Another Red Flag From Digital Gold
When good times roll then the digital gold does too.
More often than not, these good times occur when liquidity gates widen.
Simply put, there’s more cash for alternative assets like Bitcoin ($BTC) to speculate on and that’s what people do.
Bitcoin as a standalone asset possesses no intrinsic value and delivers investors zero cash flow which are serious drawbacks in times of pain.
I wouldn’t go so far as to say this is a time of pain right now, but we are inching closer to it as the US 10-year treasury (TLT) hits 4.35%.
Sometimes, investors need that extra little bit of cash flow from that 50-year-old studio tucked away deep inside their portfolio to survive.
Call it a rainy day fund if you will.
The drawdown in Bitcoin is an ominous sign for tech shares ($COMPQ) because the logic goes that if Bitcoin goes up, so does tech.
The narrative for some time has been that Bitcoin is akin to something like crappy tech so if crappy tech shares deliver, then the good tech companies that offer cash flow and software products will do even better.
Bitcoin has just been jolted by some negative price action as we find ourselves lower than last week, at around $26,000 per BTC.
Longer-term US Treasury yields are around multi-year highs, part of a global bond selloff that reflects the risk of a prolonged period of restrictive monetary settings to bring down inflation.
Such a backdrop portends constrained liquidity that would pose a challenge for riskier assets like tech stocks and crypto.
Higher interest rates mean that assets like Bitcoin don’t look so attractive on a relative basis.
Some of the technical signals followed by chart analysts paint a mixed picture. A gauge of momentum known as the 14-day relative strength index suggests Bitcoin is close to the most oversold level since mid-2022.
Other metrics point to a reluctance among retail and institutional investors to engage with crypto following last year’s rout, blowups like FTX, and an ever-shifting regulatory landscape.
For instance, average daily spot volumes on centralized digital-asset exchanges over the past four months were the lowest since October 2020 — when Bitcoin was at about $10,000.
The last 30 days have been brutal for the Nasdaq index and narrowing the goalposts means that BTC will be one of the first casualties to get heaved into the dumpster.
The price action for tech stocks has been highly disappointing lately and there is a strong chance that we could revert to sell the rallies in the short term.
Numerous times the Nasdaq has started the morning hot out of the gate only to suffer sharp sell-offs as the afternoons rolled around.
Shares trending lower to end the trading day have epitomized tech shares lately.
Momentum is lackluster.
The reason I believe that tech shares will endure a harsher period of consolidation is because the added kick in the nuts is China weakness.
Growth forecasts are starting to get ratcheted back as it appears that China has entered the Japan-style lost decade type of slowdown that is a symbol of economic stagnation.
The Nasdaq is really searching hard under each stone to find some type of tailwind to propel us into year-end, but the window is closing quickly. Let’s hope we find that rocket fuel to get us over the line.
