There continues to be a lot of noise out there. The acclaimed book, The Signal & The Noise by Nate Silver, is a favorite of ours and continues to guide us when we look at today's news and that of the last four months. Our continuing focus is on the development of crypto as a viable alternative and safe haven and not on whether it’s going to go up or down today or tomorrow. If it's viable, it will go up, and if it’s not, it won’t. Let’s look at the signals.
Economists are scientists, behavioral scientists to be exact, and they project based on what they think people will do if X happens and how that will affect the economy. They’re influenced by the theories of great thinkers and sometimes whoever is paying them. What they are not is infectious disease specialists. Anyone who has been reading us recently knows that right now, we prefer the latter in terms of guiding future economic behavioral forecasting.
Economists suggested (and continue to suggest) a “V” shaped recovery when no-one knew the extent or effect of the virus. Infectious disease specialists suggested a second wave and unknown turmoil to the world economy if their guidance wasn’t followed. Below is a chart of coronavirus cases to date in the U.S., and while it refuses to fall, we believe more and more people are going to start looking at crypto as an option to protect their savings.
President Trump has claimed that by reducing testing, the number of cases would drop. They wouldn’t, just the number of known cases would be reduced. The fact is that this virus is not going away anytime soon. As part of our response, we need to look at what the Fed can and cannot do in the event of further hits to the economy.
The Federal Reserve Bank has announced this week that it will be keeping its inflation target of 2% intact despite the economic ups and downs. The Fed's mandate is to promote the goals of maximum employment, stable prices, and moderate long term interest rates. At times these goals are not always compatible with the same action.
As prices go down they reduce rates and if they go up, interest rates are hiked. Pretty simple and yet incredibly complicated when one considers how timing, market expectations, and forecasting are taken into consideration.
When they really want to increase inflation they can print cash, which makes it less valuable. That’s it. Interest rates and cash. And the effects of this are not something that can be easily if ever, reversed. It’s all about being in non-cash assets.
Those who believe that holding cash will somehow be safer, in the long run, may be ignoring this risk. The value of your cash will go down and the value of “a non-cash asset” may increase depending on what it is. The question then is what asset you should put your cash into. The obvious options are equities, property, gold, or digital gold (crypto). Your call.
Words are important. How you feel about something is connected emotionally to how it’s described, and how others associate the word with wisdom or idiocy. Back in the day, before Bitcoin, we bought physical gold Krugerrands and threw them in a drawer, not so much for profit, but rather as a store of wealth we may have to use if the North Koreans went postal. No-one thought this strange. And yet, if one says they have some Bitcoin for the same reasons, it can sometimes be considered kooky. Why? This makes no sense to us.
As more people realize the utility of cryptocurrency and at the same time, understand the similarity of the characteristics of Gold and Crypto (not to mention the fact that it’s easier to buy Bitcoin versus Krugerrands), we ask this question - When cryptocurrency is accepted at the same level as Gold, will it be worth more or less?
Australian Post announced this week that they would begin dealing in cryptocurrencies for their clients through their 3,500 offices and online. This feeds into our argument that as the cryptocurrency becomes more mainstream and acceptable as both a store of wealth and a form of exchange, its value to the ordinary consumer should increase.
We would also note that the announced “issues” surrounding the German Wirecard business was related to an accounting discrepancy and not to the fact that they dealt in normal fiat currencies. Something journalists should consider the next time they come across a supposed “crypto scandal”.
In the week ahead, we will be keeping an eye on which countries are opening air borders and with whom. This is a highly political act and yet at the same time, a good indication of how the scientific community views other countries' policies and their effectiveness.
Two of these three have never been considered important, but for us, and for you, they should begin to create a trend worth watching.
The Author works exclusively for Xcoins.com and has spent almost 20 years in trading rooms from New York & London to Düsseldorf & Sydney.