Suddenly gold is worth more than crypto faeces

See the latest Australian dollar analysis here:

Macro Afternoon

Hoocoodanode? Crypto led last night’s bizarro world bounce in stocks:

Yet BTC is still down by half versus the gold price that is stable and firming:

What is being revealed here is that the idea that crypto is “digital gold” is a bit of a joke. The notion only holds so long as monetary profligacy rules in the US. But the moment that that passes, crypto ceases to have any rationale at all, whereas gold can remain firm on a range of safe haven issues including geopolitical:

The crypto universe has shed more than $1 trillion in market value on growing conviction that the Federal Reserve is set to start ratcheting back the ultra-accommodative policy settings that fueled a boom in risk assets. The pullback has hit all corners of the crypto ecosystem, from Bitcoin to memecoins and publicly listed crypto exchanges. While the collapse has been rattling enough on its own, it has spawned an even bigger concern that the pain may persist for many months, according to UBS.

“There’s this question of how do we characterize that and the nearest analogy is probably 2018, which is this idea of a crypto winter,” James Malcolm, head of foreign exchange research at UBS, said by phone. “It looks likely to be a fairly difficult and potentially prolonged period and therefore, the crypto winter analogy is quite good. Remember, the crypto winter in 2018 wasn’t just over the Northern Hemisphere winter months. It basically extended for a whole year — so it was a crypto winter that lasted effectively a year.”

That is not to say that crypto won’t rebound when the Fed is forced to reverse. That will happen certeris paribus. 

But, the risk in the meantime, as the Fed tightens and geopolitics turns nasty, is that Fed tightening delivers an accident in the entire crypto space as the drying up of liquidity destabilses stablecoins and their very dubious capital bases. We know, for instance, that Tether holds all sorts of high yield assets, we just don’t know which ones, and as the Fed moves forward on inflation DM junk is certain follow EM junk lower before this is over:

It is quite plausible that crypto becomes the epicenter of whatever it is that Fed tightening breaks over the coming months.

Houses and Holes

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