Bitcoin Dips Despite Bullish Investor Sentiment

The last time I was in the Bahamas, I received only a tiny glimpse of local pride when the national swim team rolled into town, music blaring and bearing the iconic flag of black, gold and aquamarine.

Other than that, I didn’t get much sense of national pride at all, but they are good at races, and it seems they’re about to win a huge one.

It really is a country whose economy is nearly entirely dependent on tourism, which could be why the Bahamian dollar is pegged one-for-one to the U.S. dollar.

All businesses accept USD but will hand you beach-themed local currency as change for any transaction. I always thought of this as their way of retaining as much wealth as possible from tourists who are often just passing through briefly on their island-hopping cruises.

Now that the world is moving away from paper money, these tiny economies are being forced to adapt, which is why the Bahamas will be the first country to roll out a national central bank digital currency (CBDC), a release scheduled for next Tuesday.

In doing so, it will beat out the likes of China, Europe, and several others who’ve been racing to be the first to offer a native digital fiat currency for their citizens.

There are clearly some vast advantages and challenges involved in CBDCs, which seem like a significant digital upgrade to the economy.

No doubt the first financial assets to be upgraded to the blockchain tokenization model will be units of government-issued money.

Having a tiny country be the first to implement it makes a lot of sense as a trial run, due to the intense risks involved in case of any errors. Don’t forget, Bitcoin wasn’t all that secure in it’s early days, and only the test of time was able to bring it to the strength it commands today.

To be clear, CBDCs have the potential to be so efficient that they completely displace the very institutions that implement them.

After all, why would you need to employ a central banker to decide when to raise/lower interest rates when an algorithm can do a much better job without being prone to temptation, corruption, manipulation or political pressure?

Further, CBDCs come several other potential benefits. For starters, they could help prevent money laundering.

In addition, they could offer greater insight into economic activity, giving policy makers more accurate data they could use to make decisions.

Another major benefit of these digital fiat currencies is they could make it easier for governments to reign in nefarious activities like money laundering.

While some associate cryptocurrencies with illegal activity, tying them more closely to law enforcement might help dispel this notion.

Business as usual

It’s simply amazing how people within my chosen profession try so hard sometimes to explain every intra-day swing of the market as if their entire career depends on it, only to far too often miss the mark entirely.

This morning when stocks were rising, it was being attributed to Vice President Joe Biden’s leap ahead in national polls, but later when they were down on the day, it was because the virus was spreading.

Neither of these narratives strike me as something that’d particularly be responsible for even 1% of 1% of the stock movements that happen within a day.

Sure, they affect the macro backdrop, but I don’t know too many fund managers who go, “oh, Biden just added two points to his lead, let me buy stocks now,” especially when it’s something as useless as a national poll when the elections are decided by the electoral college and seem ever more likely to result in a dispute, as we explained last week.

Yes, it’s true that Johnson & Johnson suspended one of their vaccine trials today, but that just seems to me to be business as usual.

There are dozens of concurrent vaccines in the pipeline, so it’s not as if our entire future rests on a single one. The hearing for Supreme Court nominee Amy Coney Barrett seems to be on track, but these events rarely deliver many surprises.

If you’re really looking hard for an interpretation of today’s 1% drop in the indices, to me it just seems like a technical move. Prices are getting high, even by today’s expensive standards, so a pullback here is perfectly normal.

S&P 500 index

Booolish!!

A similar story can be seen in the U.S. Dollar index, however this movement does stand out to me as important, and I’ll tell you why. It’s not because the U.S. dollar has fallen over the last few days, but because it hasn’t taken off, at least not so far.

Several large players were waiting for a strong dollar surge, and even I was getting a bit cautious.

Even though it’s not totally out of the question at this point, every day that passes without a strong dollar surge just makes it seem like it might not be coming. Guess we’ll just have to wait and see.

In the meantime, we’ve slightly updated the consolidation range that we were tracking. The wedge formation does seem to have been broken somewhat, and now it looks more like an upward range for the short-term, at least that it how it looks to me.

Bitcoin USD

Normally, the way to play a chart like this would be to at least take some profits at these levels, if not enter a short.

However, it’s really hard to be bearish, knowing that the corporate investment environment that we’ve been expecting since early 2018 is finally coming to pass.

Here’s where fundamentals really ring loudly, not on the intra-day but for any time frame worth holding an asset.

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