Crypto? More like crypt-oh-no!

Goldex Team

Editorial content

For a while, even some gold bugs (the truest believers gold) thought that maybe their crypto equivalents were right. As Bitcoin rose past USD60,000 perhaps this really was the death of gold. Ok, so Bitcoin was more volatile, but it was moving up (and thus fiat currencies such as the USD down) while gold was slowly moving lower (read our CEO’s take on the crypto debate) Social media was awash with avatars of people with laser eyes, Elon Musk worship, and the refrain to non-believers: “have fun staying poor”.

The IPO of the crypto exchange Coinbase seemed to herald the paradigm shift to the new world order dominated by crypto.

But if history doesn’t exactly repeat, it certainly rhymes. Like the IPOs of Glencore and Blackstone, their related activities – mining and financial assets – the Coinbase IPO was the crypto top.

And at more or less the same time that US inflation printed a number far beyond expectations, Bitcoin and the other cryptos decided to crash, and crash hard (source: CoinDesk):

Bitcoin price chart

This is a top-to-bottom drawdown of approximately 50%. And all this during the highest inflation environment in the world’s biggest economy in many years.

This is hardly a safe haven. This is not a store of value. And when one man or one theme has such control over the price, it is not perhaps as decentralised as its laser-eyed proponents would have you believe:

Bitcoin punctuates wild week with a fresh bout of volatility

But now his mind is changing again, or at least the narrative is being framed to make Bitcoin more “green” or environmentally friendly after Tesla stopped accepting payments in Bitcoin because of its energy consumption:

Elon Musk changes his tune on bitcoin mining

Why Elon Musk was wrong to get Tesla into bitcoin in the first place

While Bitcoin and Crypto in general may have a role to play in the future, the current volatility and proliferation of regulatory risks (as well as a proliferation of new coins) make the whole landscape a little uncertain at present:

China’s crypto crackdown speeds shift to central Asia, North America mining

Iran bans cryptocurrency mining for four months after blackouts

Fed’s Bullard says most cryptocurrencies ‘are worthless’

Fed’s Lael Brainard pushes digital dollar as central bank currency race heats up

Fed’s Bostic: Crypto, stable coins an ‘area we cannot ignore’

China’s pledge to crack down on mining may actually worsen Bitcoin’s environmental profile

In the meantime, and away from the headlines, gold has been continuing its gradual and steady ascent, even briefly going over USD1900 per Troy oz this week:

Gold price chart

Gold tops $1,900/oz as dollar weakens, inflation jitters persist

And it is not difficult to see why gold remains resilient. From Nautilus Research comes the incredible fact that “one in four dollars ever created has been minted over the last twelve months” as show in the growth in the US Money Supply:

Federal Reserve Money Supply

And, while not confirmed, the research house Shadowstats.com claim that, if previous methodology was used, US inflation would be closer to 11% year on year:

Consumer Inflation

The shortages of so many goods and now well reported and do not look like abating any time soon. Is inflation this really just “transitory” as the central bankers promise?

The World Economy Is Suddenly Running Low on Everything

World economy is running low on everything

And while this happens the US Federal Reserve balance sheet is still expanding. Another new record (Compound / Charlie Bilello):

Fed's balance sheet hit another new high

Furthermore, in a significant story, the government of Belarus forced a Ryanair plane to land, which provoked international condemnation. This is another example of the old international order of rules and norms slowly being challenged.

Belarus plane: What we know and what we don’t

In Europe, the old ways again took another hit as, after seven years of negotiations, Switzerland unilaterally pulled out of talks with the European Union to improve bilateral relations and modernise existing treaties. The main sticking point was access to the labour market by EU citizens in Switzerland and the social security impact.

Switzerland pulls out of negotiations to redefine relationship with EU over free movement directive

Crypto, politics, inflation and anti-globalisation all coalescing to help move higher again this week. With the central banks still printing and inflation looking strong and the crypto “alternative” off the radar for now, this could be a moment for gold to continue its slow and steady move towards USD2,000 and beyond to new all-time highs.

 

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Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.