I think I’m ready to issue my next Bitcoin prediction. I’m consistently wrong, which makes this a valuable service.
In mid-February, after Bitcoin had shot from $4,000 to $10,000 in a year, I raised the question here of whether speculative excess might push it still higher. Then it fell by half in a month. I imagine that readers who recognize a good contrarian indicator when they see one, and who knew that Bitcoin options had begun trading in the U.S. in January, made out handsomely on the puts.
Bitcoin has now bounced back above $11,000, and readers seeking the mathematical inverse of wisdom on the matter will once again find it, as soon as I can make up my mind about some last-minute details, like up or down, and by how much.
First I have to figure out what’s driving the rebound. The leading suspect is a slip in confidence in the U.S. dollar. It’s down 7% versus a basket of six key currencies since mid-May.
Goldman Sachs
recently pointed out that the dollar’s change ranked among the most extreme 2% of two-month moves since 1973. Its strategists cite the U.S. coronavirus surge and the heavy Treasury issuance that will be needed to deal with it.
They predict continued—but more gradual—declines for the dollar over the coming year, and recommend that stock investors lean to sectors and companies with high international sales. Examples include technology and energy, plus
McDonald’s
(ticker: MCD) and
Colgate-Palmolive
(CL).
Gold has been hitting new highs—another sign of dollar weakness. See page 25 for what to do about that.
What is strange is that there isn’t much sign of inflation, recent or predicted. The spread between the 10-year Treasury and its inflation-protected sibling has widened, but to only about 1.5 percentage points, suggesting that bond buyers expect weak price growth for years to come. Either gold buyers know something others don’t, or the metal is trading on anxiety over inflation, not the real thing. A 2013 study of the link between gold and inflation found that gold is a reliable hedge only over centuries. Over more practical time periods, it does its own thing.
There are other complicating factors. The euro is up 9% versus the U.S. dollar since mid-May, propelled by signs that the European Union will borrow gobs to fight the virus. Why would the same factor that has soured investors on the dollar cheer them on the euro? Because until now, euro states have mostly borrowed individually. The thinking is that if they go deeply into debt jointly, the monetary union is more likely to stay together. Why do love stories always make me well up?
The euro has by far the heaviest weight in that aforementioned basket of currencies used to track the U.S. dollar. So, is the dollar falling or the euro rising? It’s not easy to say. In finance as in physics, motion is relative. The exercise tracker on my watch says I…
Read more:Bitcoin Is Rising Again. Asking Why Takes You Down the Financial Rabbit Hole.
