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Crypto and Macro Market Update

Crypto and Macro Market Update
By Adam Sharp
Date October 11, 2018
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As I write this on Thursday, crypto markets are falling sharply after a sustained period of relative stability. The unique thing about this crypto pullback is that it seems to be led by stocks, which have plummeted over the last few days. That’s unusual because bitcoin – and crypto in general – doesn’t follow the stock market.

I get the feeling we may be entering a volatile period across all major asset classes – bonds, stocks, commodities and currencies.

Frankly, most of the world is in a fundamentally poor financial state. Piles of debt, along with widespread waste and corruption, are the primary problems.

Interest rates have been so low for so long that we appear to have become addicted to them. That’s why we saw President Trump tweeting yesterday that the Fed is “crazy” for considering more rate raises.

Normally when the stock market goes down, people start buying bonds in a “flight to safety.” But that didn’t happen Wednesday when the Dow fell 831 points. Instead, investors continued to sell Treasurys. There was no flight to safety.

But we have to normalize interest rates. Unfortunately, one of the side effects of rising interest rates tends to be falling stock prices.

So the big question is what’s the flight to safety today? Bonds will obviously continue to play a role, especially short-term ones. But due to rising rates on the horizon, bonds simply can’t play their traditional role (until the rate hikes are over).

The Fed is a wild card in every scenario. It could stop hiking rates and reverse course at any time. I expect that eventually it will do just that and start a new, even larger round of quantitative easing (money/debt printing).

After all, if rates get too high, we won’t be able to service and roll over our huge pile of debt. And the housing market will take a serious beating unless they reverse course eventually.

Timing this market is going to be very tricky across all asset classes. I think buying and holding quality assets is more important than ever. (I’m not applying this to bonds, as I don’t own any or know a lot about that particular market.)

Bitcoin’s New Role: Safety?

I believe that bitcoin will emerge as a new flight to safety during the upcoming financial and monetary chaos.

It may not do so tomorrow or even next month. But I believe the attractiveness of this non-correlated asset will continue to grow. It has the best performance track record of any asset in history and continues to add millions of new adopters.

And we’re on the verge of institutional investors getting access to this market – finally.

Coinbase is busy staffing up its new NYC office, with plans to hire 150 people by next year. This office is dedicated to selling crypto to institutional investors, and it’s hiring some of Wall Street’s best to do it. Here’s an excerpt from a recent article in CoinDesk (emphasis mine):

The digital asset exchange plans to expand the operation to 150 employees next year, from 20 currently. According to the company, the slump in cryptocurrency prices this year has not quelled institutional demand for this asset class.

When we saw the market begin to correct, which we all expected, institutions didn’t lose interest,” Adam White, general manager of Coinbase Institutional, told CoinDesk. “It was exactly the opposite.

He added, “They look at it as an opportunity to enter when things are not too frothy.”

Bitcoin is a sound and liquid asset with strictly limited supply. In the environment we are in today, I believe new investors will continue to flock to it. And when the next bull run kicks off, we won’t be dealing with just retail investor FOMO (fear of missing out). We’ll be dealing with institutional FOMO – and that could send markets far higher.

I’m holding on to my crypto because I believe the next few years (and decades) should be the ideal environment for cryptocurrency to emerge.

Good investing,

Adam Sharp
Co-Founder, First Stage Investor

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