Why We’re Not Drowning in Cash?

Investors have a lot to be thankful for this year. Both the traditional markets and alternative markets are outpacing all expectations and those of us lucky enough to be involved should take a moment to reflect.

Many markets will be closed this evening as Wall Street takes a much needed night off. Check out the Market Hours Page for the specific assets that you’re trading on.

For you cryptotraders, I’ll save you a click. There will be no downtime. Crypto is traded 24/7!

@MatiGreenspan
eToro, Senior Market Analyst

 

Please note: All data, figures & graphs are valid as of November 23rd. All trading carries risk. Only risk capital you can afford to lose.

Market Overview

The people in charge of the money flows, released their thoughts on the economy and stock markets yesterday. As we know, the US Federal Reserve Bank has had more influence on the economy than any single institution or person over the past decade. The FOMC minutes from their meeting on November 1st did contain a few surprises.

It seems that the Fed Head Janet Yellen has completely changed the language she’s using about inflation. The word she was using before was “transitory”, meaning that the Fed feels this low inflation period will pass shortly. A word that she used more recently is “guess,” stating that we ‘think’ that inflation will rise. Now it seems they’re just not certain so they’re going to ignore it.

Let’s back up…

The Federal Reserve, along with the other central banks of the world have been pumping the global economy with cash injections known as Quantitative Easing (QE). Currently, the total amount of QE from the top five countries is about $19.5 Trillion. Not a small amount of change.

but it doesn’t stop there…

In our economy, only a small portion of money is created by the central banks. In fact, every Dollar that is held at the Fed is then lent out to other banks within the country who in turn lend each and every dollar to many different clients. This is called fractional banking and what it means is that a bank only needs to own a fraction of the money that it lends out.

Like any other asset, prices of currencies are usually determined by supply and demand. However, with the amount of QE that’s been poured into the system it’s a real mystery that we haven’t seen hyperinflation on a massive scale.

Why are we not drowning in cash???

This question is now being pondered by virtually all economists in the world at the moment and nobody seems to have any good answers.

One of the biggest effects that we can see are global stock prices that tend to benefit from all this cash floating around the system.

The question of hyperinflation or lack thereof is a hot topic in the financial world and no doubt will be discussed by some over turkey and cranberry sauce this evening. For some of the more normal people, the much bigger topic of discussion will be about cryptocurrencies and how we can replace all of the above with a much better system.

Crypto Market Tops $250 Billion

There have already been several articles published about how to speak about Bitcoin at your Thanksgiving dinner. Some of them are pretty good too. But I’m sure most of my readers are already somewhat familiar with this world and what we’re trying to accomplish with it so I’ll just dive right into the price movements for you.

It’s now been two weeks since the Segwit2x hard fork was called off (orange circle) and the action has been intense. It seems that every day one crypto or another is seeing monstrous gains. Here I’ve put together all the cryptos that are traded at eToro in one chart.

Bitcoin itself is up 10% in two weeks, which is amazing if you think about it but somehow just doesn’t seem impressive at all given some of the other advances.

The best performer by far has been Bitcoin Cash (Green). I actually had to cut off the top of the spike on the chart above just so we could see the moves more clearly. Some believe that Bitcash’s bigger blocks and new ‘difficulty adjusting mining formula’ make it an excellent alternative to Bitcoin. However, the crypto markets are all about consensus. And lately, especially since B2X coin never happened, this new bitcoin is gaining traction.

As of this writing, Bitcash is up 36% in the last 24 hours and 148% in the last two weeks. Beware the volatility though!!

The second best performer has been Dash, which we discussed in yesterday’s update and though Ripple saw a big spike (purple circle) on the announcement that they will be partnering with American Express, they’re two-week performance is now mostly inline with the rest of them.

Trying to guess which crypto is going to perform the best is a lot like playing roulette. The odds that you’re going to guess the exact right one are pretty slim. However, this is not a zero-sum game. So spreading your bets out and diversifying into many different contenders is probably the best strategy.

New Milestone

The total value of all digital assets in the world has now passed $250 Billion, up 25% in the past two weeks and 1471% since the beginning of the year.

My best guess is that many cryptotraders looking at their portfolio right now might see the ‘lagging’ performance of bitcoin and try to reallocate some of their BTC into higher risk tokens to try and chase those bigger returns. However, this doesn’t necessarily mean that bitcoin will go down.

Bitcoin is a gateway cryptocurrency. Most newcomers in the market and there are a lot of newcomers, first get into bitcoin before trying out some of the others and it still represents the biggest holding of most crypto-investors.

Let’s have an amazing day ahead!

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.