IT'S HAPPENING - Several weeks back, when the price of bitcoin was trading at about half of where it is right now, I put out a piece highlighting the possibility this could be the catalyst that ultimately triggers a big reversal in global risk sentiment, already well overdue. When I proposed this idea, even though it was only weeks ago, the world was a different place with respect to all things bitcoin. We have since seen a radical and violent surge of unprecedented proportions and the crypto asset is making headlines everywhere! So what may have sounded like a bit of reach back then is becoming much more of a reality that should be given serious consideration.
I LOVE IT BUT - Bubbles are bubbles and bubbles will pop. This is the way it's been and this is the way it will always be. We're now staring at a bubble that has rocketed past the market cap of Citigroup and we're looking at a crypto investment community presenting all of the classic symptoms that scream bubble. Now I want to be clear. Just because I am calling for a burst in no way means that I do not like the space. To the contrary. I love the space of crypto currencies and blockchain. I simple believe the market needs a big adjustment lower in order to give it more legitimacy going forward. I have said that the trigger that gets the stock market reversing course could come from an unexpected event and I still believe the market isn't considering the impact a collapse in the price of bitcoin could have on global sentiment that is already super fragile beneath the protective layer of central bank and government support.
JUST LIKE THAT - There has been such a flood of speculative, fear of missing out capital, that the second this market comes off for more than a brief moment, you will start seeing a lot more of why it never made sense and a lot more last minute crypto investors jumping ship or blowing up entirely. This type of an event will have a negative impact on broader global sentiment, as the money starts running back to the safety of fiat and this will force investors to reconsider any and all bets that could be extended and exposed to periods of weakness. At that point, all of a sudden the things investors were able to shrug off won't be so easy to shrug off, also leaving these investors with nothing in front of them except exhausted monetary policy, US tax reform out of the way, normalization of interest rates and the onset of inflation. None of this will be good for risk markets and I suspect that after averting this for another year in 2017, it could start to get real ugly, super fast in 2018.