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Comic: Central Banks Are Inflating the Biggest Bubble in Alternative Assets Yet

Economy Nov 17, 2020 09:44AM ET
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By Geoffrey Smith

Investing.com --The world’s central banks have eased monetary policy dramatically this year to support the world economy through the pandemic. They argue, and many agree, that they’ve saved millions of jobs and untold amounts of capital in so doing.

The side-effects of that policy - in the form of asset price bubbles – are becoming increasingly clear.

In the mainstream investing universe, it was gold that grabbed most of the headlines during the first part of the pandemic with its record run up to $2,089.20 dollars a troy ounce. In a world where the equities were collapsing and oil prices even dipped below zero, gold’s 32% rally from the start of the year seemed worth the superlatives.

However, that rally is now being emphatically put in the shade by a different ‘alternative asset’: Bitcoin.

For half a century, gold has been the haven that particularly retail investors have sought out at times when they were afraid of currency debasement by the world’s governments and central banks.

That was so when the dollar collapsed along with the whole Bretton Woods system in the early 1970s, when the devaluation of fiat currencies was evident in soaring rates of inflation. But it was also true in the years after the 2008 financial crisis, when consumer prices were stagnant or flirted with deflation, and the only inflation in sight was in the price of financial assets such as stocks and bonds.

In both periods, central bank balance sheets expanded quickly, and this seems to be the common factor again. From the end of 2019, the Federal Reserve’s balance sheet has expanded by $3 trillion to $7.17 trillion, while the European Central Bank’s has expanded by almost as much, from 4.67 trillion euros to 6.98 trillion.

With the world economy slowing again, the ECB’s president Christine Lagarde has all-but promised a further expansion of money creation at the governing council meeting on December 10th. The Fed, meanwhile, is widely expected to expand its asset purchases at its policy meeting on December 16th.

But gold has not responded positively to market expectations. It’s down nearly 9% from its August peak.

Bitcoin, by contrast, is going from strength to strength. It’s up 130% for the year to date and its gains have accelerated sharply just in the last month. Why so? With Bitcoin, an asset whose supply is controlled even more tightly than gold, the explanation is always in an expansion of demand. That has benefited from two clear examples of the long-term trend that is the heart of the bull case for Bitcoin: broadening public acceptance.

On the one hand, Paypal’s decision to administer wallets denominated in Bitcoin is a quantum leap towards the financial mainstream for the digital currency. Millions of people who would not trust a poorly-regulated Bitcoin exchange in some remote part of the world to take custody of their money are perfectly willing to trust Paypal – a much more established brand – to do it.

Secondly, there is now a regulated investment vehicle through which it is possible to gain exposure to Bitcoin. Inflows into Grayscale’s Bitcoin Trust have allowed it to amass over 500,000 Bitcoin, worth over $8.3 billion at Tuesday’s prices. Bitcoin is now back trading at nearly $17,000 and looking quite capable of taking out the $20,000 level, according to many analysts.

Tom Fitzpatrick, a veteran forex technical analyst with Citibank in Connecticut – now argues that the digital currency could be on the verge of another of its “unthinkable rallies” that could take it as high as $318,000 (sic) by the end of next year. He derives his target from the way in which Bitcoin prices have expanded by big multiples in three big waves since 2010.

This, he argues, “would only be a low to high rally of 102 times (the weakest rally so far in percentage terms) at a point where the arguments in favour of Bitcoin could well be at their most persuasive ever.”

Comic: Central Banks Are Inflating the Biggest Bubble in Alternative Assets Yet
 

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Comments (17)
Ridha B younes
Ridha B younes Nov 18, 2020 2:31AM ET
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On line robin the hood any dreams for brighter future those too
Johnny Crash
Johnny Crash Nov 18, 2020 1:27AM ET
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There is no growing public acceptance or adoption of buttcoin
Kumar Suresh
Kumar Suresh Nov 18, 2020 1:27AM ET
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See you at $100k.
Nelson Rodrigues
Nelson Rodrigues Nov 17, 2020 5:50PM ET
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Satoshi is bitcoin
Den Sav
Den Sav Nov 17, 2020 3:46PM ET
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Yeah, totally. Gold is in the bubble, not the stocks...
Wilfredo Rodriguez
Wilfredo Rodriguez Nov 17, 2020 3:35PM ET
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I like turtles
Space Lord
Space Lord Nov 17, 2020 3:35PM ET
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What?
Lake Lot
Lake Lot Nov 17, 2020 3:35PM ET
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Turtles
Large Father
Large Father Nov 17, 2020 3:33PM ET
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Who is Bitcoin
Mohammad Atif
Mohammad Atif Nov 17, 2020 3:33PM ET
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digital thief
Kumar Suresh
Kumar Suresh Nov 17, 2020 3:33PM ET
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Better than gold, which government can't take away from you, its a real cash.
Graham Smith
Graham Smith Nov 17, 2020 3:15PM ET
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Gold is money, it cannot be in a bubble
Alan Rice
Alan Rice Nov 17, 2020 3:14PM ET
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So, how many "currencies" should we have ??
Kumar Suresh
Kumar Suresh Nov 17, 2020 3:14PM ET
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Just one #bitcoin.
Samui Lo
Samui Lo Nov 17, 2020 2:11PM ET
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inflating alternative assets? how about non-alternative assets like the S&P... biggest bubble of all
NYSE NASDAQ
NYSE NASDAQ Nov 17, 2020 2:11PM ET
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they are real companies. bitcoin doesn't have any value except hope. you're buying bitcoin hoping that someone will buy from you at higher price.
Phoenix Charters
Phoenix Charters Nov 17, 2020 2:11PM ET
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yeah real companies that aren't earning anywhere near where they're priced right now. When the bubble finally bursts nothing will be safe from the downfall.
Shivam Dave
Shivam Dave Nov 17, 2020 2:11PM ET
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Why just S&P look at all the major markets including emerging markets. No idea what is retail participation in market since March crash.
Den Sav
Den Sav Nov 17, 2020 2:11PM ET
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NYSE NASDAQ  Real companies that are grossly overvalued.
Yilin Long
Yilin Long Nov 17, 2020 2:11PM ET
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Could also be a reflection of depreciated money, so the evaluation of companies actually didn't change.
Jorge Chavarría
Jorge Chavarría Nov 17, 2020 2:10PM ET
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wellcome to world of the money 2.0
 
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