It is not a total coincidence that the Nasdaq crossed 20,000 and Bitcoin crossed 100,000 on December 11, 2024. Bitcoin had briefly touched that mark before that date, but both things crossed their milestones on Wednesday after an inflation report that came in largely as expected.
The CPI report for November showed that prices rose 0.3% for the month. The year-over-year CPI now stands at 2.7%, which is a tick up from where it had been.
The median CPI was up 0.2% for the month, while the year-over-year median CPI is at 3.9%. This is down from where it had been.
Correlation and the Everything Bubble
Bitcoin and the Nasdaq are actually highly correlated. There doesn’t seem to be any reason for them to be correlated. One is a so-called cryptocurrency. It is digital code that can be traded, bought, and sold.
The Nasdaq is a stock index. The stocks in the Nasdaq tend to be for technology-related companies. If you own Nasdaq shares, you own a tiny piece of these technology companies. These are real assets that typically produce real revenue and real profits.
But there is one major similarity of Bitcoin and the Nasdaq index. They are part of the Everything Bubble. In fact, these two things almost seem like the face of the bubble.
Just as housing and financial stocks were the face of the bubble in 2007/ 2008, the Nasdaq and Bitcoin are the speculative games in town for this one.
When the bubble finally bursts, there will be differences. As stated above, when you own the Nasdaq, you at least own real assets, even if they are overvalued right now as compared to what they will be.
Who knows with Bitcoin? It isn’t going to zero because there will always be libertarian-leaning tech nerds who will always insist that Bitcoin is the solution to all of our problems. But Bitcoin could certainly fall 95% or more without much of a problem.
Ignoring the Fundamentals
I remember commenting on the Nasdaq back in early 2020. I said that it may hit 10,000 that year and that that was a bubble. It has now doubled from there.
To be sure, the Fed has done a lot of money creation since that time. This may justify some of the increases.
With so much politics going on, especially with a new president coming in, it seems that everyone is talking about the good or the bad that will happen with Trump.
But the economy doesn’t really care about Trump. We shouldn’t get blinded by the politics.
There has been an inverted yield curve for about two years now. It is now just about flat. The 30-year yield now sits slightly higher than the short-term yields. Now that the yield curve is returning to normal, we are ready for a major recession.
It doesn’t matter that the Fed is lowering rates. It is quite common for the Fed to lower rates ahead of when a recession begins, or at least ahead of when we realize there is a recession.
Plus, while everyone talks about the Fed lowering rates, the Fed is engaging in a seemingly contradictory policy. It continues to drain its balance sheet. In other words, the Fed is actually engaging in monetary deflation.
We have a falling balance sheet, a yield that is uninverting after two years, and ridiculous all-time highs in the markets. It doesn’t matter if Donald Trump, Bernie Sanders, or Ron Paul is set to take the White House. There is a recession ahead. The Everything Bubble is set to explode.