The recent trend around the world is one of confusion, contempt, and all-out chaos. Geopolitical tensions around the North Korean intercontinental ballistic missile tests and their insatiable thirst for acquiring nuclear capabilities is just one domino that could fall. Syria, a hotbed for disinformation and a smokescreen for expanding our Middle East presence, is another mess. If anyone cares to notice, Syria has had a Russian presence in Tartus since the 1970s. Why, in 2016 and 2017, does the mainstream media conveniently attack Russians? The election was lost and the McCarthy-style Russian hatred began. Trump’s election rewrote the narrative, and the appreciation of the old assets commenced. The noticeable change in the direction of the market on election night from the hands of the Federal Reserve trading desk to the algorithms was the foreseeable trend for the next several months.
The dollar appreciation was noticeable, as well as the major stock indices globally. Something began to change around Thanksgiving and the holiday season. The dollar and Bitcoin began to move up in a very similar trend. Traders bought the dollar as usual, but the Japanese, Chinese, Indians, and regular folks started buying Bitcoin, as well as other cryptocurrencies. Bitcoin traded at around $750, with a market capitalization of around $12 billion. DXY, the U.S. Dollar Index, traded around the depths of $97. By December 19th, DXY traded at $103.14, and a win by Donald Trump sparked an onslaught of buying and optimism. January 4th, 2017, Bitcoin was $1,135.17 and continued up until $1,245.32 when the SEC decided not to allow Bitcoin into an ETF. The decision spooked investors, and Bitcoin dropped to $933.94 on March 26th, 2017. As we know, Bitcoin has passed its all-time high time after time and has reached $2,465 as of May 24th, 2017. During this period, DXY moved from $103.14 all the way back down to $97.08 on May 24th, 2017.
“Normal old assets” tend to thrive in situations such as the Syria strike, terrorist attacks, and North Korean threats. Normally, the dollar would have expected to see big moves to extremely high levels. This wasn’t the case this time; dollar holdings have continued to fall, and cryptocurrencies are exploding. In past years, the markets would have fallen drastically, but the little volatility is something to note as the VIX sits at record lows. Is Bitcoin the new U.S. dollar? Is it the new digital gold? Is this the new theme, as the death cross in the dollar has just happened? Will the dollar go lower and the fiat system be forced out? It seems like something different is happening as the Fed embarks on interest rate normalization. House prices will fall, the stock market will correct, and at some point, the COMEX will not be able to deliver their beloved leveraged gold.
In previous articles, I’ve discussed how countries and companies are adopting cryptocurrencies (blockchain) because they are not able to hold back this technology. Ethereum is the next biggest cryptocurrency, with a market capitalization of $14 billion. Microsoft, BNY Mellon, Toyota, and the San Francisco Stock Exchange are exploring this technology. If the cryptocurrency buying continues and the dollar continues to fall, you should see some interesting implications both endogenous and exogenous. Ethereum offers one of the most secure blockchains of any that have been created. “Ethereum is a decentralized platform that runs smart contract applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference.” Smart contracts are computer codes that can facilitate the exchange of money, content, property, shares, or anything of value. When run on the blockchain, a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met.
Ethereum is a new form of blockchain that enhances development, allowing contracts to use several operations. Ethereum’s core innovation is the Ethereum Virtual Machine software, which enables anyone to run a program, regardless of the programming language, given enough time and memory. Instead of having to build an entirely original blockchain for each new application, Ethereum enables the development of thousands of applications on one platform. DAPP technology like that of Bitcoin allows decentralization to take place and does not allow anyone or anything to control the network. Anything can be decentralized using Ethereum, such as banking, voting, and title registries. Ethereum transactions just reached 50% of Bitcoin, which has never happened before. Whether you like the fastest-growing cryptocurrency, Ethereum, or the battle-tested Bitcoin, diversifying out of the dollar is a prudent move.