Bitcoin's rise being Fed by Yellen

US security markets took the release of the Fed minutes in stride on Wednesday as most analysis said March was on the table for a rate hike.

Investors seem to take that in stride since Fed chief Janet Yellen has been using this script for some time and as I wrote yesterday there will not be any March madness in Fed rate complex.

However that does not mean the “currency” markets were unchanged. Bitcoin, the crypto digital-currency moved from $1,078 to $1,137 over the two-day trading period. That’s a 6 percent move on the words of the Fed, which tells me no Fed hike in March and the bitcoin move is a hedge against a weakening dollar. [Editor’s note: Bitcoin is now trading $1160 on Thursday]

As I have said many times, I use bitcoin as a canary in the coal mine, since its adoption is widely used as a hedge for devaluation in currency markets by large financial institutions.

Bitcoin is no longer a dark web currency for nefarious activities. The Securities and Exchange Commission is about to approve a bitcoin ETF administered by the Winklevoss twins of Facebook fame.

Keep an eye on bitcoin’s moves over the next three weeks for a good barometer of what the sentiment is for the March Federal Reserve meeting.


The Battle of the Dollar has commenced

The Battle of the dollar has commenced.

The forces battling to squash the value of the greenback stretch from Washington to Beijing, with battle lines in Tokyo, London and Shanghai.

A strong dollar is crippling to the Chinese economy, since the yuan is pegged to the dollar and has already been devalued by 10% to keep prices in China from exploding.

The Trump Administration — despite not having Treasury-designate Steve Mnuchin’s Senate vote yet — still has spoke about the need for a weaker dollar to keep their pledge of improving trade exports and creating more jobs here. A strong dollar increases costs for salaries here in the US and raises the costs overseas of American-made products.

The collateral damage in this battle will be the stock market as equities fall on cheaper dollar. A cheaper dollar is inflationary and stocks despise inflation, but its a daily fight so trading will be choppy. I wrote about this earlier this month.

The question is who is on the other side of this trade battling central bankers and their deep pockets?

China and Russia are certainly defending their currencies in the global forex and bond markets. The complicated trades involving US sovereign debt has deep effects in currencies.

Selling Treasuries can cheapen the dollar and the converse is true. Look at yields in the last three weeks in US sovereign, which have dropped with increased buying of the debt.

The battle will continue for most of the year, since the Federal Reserve will not be able to raise rates until Q4 as I said earlier.

Trump calls out China over strong dollar

Well, we knew it had to happen soon — just not this quick.

President-elect Donald Trump came out to beat down the strong dollar. In an interview with the Wall Street Journal, Trump called out China as a currency manipulator by only giving the yuan token support.

I have written about this since last month, when I said that the strong dollar was going to take the knees out of Trump’s plan to move jobs back to the US.

Now why should we care so much about the machinations going on in the currency trading pits?

As the value of the dollar falls 1.0% this morning — on the back of Trump’s comments — the Dow futures are down 100 points and the price of gold is up $20. Crude futures also rise on a weaker greenback.

So as I have often told you the biggest market mover is the dollar. As it has strengthened 4% since the election, equity markets have followed the same trajectory while commodities have lost ground.

The battle of the strong dollar is going to be the major meme of 2017, as central banks — struggling under massive debt by issuing bonds to create “wealth” for banks to bolster their balance sheets — cannot fight a currency war. The central bankers need a stable currency market for their inflation plan to have any chance to work.

Jim Rickards’ book “Currency Wars” can give you insight into what will unfold over 2017.

The rollercoaster that is bitcoin

As I said on Wednesday, I do not advocate people use bitcoin as an investment.

Now I am not pumping bitcoin as an investment, I am using this as a new economic index to assess currency markets. I stress bitcoin is not an investment, since I do not think there is enough liquidity in the marketplace to make it safe for your future needs, due to volatility and perhaps hacking of bitcoin wallets.

It’s way too volatile as witnessed by yesterday’s $200 a bit drop over a few hours. And since it trades 24-7, you may not even know about the crash until you wake up.

The reasons behind the massive sell off has a few options. One is that the gains the last three coindesk-bpi-chartweeks have been huge and there needed to be a sell off to move higher. This is the old trading adage that no chart goes straight up.

Secondly, like the bitcoin crash of 2013, a Chinese government crack down is feared since the country accounts for a majority block of the trading as a means to move money out of the country, while also preserving wealth against a weakening yuan against the dollar. Nevermind that the yuan has a loose peg to the dollar, Beijing has been clamping down on both the exchange rate and the availability of yuan liquidity of the same time period of the last month.

At 5am EST on Thursday bitcoin was trading at $1,149, a mere 24 hours later it is at $940 level. The downside can be harsh, but the crypto-currency is still positive for 2017. That’s how fast it can move.

So caution to all and if you choose to get involved use capital you can stand to lose and wait for a bottom to be formed before jumping in.

Happy Bitcoin New Year

Each morning for the last three weeks I awake around 5:15am and take a look at the overnight action in bitcoin.

And I discover that the Chinese buyers have taken the crypto-currency up another $50. Then during the US trading day the price takes a bit of a hit or stands still until the evening hours when it begins to rise.

This morning the bitcoin price hit an all-time high of $1,087. Since bitcoin never stops trading the chart shows a big uptick since Dec.10 of last year when China admitted it needed to adjust its currency — the yuan. The fear of additional capital controls and the yanking of yuans from the economy to strengthen the currency have been the driving force behind the latest bitcoin moves.

Since Oct. 1 2016, the price of bitcoin has soared 44%. But since Dec. 20 it has risen 26.5%.

Now I am not pumping bitcoin as an investment, I am using this as a new economic index to assess currency markets. I stress bitcoin is not an investment, since I do not think there is enough liquidity in the marketplace to make it safe for your future needs, due to volatility and perhaps hacking of bitcoin wallets.

I have been in bitcoin for some years, but only as a niche play. Remember that the US government has a substantial stake as a result of the Silk Road prosecution, so it can sell off its stake to stifle price growth. However, once that move is made, there is no options or futures market that can be manipulated to alter pricing. Not yet anyway.