Bassanese Bites: Crypto crash – May 24 2021

Global markets

Overall it was a week of further consolidation for global equity markets, with the S&P 500 down modestly for the second week in a row. With real activity data remaining unquestionably strong (the U.S. Markit composite PMI index hit a record 68.1 in May), market concern is focused on the degree to which current price/commodity pressures persist, and how central banks may react. Accordingly, the market weakened somewhat on hints in last week’s Fed minutes that a few more voting members want to talk about tapering the current monthly bond buying program “at some point”. That said, Wall Street saw fit to bounce back strongly on Thursday – reportedly due to a further notable drop in weekly jobless claims.

Of course, the big story last week was the slump in cryptocurrencies, with Bitcoin down a lazy 30% from the previous Friday. It’s now down 47% from its recent peak in mid-April, confirming its questionable role as a store of value! Why the slump? Its role as a medium of exchange has recently come under question, first with Tesla backing down on its earlier pledge that it will be accepted as a means of payment (on environmental grounds) and then Chinese authorities also last week clamping down on its use in financial transactions. Where will Bitcoin go from here? Don’t ask me – I’ve got no idea. Either way, one apparent beneficiary of the crypto crash has been gold, which was up 2.1% in the past week and 10% in the quarter so far.

In terms of major global trends, overall U.S. equities have only pulled back modestly to date, while bond yields and oil prices are tracking sideways and the $US remains weak. As noted above, the major new trend is a rebound in gold prices.

Click to read the Full Report