Bitcoin fell under $ 50,000 ($ 390,000) once more over the weekend, and I am nonetheless of the opinion final week that it will not be stunning if it drops to $ 30,000 within the close to time period. , on condition that the cryptocurrency was buying and selling this value in the beginning of the yr, and as little as US $ 3,000 a yr in the past.
Traders ought to subsequently completely steer clear of cryptocurrencies for now.
As cryptocurrencies are actually plunged into gloom, commodities have skilled a silent revolution. This confirms my pondering that if the principle purpose for investing in cryptocurrencies was to hedge in opposition to devaluation pressures on the US greenback, euro and different currencies induced by quantitative easing insurance policies, then why uncooked supplies – gold, silver, copper, iron, tin, oil, and so forth. – higher selections?
As a result of cryptocurrencies will not be but broadly used to pay for items and companies, however commodities and power merchandise have actual makes use of, particularly when international locations enhance spending on infrastructure to spice up their economies, this which is basically good for commodity costs.
Moreover, in comparison with the insane efficiency of cryptocurrencies over the previous yr, commodity costs are actually lagging behind.
Though the CRB index displays that commodity costs have risen by over 70% over the previous yr, when you look a little bit deeper, you can find that the index has solely returned to its peak of 2018.
Because of this it’s doable to extend the degrees reached in 2014 by greater than 50%.
If you happen to have a look at the efficiency of the index between 2009 and 2014, you can find that central financial institution financial insurance policies have affected commodity costs.
In early 2009, after the US Federal Reserve launched a QE program to save lots of the economic system and monetary establishments, the CRB index bottomed out and instantly recovered to 210 factors.
It rose to 370 in 2011 and fluctuated between 270 and 310 till 2014 when the Federal Reserve introduced it could tighten financial coverage, and the CRB formally entered a bear market and continued to fall. .
In fact, some analysts will argue that the index’s development from 2009 to 2014 was only a “useless cat rebound” because of the insurance policies of the Fed after the 2008 monetary tsunami, as a result of the index is just not. returned to historic highs of over 400 factors seen from early to mid-2008.
But when we have a look at the efficiency of the index between 2001 and 2008, we see that the actual driver of its rise was in reality the Fed and different central banks.
After the September 11, 2001 terrorist assaults on America in 2001, the Fed considerably diminished rates of interest to 1%. This elevated liquidity, boosted the inventory market and commodity costs, and led to a seven-year bull market.
The CRB index rose sharply by 120 factors in late 2001 and early 2002 and didn’t cease till mid-2006 when the Fed continued to tighten financial coverage, and it began to weaken to 320 factors. .
Nonetheless, because the market was in a loopy state on the time, it rose once more in early 2007 together with the costs of shares and different property.
It hit a report 470 factors in July 2008, earlier than dropping sharply after the collapse of Lehman Brothers. Nonetheless, from 120 factors on the finish of 2001 to a excessive of 470 in 2008, meaning a cumulative enhance of just about 400 p.c over simply over six years.
Now that central banks are boosting QE because of the pandemic and governments have rolled out infrastructure plans, together with low commodity costs over the previous 20 years, the CRB index is predicted to rise considerably. – and never only a lower than double hike to any extent further – after dropping to 110 factors final yr.
The principle purpose was that some huge cash was locked in cryptocurrencies, and commodities and a few exchanges weren’t benefiting totally from relative components, though central banks all over the world deployed way more stimulus than when QE was launched in 2009..
Due to this fact, whereas cryptocurrencies look like falling, the CRB seems to be breaking the resistance attributable to the Fed’s withdrawal in 2015, so it is not going to be tough for the index to rise 50% from its present degree. .
So pay extra consideration to commodity costs and power shares for the remainder of the yr as funding merchandise.
And when will the rally finish? The secret’s when central banks just like the Fed tighten financial coverage, however that is unlikely to occur within the subsequent six months. I’ll focus on this with you subsequent week.
Andrew Wong is Chairman and CEO of Anli Securities