This week Bitcoin has been sluggish. Wall Street has been busier. The medical advances and the Federal Reserve’s announcements regarding inflation targets for this year were received with enthusiasm. But Bitcoin didn’t react in the same way. It’s not the end of the world. The power of the news and the correlation with other markets is often overstated. Bitcoin also has a life of its own. Calm down, people. Fortune rewards patients.
Now, let’s talk about the most read Kryptonews of the week.
The Warren Buffett Index predicts a stock drop: How will Bitcoin react?
Obviously, the stock market is overvalued. Today’s prices don’t correspond to reality. In fact, this dissonance between the price and the underlying has been going on for years. Of course, during the crisis, this disconnection has become more pronounced. The real economy is going one way and the markets are going another. The Buffett indicator is not a precise indicator. It does not tell us the moment of collapse. But it can give us a general idea of the valuations. It is a question of comparing the total value of the market with the Gross Domestic Product. If the value of the market rises a lot in relation to the GDP, we are looking at a bubble.
Well, actually it is not difficult to recognize a bubble. What is difficult is to pinpoint the moment of its collapse. It’s not easy because, as long as we continue to have cheap money, prices will continue to inflate. Fiscal and monetary policy is primarily responsible for this. As long as inflation does not rise, liquidity will continue to fall from the sky. And, in this case, the first beneficiaries are the markets. Bitcoin, included.
Gold Price: What’s really going on with gold right now?
I must confess that the obsession of many bitcoiners with gold has always struck me as curious. Bitcoin and gold are very different assets. However, many insist on presenting them as twin brothers. It’s like a Rorschach test. The psychologist pours the black ink on the paper and the patient suddenly sees what he wants. This is precisely what happens with gold in the crypto community. It’s a mania that refuses to go away. No matter what the data, the history or the reality. Bitcoin and gold are always related.
I speculate that this pathological insistence has political roots. That is, it is inherited from American libertarians obsessed with a return to the gold standard. The cypherpunks and early bitcoiners construct the Bitcoin narrative as „digital gold“ against the evil system. According to this logic, Bitcoin is a safe haven like gold (but better because it’s digital) and oppressed people will accumulate Bitcoin due to the impending collapse of the dollar. So, gold and Bitcoin are brothers in arms, because during the collapse of everything they’ll be safe havens.
Over time, this narrative has become an article of faith. That is, a dogma. However, dogmas are refuted with evidence. Gold is an extremely liquid and stable market. And it is used by countries as an international reserve. It is often used to demonstrate solvency in the bond market. It is considered a safe haven because of its liquidity, stability and state support. It’s not just about being scarce. Bitcoin, on the other hand, is in many ways the opposite of gold. How do we know an asset isn’t safe? Lack of liquidity, immaturity and volatility. Volatility is basically indecision. In other words, there’s no security. But that’s not necessarily a bad thing. Because volatility implies risk, but it also implies higher returns. The beauty of Cryptosoft lies precisely in its insecurity.
Ironically, there’s a supposed correlation between temperamental Bitcoin and boring gold. But often a correlation is mistaken for causality, making the whole thing more absurd. Then, delusions are asserted with this one: Warren Buffett bought shares in a mining company. His purchase will drive up the price of gold. And the rise in gold will drive the price of Bitcoin up to $50K. Even Pixar doesn’t have that much imagination. It’s just ridiculous.