“The more things change, the more they stay the same.”
This week the gold price surged, and gold’s top exchange-traded fund (ETF) recorded its biggest gain in almost three years.
Why? Well, to answer that question, we can cast our minds back to 2016, when Goldman Sachs’ head of commodities, Jeff Currie, appeared on CNBC’s “power lunch”.
“I always like to say gold is a great hedge against politicians, and we have a lot of political risk in the market right now. So gold has a strategic purpose,” he said.
“Why, what’s the tie between gold and politicians?” Brian Sullivan of CNBC asked.
“Well, if you think about the correlation between rates and you think about when you debase a currency or weak dollar, what people gravitate to are hard assets and gold is the epitome of the hard asset,” said Currie.
Basically, when economic or political uncertainty increases, so does the gold price. And given what we have right now, with the US-China trade war and our own Brexit chaos, gold is back in the limelight.
In fact, on Monday, gold once again regained its crown as the king of precious metals, bumping palladium – which is 30 times as rare as gold – off the top spot.
And given that “politicians” don’t look to be calming down anytime soon, it’s fair to say the future is looking bright for gold investors.
Bear whale takes a swipe at bitcoin
As I wrote last Friday, bitcoin and gold share a lot of similarities. And both operate outside of the traditional financial system.
This comes with both negatives and positives. In bitcoin’s case, it’s not unusual for it to double, or even triple in price over the course of a few months – as we’ve seen since the beginning of this year.
But all this freedom comes at a cost. Bitcoin and most other cryptos are unregulated.
This means manipulation tactics that would get you thrown in prison in most markets are perfectly legal in bitcoin.
Sometimes this works to investors’ advantages. Sometimes it does not. Monday and Tuesday’s bitcoin dump appears to be a clear case of the latter.
On Monday evening bitcoin’s price dropped 11.5%, from around $8,700 to around $7,700, before stabilising to around $7,900. As I write, it’s back to around $8,000.
The reason? A “bear whale”.
This is someone with hundreds of millions of dollars at their disposal (a whale) who also wants the see the bitcoin price drop (a bear). Combine the two and you have someone crypto investors love to hate and mythologise – a bear whale.
So, how did it all happen? I found a post on Reedit that sums it up pretty succinctly, so here it is:
And further down the thread someone chimed in with a little more detail on how the bear whale would have actually made money from this (tens of millions of dollars):
As I said, in regulated markets, this kind of thing would land you in jail. But in bitcoin, it’s par for the course.
Personally, I see it as more of a positive than a negative. It shows that big money interest is returning to the market.
People forget that moves and manipulation happened like this all the time in 2017’s crypto bull run. Over the long term, this kind of manipulation is just a blip.
But in the short term it can have a big effect. As we’ve seen.
This is why trying to “trade” crypto markets is a very dangerous game. You can do all the technical analysis and all the research you want. But if a “bear whale” decides to manipulate the price, you’re going along for the ride.
Still, this move has drawn a lot of attention from a lot of places. So, it will be interesting to see if anything further comes of it.
Until next time,
Editor, Exponential Investor