could give markets another little inflation nudge again, following on from the FOMC “time to start thinking about starting to talk about tapering” minutes overnight.

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