Investors' growing appetite for risk-on assets is sending haven assets, including the new kid bitcoin, on a falling spree.
Easing trade tensions between the United States and China is making bitcoin a less-attractive haven asset for investors.
The benchmark cryptocurrency has fallen by roughly 20%, or $1,700, since Oct. 11 – the day Donald Trump agreed to pursue a “phase one” trade deal with Beijing. The plunge also came as a part of a larger correction that started after bitcoin established $13,686 as its year-to-date (YTD) high in June.
Other popular safe-haven destinations have also witnessed their uptrends stalling. On Friday, the gold price closed 5.2% from its YTD peak of $1,557.10, established on September 4.
The Japanese yen and U.S. dollar, too, moved lower. At the same time, the yields on the benchmark U.S. 10-year Treasury note surged from YTD lows of 1.428% to the Friday close of 1.825%.
Investors moved into safe-haven assets earlier this year after getting pushed by a string of pessimistic macroeconomic events. As of May, both the U.S. and China were slapping tit-for-tat tariffs on each others’ exporting goods; a Brexit deal was looking uncertain; and, a benchmark yield curve indicator was casting fears of a major recession.
But last days saw many of those concerns easing. On Dec. 14, the U.S. and China partially calmed down their trade war. Washington confirmed that it would not slap tariffs on $120 billion of Chinese goods while Beijing agreed to purchase at least $40 billion worth of U.S. agricultural products.
In the U.K., Boris Johnson’s conservative party won parliamentary elections by huge margins. The victory flagged the possibility of a positive Brexit deal.
Both developments made stocks an attractive destination for global investors. The U.S. benchmark S&P 500 index shot to its record high on Thursday. Other indexes, including the Dow Jones and the Nasdaq Composite, too, registered fresh yearly highs on Friday.
At the same time, U.K. stocks rallied higher on Monday morning. Afternoon data of London’s benchmark FTSE 100 index showed 2.2% growth. The FTSE 250, which traces locally exposed medium-scale British businesses, registered a 1.5% intraday gain.
Technical factors continued to rule trading sentiment in crypto-land.
Bitcoin met with positive developments in the form of a Bakkt launch and China’s premier Xi Jinping’s endorsement of its underlying technology – the blockchain. But none of those events were able to materialize a strong price reversal.
Instead, traders drove bitcoin in make-believe technical ranges. They appeared to have been buying the cryptocurrency at the support of a descending channel and selling it later at the resistance of the same channel.
With speculation high and big investors giving a last-minute ditch to bitcoin for more attractive stock positions, the cryptocurrency could be heading down towards its psychological support range of $6,000-6,500.
Investors, nevertheless, are bullish for the long-term. They expect the cryptocurrency to make wild upside moves ahead of its halving. In May 2020, the supply rate of bitcoin will be cut by half, making it more scarce should the demand mount.
Jeff Saut, the chief investment strategist at Capital Wealth Planning, noted that investors are carrying their stock positions into 2020 on a cautious note.
He told CNBC that the stock indexes could undergo 30-40% downside corrections. But such a move would happen after they establish new all-time highs. Excerpts from his statement:
You’ve got the seasonality tailwinds. Central banks of the world are printing money and that’s all you really need to know. … Going into year-end, I think the market trades higher. I think next year you can see between 3500 to 3600 on the S&P 500.
This article was edited by Sam Bourgi.
Last modified: January 22, 2020 11:40 PM UTC