Crypto and gold dwarfed equity markets this week, as rising geopolitical tensions between US - Iran and the upcoming G20 meeting quenched risk appetite. Volatility is likely to be subdued in equities, allowing profit-taking and hand-changing activities. Cryptocurrencies and gold prices outshone all other asset classes.
Bitcoin prices broke above the US$11,000 mark this morning, extending its 200% rally this year. The cryptocurrency was barely traded above USD$3,000 early this year.
But it still has some distance to go from the December 2017 high of US$ 19,500. Technically, Bitcoin prices are on the rise, with the Fibonacci retracement's first resistance at 9,400 having broken through, followed by resistance at 11,343 and 13,270.
The eye-watering rally was catalysed by Facebook’s plan to launch its own digital currency, Libra for legislated commercial usage.
It was further boosted by central banks’ commitments to ease monetary policy again, to cushion a global economic down cycle. This will inevitably lead to a new round of competitive currency depreciation, or ‘money printing’ in layman’s terms. As more money is circulating in the market, the real purchasing power of paper money will gradually be eroded by rising asset prices.
Cryptocurrencies are different from traditional currency circulation which are determined by central bank policies. The total amount of cryptocurrency is fixed, limited and decentralised from any single organisation. This difference makes the cryptocurrency scarcer in nature than traditional currency, in particular during an era of loose monetary policy
For a broader picture, there are currently more than 2,200 cryptocurrencies on the market, with an overall market value of more than $0.32 trillion. Bitcoin alone accounts for 2/3 of the total market value, at 0.19 trillion. Despite the astounding outbreak of cryptocurrency in recent years, its total market capitalisation is still relatively low compared to other asset classes such as real estate (162 trillion), bonds (94 trillion), stocks (55 trillion), and gold (6 trillion). Once they become the alternative means of payment in the future and are recognised by mainstream investment institutions, their potential upside is perhaps unlimited.
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