Is this the “flippening”? The Dow Jones is losing to Crypto! Currently, the Dow Jones is suffering one of the worst months since the banking collapse. Across the board, America’s biggest companies are down nearly 10%. What do you think? Is the Dow Jones losing to crypto? Or is this just a hiccup?
Panic has been slung around the watercooler for the first time after the Dow and other US indexes may have seen a double-top, a bearish indicator.
“Panic-like selling,” MarketWatch reported. “This is more of a panic attack ‘rather than the beginning of a bear market,” says CNBC, quoting an unnamed individual.
The Dow has more than tripled in the past decade in one of the greatest bull runs it has witnessed. However, try as it might, it just seems unable to cross the near-invincible 27,000 mark. It tried at the beginning of 2018, but a correction followed. It tried again leading into October, but the bears have come out to play and seem to control the charts.
Looking closely at another US index, the S&P500, the chart shows more clearly the recent sell-off, with the index of 500 companies also seeing a near universal 10% drop this month.
If you take a look at China, the story is radically different. in China, the stock market has crashed and has entered bear territory. If you look at the Shanghai market chart, one could easily mistake it for a volatile penny-stock.
The meteoric rise in 2007 gave way to just as astonishing fall that ended in 2009, which resulted in the worst economic recession since the Great Depression. The markets moved sideways until 2015 when it doubled in just months.
That bubble burst in 2016 when Chinese central bankers purposefully devalued the Yuan and then turned their attention to Bitcoin.
Chinese authorities then closed crypto-exchanges around September of 2017 to enforce draconian capital controls. During this near one year recovery period for Chinese stocks, this action resulted into a crash, down 30% for the year, and halved since 2016.
The charts, up until now, had resembled what looked to be a bottom, but the bottom gave way due to potentially tariffs and the recent trade war. The bull support looks to be broken for Chinese stocks.
Crypto has a different story.
After a tumultuous and bearish start to 2018, cryptocurrencies have become, by and large, nice and stable since mid-September. The big question to ask right now is: have they bottomed?
To look at cryptocurrencies and to better answer that question, we have to look at historical and holistic datapoints. Let’s go back to 2016, a year full of geopolitical action.
President Obama, humiliated by ISIS and Putin, may have come up with a plan which may have involved the Saudis crashing the oil price.
What we’re discussing here is high politics, actions by higher ups revealed decades after-the-fact. Backroom dealings and map carvings for influence in this region or the next. So who knows? Maybe the intentional crashing of the oil price by the Saudis, who pumped it out in overdrive, had nothing to do with the then geopolitical situation and was just aimed at undercutting the new US oil fracking procedures. Maybe they did it sensing how the wind was blowing with Iran?
Whatever the cause, the effect is indisputable. Oil crashed, economies followed. Nigeria suffered a currency crisis. Russian money devalued and its economy suffered. Venezuela collapsed.
Mix in China’s easy money policing combined with the fact that China devalued its Yuan, and you’ve got a perfect mix for chaos.
Venezuela’s hyper-inflation was hiding its neighbors’ high inflation. Chaos in some foreign exchange markets was taking attention from an ever-growing more-powerful US dollar. For the West, oil was down, the Euro was stable, the USD was rising, and in 2017, there was a Crypto boom.
Enter 2018, the most turbulent year in global markets since the banking collapse. Cryptos crashed. US Stock market stopped its bull run, and we are now anxiously waiting to see if this 10% drop is the bottom before climbing upwards, or if we’re going to see another 10% down. China’s stocks are in the deep red. News about fiat currencies in trouble are commonplace today.
What happened? Well, we should take a look at April of this year when according to a report: “About a month ago, the Federal Reserve Reported a sharp drop of US Treasury securities in custody on behalf of foreign agents…. That was something like a collateral call. It happened the week of April 18th.”
Normally, this might suggest the dollar had become too strong (it has), but thanks to the Fed’s continued rise in interest rates, the Dollar has gone on to become even stronger. A stronger dollar is great for consumers, but it isn’t good for capital requirements for banks, IE international trade and investments.
The dollar was at its strongest in August of this year, yet in September, the Fed still raised interest rates and told the markets to expect a Greenspanian/Powellian plan to raise interest rates effectively every quarter. The biggest reason why this might be done is to ensure that there’s a way to help out the economy when the next recession hits by dropping interest rates – making it cheaper for individuals and banks to take on debt.
But these actions are taking place while many currencies are so weak. The European central bank is still undergoing their version of “Quantitative Easing”, printing money, while their economies are hardly seeing wages grow above inflation.
So when the US Stock markets tumble 10%, the strongest economy in the world takes a 10% drop, people pay attention. The question being asked now is if the dollar is due for a correction.
But now back to cryptos: will investors fleeing the markets while they undergo a potential bear come to crypto? Housing is probably in a bubble. Dollar might be in a bubble. Bonds are risky due to government borrowing. Gold is gold, so maybe precious metals and commodities? But are precious metals and commodities a better market than Cryptos?
Is this lining up perfectly with the launch of Bakkt set for launch in December? Only the market knows. Looking at history and at other studies, however, crypto does not correlate, yet, with any other asset. Could that change?
Now, this does not mean that cryptos movements might not coincide with stocks. It could be totally unrelated, as to stocks having seemingly reached a top while cryptos have potentially reached a bottom.
Or it may not. We’re not soothsayers. No one can predict the decision of millions, no, billions of people. The stock sell-off could just be a correction. Talk of panic may be overrated and unnecessary. The US economy has been chugging along strongly, and this may just be a quick refuel stop and continue on its way past 27,000 and charge towards 28,000.
What do you think? What do you plan on doing? Do you invest in the markets and cryptocurrencies? Which ones are you more bullish on as we enter the last few months of 2018? Let us know on our Facebook page!
