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Another Inflationary Sign From Cryptocurrencies

Bitcoin and Ethereum prices have moved higher each time there is an event that increases the addressable market.

Bitcoin and Ethereum are the leaders of the cryptocurrency asset class. As of November 5, the overall asset class had a $2.696 trillion market cap. 13,669 different cryptos make up the total value, but Bitcoin and Ethereum account for 62.4% as Bitcoin was worth around $1.152 trillion, and Ethereum had an over $528.25 billion market cap.

Cryptocurrencies are a libertarian means of exchange taking control of the money supply from governments and returning it to individuals. Each crypto’s value is solely a function of bids and offers in the market. Most cryptos have a limited supply, unlike fiat currencies. Governments can issue legal tender to their hearts' content, allowing them to stimulate or contract economic conditions.

Events that expand the addressable market have pushed prices higher

  • Bitcoin and Ethereum prices have moved higher each time there is an event that increases the addressable market.
  • In December 2017, the introduction of the CME’s Bitcoin futures contract pushed Bitcoin to the $20,000 level for the first time.
  • In February 2021, the rollout of Ethereum futures lit a bullish fuse under the second leading crypto.
  • The mid-April 2021 Coinbase (COIN) listing on NASDAQ caused Bitcoin and Ethereum to rise to new highs.
  • In mid-October 2021, the SEC’s approval of a futures-based ETF product, BITO, sent prices to new all-time highs.
  • Incredible returns in Bitcoin, Ethereum and other cryptos created a speculative frenzy in the asset class.

Vocal proponents and opponents

  • High-profile support from Square’s (SQ) Jack Dorsey and Tesla’s (TSLA) Elon Musk has pushed crypto prices higher. Square and Tesla own cryptocurrencies. Jack Dorsey said Bitcoin will “unite the world.”
  • As more companies accept cryptos as payment, the asset class has gained broader appeal despite misgivings from notable quotables.
  • Jamie Dimon has called cryptos a “fraud” and said Bitcoin is “worthless.”
  • Warren Buffett called the asset class “financial rat poison squared.” His partner Charlie Munger said the asset class is “disgusting and contrary to the interests of civilization.”
  • The US Chairman of the Securities and Exchange Commission, Gary Gensler, compared cryptos to “early seed investing,” warning that many coins will “fail.”

Higher crypto prices reflect inflationary pressures

  • Bitcoin rose from $28,986.74 at the end of 2020 to the $61,000 level at the end of last week, over a 110% gain.
  • Ethereum moved from $738.91 on December 31, 2020, to the $4500 level on November 5, rising over six times so far in 2021.
  • CPI data over the past months have validated the highest inflation level in three decades.
  • Commodity prices have risen dramatically from the lows at the beginning of the global pandemic.
  • Central bank liquidity and government stimulus have fanned inflationary flames.
  • The rise in crypto values reflects inflationary pressures and the evolution of the fintech revolution, a potent bullish cocktail for the burgeoning asset class.

All asset prices are rising – The stock market’s ascent in dollars could be a mirage

  • Inflation is causing prices to rise in markets across all asset classes.
  • As investors look at their stock market investments, the returns have been impressive. The S&P 500 moved from 3,756.06 on December 31, 2020, to the 4,700 level as of November 5, an over 25% gain.
  • In dollar terms, stocks have exploded higher, but in the leading cryptocurrency terms, they are in a bear market:

E-Mini S&P 500 futures contract in Bitcoin terms

Source: CQG. The chart of the E-Mini S&P 500 futures contract in Bitcoin terms shows a drop from 0.1283 at the end of 2020 to 0.07692 as of November 5, 2021.

  • While the index rose by over 25% in dollar terms, it declined by over 40% in Bitcoin terms.
  • Since Ethereum’s rise has been far more dramatic, the S&P 500 in Ethereum terms has dropped even more.
  • If cryptocurrencies reflect inflationary pressures, gains in stock market portfolios could be a mirage. Investors may be comfortable with their growing portfolio values, but inflation is eroding the value of their investments.


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Equities News Contributor: Tradier Inc

Source: Equities News

Crush spreads, which have been trending, are barometers of soybean supply and demand and a real-time indicator of processor profitability.