After a jump above $24,000, bitcoin has not quite kept up with Nasdaq today which rose a further 2%.
The crypto briefly rose above $24,200 following the dovish press conference by Fed’s chair Jerome Powell yesterday.
For much of today however it stood at about $23,800, and beyond a brief rise by about $100 on stock opening, it did not move further up.
It is down instead a bit more, briefly touching $23,500 even as Nasdaq gains but Dow Jones is slightly red, -0.4%.
UnitedHealth and Travelers are seemingly dragging Dow down, both down 3.7%, but labor resilience might be another reason.
The Labor Department said first-time jobless claims fell to 183,000 vs. 186,000 in the previous week. They were expected to rise to 193,000.
Last week unemployment claims were lower than expected as well in an indication of a continued tight labor market.
That can contribute to wage inflation, but the US economy has been on a downtrend since summer which has contributed to disinflation in US.
In Europe, ECB’s president Christine Lagarde said there are no signs of disinflation, but she seemed to hint that after another hike of 0.5% in March, they might slow down to hike by 0.25% in May to what then would be 3.25%.
She said that core inflation has not come down, and further stated that once inflation comes down to 2%, they want to keep rates for a sufficient time to ensure it stays at target.
So not 2% for a day or a month, with central banks now risking deflation by overshooting in a reversal of their policy to tolerate higher than 2% inflation “for some time” as Powell said back in 2021.
They’re now seemingly willing to tolerate inflation below 2% for some time according to the Bank of England projections and their interest rates.
Rate cuts therefore are less likely for this year, but we first have to see the effect of these rates on the economy.
Lagarde stated that lending has fallen due to European banks tightening criteria and because demand for loans and mortgages has fallen.
The money supply has also began falling, so we might be entering the grip of full on deflation quarter on quarter.
That can potentially lead to a significant contraction, which is unpredictable at this point as the effects of this monetary tightening have not quite reverberated through.
Talks of a soft landing therefore may be premature, with it to be seen just what effect this liquidity crunch will have on the economy on the coming two-three quarters after Q1.
In some ways where bitcoin and maybe stock prices are concerned, the worst the news the better some speculators might say as it may force central banks to turn on back the life support.
But a contraction may get messy as government debt is already too high and banks are no longer accommodative, making this a difficult triangle that needs some sort of a political will to break.
Not least because there’s always the danger that a liquidity crunch hits suddenly with it very much an open question currently whether our politicians have the tools.
A debt crisis however would in some ways be the natural terrain of bitcoin, maybe after first following stocks, and there’s always the question of whether the contraction has been priced in.
But what you can’t price in is its extent due to it being a very complex system, especially globally.
US and Europe may manage alright-ish, but some countries might fall and join Sri Lanka or Lebanon.
There’s a crisis already in both Egypt and Pakistan. It may get a lot worse in plenty of other countries as deflation and unaccomodative interest rates start gripping the world.
China in particular might be hit worst. They have plenty of room to ease while inflation remains low, but the doom fest we’ve been enjoying for the past year while it was not felt on the street, might start becoming the street fest.
Obviously things may turn out very differently, but some of this is just maths. Where assets are concerned however, they might be looking more at the clearing of contraction hopefully by the end of the year, with bitcoin up again now to $23,800.
Whether it takes out $24,000 is probably less relevant than whether it can stay at these levels, above $23,000, as then it would be just a matter of time and it might set a more cemented new level.