Well slap my tuchus and call me Shlomo. The Patriots lost. And also cryptocurrencies are crashing. (BTC at $7,048) Nobody saw that coming. I mean, come on. Nick Foles? His name sounds like a Simpsons parody of one of those Dr. Schollspoofy shoe pads. ($6,763). Just because it was the biggest run up in a single asset class in all of recorded financial history doesn’t mean it wasn’t stable! This time was different! This isn’t happening. ($6,579) The Patriots can’t lose! What’s the term for Mulligan in football? If Dr. Nick was really the quarterback then why did he catch a touchdown pass? Quarterbacks throw, they don’t catch. Bitcoin goes up, not down. ($6,223) Did the S&P 500 just plummet 184 points in two trading days? Maybe parallel universes are colliding because there’s a rip in the spacetime continuum and everything is up but quantum reality is confused. I saw that on Star Trek once. They got out of it OK. ($6,094)
Wait wait…I got a good one.
Question: What deflates faster than a football at Foxboro?
Get it?! (*Nervous Laughter*) Wait. $6,203. A bounce!
So what happened here?
Is BTC really a “Store of Value”?
Yes and no. It’s a store of some value, it’s just a question of how much value. It is only a store of value if other people will buy it at the price that you stored it at. Anything that has a use is a store of value. The use for BTC would be to buy stuff with it, the value anchored in the use-value of the stuff you buy with it. That would cause others to buy it at least at prices reasonably close to where you bought it, based on the use-value of the stuff they can buy with it, too. Generally accepted currencies move only very slowly for this reason. Everyone uses them, which vastly increases the pool of buyers, liquidity, and tends to keep price stable.
But like it or not, BTC, nor bitcoin, nor any cryptocurrency is widely used as money yet. Cryptocurrencies are just not used at anywhere close to the levels that dollars or euros are used.
That means the main thing causing others to buy BTC from you while price was rising was the theory itself, namely that BTC is a store of value. This is the investment version of begging the question, which means assuming the conclusion before it is proven. The classic example is proving God’s existence by citing the Bible, which assumes the premise that the Bible is the Word of God.
If you want to say that BTC does have a use-value, namely transferring large amounts of money at low cost, that use value itself is based on the store-of-value theory that is fueling all of the buying in the first place. Without buyers, bitcoin cannot be used to transfer money.
So you have a circle of buyers that keeps swelling without any foundation linking that value to enough stuff with actual use-value. It’s a loop that keeps feeding on itself as more and more people join it, but it’s a theory floating in the air. When the theorists run out, the whole thing breaks down until the entire parabola collapses. That should be around $2-3000 or so, before the crazy breakout started. From there, cryptocurrencies can rebuild slowly based on which ones are most accepted in exchange for goods and services, and cost least to use. That would be actual use-value. It’s not over. The market is just clearing house.
This is what happened to silver in 2011, to housing in 2006, to tech stocks in 2000, and to gold in 1980. Speculators were entirely flushed out and the assets began trading again as an actual store of value based on other things besides the theory itself.
So why are stocks collapsing as well? Because credit is running dry.
I’ve been warning since the beginning of the year to get out of stocks. I haven’t written a single bullish piece yet in 2018. From last week, on Wynn Resorts:
What has me most worried that stocks across the board are about to get hammered is that US money supply is expanding at its slowest pace for this time of year since at least 1999.
It’s probably not going to get better soon. There will be relief rallies, yes, even strong ones,but don’t forget that the two biggest rallies by percentage and absolute points in the S&P 500 were on October 13th and October 28th 2008, with gains of 11.58% and 10.79% respectively. That was not the end of the decline though, which only ended in March 2009.
I doubt any sustained breakouts to new highs until October. This is no time to buy the dip, but you don’t have to panic out of anything either. Just sell the rallies.This initial plunge will be over soon followed by a bounce, who knows how high, so use it to lighten positions further, or put in some hedges if you don’t want to lose your positions.
Why won’t it get better soon? Because we are already dangerously low on dollar supply growth at a time when monetary growth is typically the strongest of the year.The next six weeks particularly are historically very bad for growth in the money supply in every year there are records for going back to 1999. By this time 6 weeks from now, money expansion will probably be at between 2% and 3% annualized, when it is usually at 6% or 7%, and this is before the annual precipitous drop we always get after tax day in April that generally leads into the summer monetary decline. We will be starting the summer monetary decline from record low growth levels since 1999, which could mean this summer will be especially intense. By the time summer is over, the S&P could be back down to the 2,000 level or thereabouts.
Even though the gaming sector held up decently, comparatively at least, that doesn’t mean it will jump back up to new highs. Even if it does, those breaks will be brief. The Gaming Vectors ETF (BJK) outperformed, down less than 3% even though the S&P was down over 4%. Consider it a blessing and keep scaling out into strength. We’ve got a long way to go in this decline that began in the crypto markets. If Trump is really lucky, it won’t spill over into the bond and currency markets, the value of which is based on the theory that the US Government can pay all its debts.
Interesting theory, that one. $6116.37.