Posted on May 4, 2020
Fight where it’s worth fighting
“Financial markets are not the real markets” is a much-heard statement among many people. These days and weeks, this very phrase is more than just confirmed by reality. The world has closed down for weeks and its economic activities are reduced to a minimum. As a result, unemployment rates in the US, but also in other countries, have skyrocketed.
The major financial markets, especially the S&P 500, seem to be utterly indifferent to this. After initially being in free fall, they have risen considerably again over the past month; at times the S&P 500, the index of the 500 strongest US companies, recorded the biggest daily rally in its history.
This market rally is currently a contentious topic among financial analysts. Some are rejoicing, believing that the financial markets have already overcome the corona crisis for good. Others point out that the upward trend of the world’s largest market index is mainly due to a few large companies, more precisely because of Google, Amazon and the like, while medium-sized and smaller companies have gained little ground. Still, others warn against a classic bear rally or bull trap.
A hopeless battle
It is some sort of heavy cognitive dissonance that is currently causing many experts, traders and asset managers to almost break out into despair. Although real economic fundamentals are clearly negative and the strategy of “shorting”, i.e. betting against rising markets, is becoming a blatantly obvious strategy, the financial markets are currently unimpressed by any fundamental data and are recording price gains.
This bizarre scenario is due to the central banks, above all the US Federal Reserve. After the fall in stock prices in mid-March, the Fed stepped into the markets in full force, firing at almost full capacity and thus providing almost every market participant with the much-needed liquidity. The undisguised aim of this policy was not only to support asset prices but also to raise them immediately.
As effective as this has been, it is depressing and discouraging for the clever and active trader and investor. He must admit to himself that he is actually no longer needed with his function. Trying to separate the wheat from the chaff by shortening unprofitable companies and thus freeing up misallocated resources is not a very promising and wise thing to do in the current market environment.
Worse still, those who currently act on the basis of fundamentals run the risk of finding themselves on the wrong side of the market. The bitter reality applies, for which many traders and investors had a tired smile on their faces years ago: “Don’t fight the Fed! It’s a battle against windmills that’s sure to be lost.
Join Team Bitcoin
Fighting and going against the US Federal Reserve, although the fundamental numbers would lead you to do it, is hopeless. But is it though? Just as the small Gaulish village of Asterix and Obelix defied the great Roman Empire, there is a small but ever-growing troop of Bitcoiners today that is taking on the Fed.
Unlike the daring Gauls and their magic potion, the Bitcoiners and their Bitcoin are not fiction. The cryptoasset has been in existence for over twelve years and during this time has seen a magnificent rise in relevancy. In its original sense and blood, the cryptoasset is ultimately the decentralized alternative to central banking, which makes it so promising in the eyes of Bitcoiners.
Bitcoin offers a non-hopeless way to battle against central banks and their fiat currencies peacefully. A battle that is worth fighting. Of course, its price is also distorted by today’s central bank interventions, but the network and the asset as such is completely independent and exists as a multi-layered protocol on the Internet.
While fundamentals currently play little role in the valuation of stock markets due to central bank interventions, those of Bitcoin are intact and should be interpreted as follows: The more the central banks intervene and flood the markets with infinite liquidity, the greater the legitimization of and need for Bitcoin. Fundamental analysis thus reveals: Bitcoin is still worth holding and trading fundamentally. If that is not an argument for the cryptoasset, what is?