Bitcoin (BTC-USD) hit new all-time highs in Tuesday trading and its super fans are going wild.
However, this is bad news.
Euphoria isn’t bullish. When Bitcoin goes ballistic, overconfidence soars, and altcoins – otherwise known as gambling vehicles – go vertical, investors should take that as a warning sign.
The more mania there is, the more likely that inflation accelerates. The more likely that inflation accelerates, the more likely the Federal Reserve DOESN’T cut rates.
It’s unclear if Bitcoin is truly a risk-off asset, because right now, its price behavior correlates to stock market volatility. Sure, there’s catalysts for demand right now like new spot exchange-traded funds (ETFs) and the upcoming halving.
But regardless, if the momentum in Bitcoin prices persists like this, the Federal Reserve may see it as a warning that there is too much liquidity in the market. Indeed, rate cut odds have been dropping lately, and the more we see this kind of price action in cryptocurrencies, the closer we get to repeating the 2021 cycle. And then we get closer to when the bear market for most assets began.
Want confirmation of that? Track gold.
Why Gold Matters as Bitcoin Hits All-Time Highs
Gold prices are waking up, setting new all-time highs on Tuesday. This is another warning signal that something is off. Combined with utility stocks stabilizing and small-cap stocks now at risk of continued underperformance, the risk-off message is getting louder just as everyone is screaming about $100,000 Bitcoin. Maybe Bitcoin does get there.
But as I always say, path matters more than prediction. March continues to be an important month. Seasonality favors the bears in the near term, liquidity looks like it’s dropping, and no one is prepared for volatility that could be at our doorstep.
Multiple signals on my end are closer to flipping to risk-off mode. All this means is that the conditions, when those signals flip, are getting closer to signaling we could be on the verge of an accident.
I don’t think Bitcoin is the signal. If anything, Bitcoin is the cause, not the warning. Gold’s action is more telling, and if the Fed is paying any attention at all, they likely will start trying to talk things down sooner than later.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
