Deeper Pullback in Precious Metals Indicates Flows Are Moving Towards Bitcoin
However, if the dollar rally continues on “that would sink a few boats.”
Cryptocurrencies are already leading the market gains in 2021.
On Friday, Bitcoin price nearly hit $42,000 and is currently holding strongly above $40k with over $14 billion in ‘real’ volume.
This week, BTC started with a dip to about $28,500 and since then has seen a 42% increment in its value.
“The surge in Bitcoin is indicative of froth but not only in that market, in many other areas where risk premiums have come down sharply in the past year despite a recession,” said Kevin Caron, portfolio manager for Washington Crossing. “We view Bitcoin as a proxy for risk appetite.”
Besides Bitcoin, altcoins also enjoyed a good week with notable mentions including Nano (256%), Pundi X (146%), YFL (130%), Stellar (128%), Loopring (126%), ROOK (118%), Nexus (107%), Verge (96%), ALPHA (87%), YFI (82%), SOL (78%), MATIC (67%), KIMCHI (62%), KP3R (60%), IOTA (58%), and Ethereum (58%).
These gains led to the total cryptocurrency market capitalization to climb to $1.09 trillion.
While cryptocurrencies are enjoying just another green week, the same is not the case for metals.
As we reported, precious metals have been taking a beating for three days in a row. Since Wednesday, spot gold has lost 6.6% of its value and is now seeing a slight relief to $1,847 per ounce. The same is the case for silver, which slid a good 12.8% during the same period.
These losses have been the result of the US dollar index rising and keeping above the 90 level. Unlike the traditional safe-haven asset, Bitcoin and the stock market remained unaffected by the greenback’s strength.
According to Charlie Morris of ByteTree, the deep slide in precious metals could be the result of flows moving towards Bitcoin. “If this continues, expect a dollar counter-rally. That would sink a few boats,” he said.
With bond yields up and inflation expectations down today, #gold has taken a hit. This justifies a $50 sell off, but price is down $120. I'd attribute the excess to flows moving towards #Bitcoin pic.twitter.com/qsWBb8NaXA
— Charlie Morris (@AtlasPulse) January 8, 2021
Much like gold, treasuries also sold off as investors focused on further stimulus. The sell-off in 10-year US Treasuries pushed their yields to their highest levels since March. Despite the UK economy losing 140,000 jobs in December, the first time in eight months. Francois Savary, chief investment officer at Swiss wealth manager Prime Partners, said,
“Investors are buying the end of an erratic Trump administration and looking forward to something new, which is a Biden presidency and the prospect of a significant spending program.”
The Biden administration is expected to be good for cryptocurrencies with the expectations for more stimulus and money printing. Frank Spiteri, chief revenue officer at CoinShares, said,
“It seems like we’re in the middle of a simultaneous awakening among institutions to Bitcoin as an uncorrelated store of value assets with the possibility of serving as an inflation hedge in the face of a highly unconventional monetary policy environment.”