Bubbles & Central Bank Digital Currency
Macro Perspectives: Wed 23 Jun 2021
We looked at three "bubble markets" last month: Lumber, Bitcoin and Tesla. All of which multiplied in value after the November election.
Lumber has now dropped nearly 50% from the record highs of just a month ago.
Bitcoin dropped below the key 30k level yesterday. That too has more than halved in value since hitting a record high - in this case, just two months ago.
Tesla, 30% off of the January record highs, continues to look like air is in the early stages of coming out of the bubble (a stock that soared 13-fold in less than a year, as the market's primary expression of the bet on a global energy transformation). Now the Tesla business/operating performance is finally coming under scrutiny, plus it's beginning to look like electric vehicles will be a hyper-competitive space.
So these all continue to look like, and behave like, tools of excessive speculation (if not manipulation) on the path for a typical bubble outcome.
On that note, bitcoin has an additional threat lurking. The discussions of a digital currency regime have been underway at almost 90% of the central banks around the world, according to the Bank for International Settlements (BIS). In fact, the democrats attempted to ram through the adoption of their grand plan on a central bank-backed digital dollar last year, as part of the covid relief bill (to deliver stimulus money). It was blocked, but the plan has continued to gain momentum - the Senate Banking committee held a hearing just two weeks ago on this topic.
In her opening statement for this hearing, Elizabeth Warren described a central bank-backed digital dollar as "legitimate digital public money that could help drive out bogus digital private money, while improving financial inclusion, efficiency, and the safety of our financial system."
If we consider that this has been on the democrat wish list (worthy of trying to leverage a crisis to try to deploy) and that we now have a party-aligned Congress and White House, it's safe to assume the digital dollar is coming. Add to that, it all appears to be in agreement, if not coordination, with other central banks and governments (given the BIS survey).
This means two likely outcomes: 1) governments will regulate away bitcoin/"bogus digital private money," and 2) a cashless society is coming.