Global liquidity expectation is great for Bitcoin, but Mt. Gox is looming.
Last week we saw a tremendous outflow from the US money market fund coinciding with a dump of US equities, which implied that the US money market fund invested a considerable amount in equities and money withdrawn. Bitcoin seems again to be a leading indicator of global liquidity, with dumps leading other risky assets from a macro perspective.
The US equity market fell not only due to the coronavirus but also to the rise of the socialist Bernie Sanders. High-net-worth individuals and large corporations are afraid of him as he is a vigorous proponent of fixing the vast income inequalities.
While some are confused that even gold’s price fell despite its safe-haven nature, it is unsurprising that gold gets sold to collect liquidity when someone in the global market faces margin calls in other asset classes. We saw this particularly in November 2008, when the gold lease rate spiked to an all-time high of 2.5% p.a., gold price collapsed before the great rally to an all-time high in 2011.
US rates market seems to be convinced of a 50bp cut on March 18th, as its implied probability has suddenly spiked to 100% from just zero several days ago. Signals in the rates market told us a new easing cycle has started, and we would see three cuts of 100bp this year until the US benchmark rate reached 0.5%-0.75% before the end of Q2 and stayed there.
It is likely to be an excellent catalyst for Bitcoin as the G2 will inevitably expand its fiscal and monetary policies. China needs to make sure its economy could grow by at least 5.6% this year, thus boosting infrastructure investment to at least USD 300bn this year. Property loosening will be a final option if the economy does not grow enough despite the infrastructure boom.
Goldman Sachs initially projected a 25bp cut, however, it quickly surrendered to market expectation of a 50bp cut on or before March 18th. Goldman also forecast cuts from global central banks, including a cumulative 100bp of cut in Canada, 50bp of cuts in the UK, Australia, New Zealand, Norway, India, and South Korea, and 10bp of cuts in the Euro area and Switzerland. Goldman’s views are worth taking notice of as their downgrade report a week ago triggered the fall of the US equity market, and Goldman is known for its good sources. A 50bps cut could calm the market temporarily, however further measure might be needed as corporate earnings would have zero growth this year, according to Goldman.
However, stay prudent as the Mt. Gox Day of March 31st is looming. Note that the Rehabilitation Trustee of Mt. Gox still controls more than 140,000 Bitcoins, which after the end of March, could get returned to debtors.. However, the plan could get postponed again, as the trustee still has to deal with a considerable amount of rehabilitation claims that were previously fully or partially disproved. Before the Mt. Gox Day, potential buyers could be reluctant to chase high. It is also why Bitcoin’s price fell from above 10,000 USD, which many market players did not understand fully. If the plan gets postponed, it could remove the current overhang.