Last week was a rough week for the stock market – but a great week for cryptocurrencies, as Bitcoin staged a huge breakout that many bulls see as a sign of brighter days ahead for the crypto market.
It all started with the B-Word Conference, headlined by Tesla (NASDAQ:TSLA) CEO Elon Musk, Twitter (NASDAQ:TWTR) and Square (NYSE:SQ) CEO Jack Dorsey, and ARK Investment Management founder Cathie Wood. That event injected optimism into the crypto markets by showing that its biggest and arguably smartest supporters are still 100% behind the crypto revolution, despite weak near-term price action.
Then, we got news that Amazon (NASDAQ:AMZN) may start accepting Bitcoin and other cryptos on its platform in 2022. That news turned renewed optimism in the crypto markets into high hopes. Bitcoin broke out of its slumber and surged from a $30,000 base to break above the psychologically all-important $40,000 level in a matter of a few trading days.
That’s a big move…
What the ‘Bitcoin Breakout’ Means for You
Now, some folks are calling this the long overdue “Bitcoin Breakout.” But we think it’s too early to call it that. Bitcoin has fooled the market before, breaking above $40,000 in recent months only to fall back into the $30,000 to $40,000 trading range. This could be just another head fake.
While that may sound pessimistic, it’s not. In fact, it’s anything but that.
You need to remember that consolidation after a big breakout is actually very healthy for the long-term price trajectory of an asset. Consolidation is most usually a prerequisite for an asset to take its next permanent leg higher on the price chart. Therefore, we are not too concerned about whether this Bitcoin breakout above $40,000 is “real” or not.
Instead, we are far more focused on the fact that it appears that the world is starting to accept Bitcoin as “Digital Gold.”
What folks missed this past week is that the breakout in Bitcoin prices coincided with an uptick on the 10-year Treasury yield. Now, if you back out to a year-to-date chart, you can actually see that the 10-year has very closely correlated with the price of Bitcoin in 2021. Both largely broke out in late January, peaked in late March, traded sideways into May, and fell sharply in June and July.
That’s important, because the 10-year Treasury yield is widely seen as the market’s proxy for inflation expectations. When it goes up, inflation expectations are rising. When it goes down, inflation expectations are dropping.
So, in essence, when inflation expectations have risen in 2021, Bitcoin prices have risen, too. And when inflation expectations have dropped in 2021, Bitcoin prices have dropped, too.
Importantly, this correlation has never existed before. It first appeared in January, and it has been unmistakable ever since.
Now… why is all this important?
Because it shows that, for the first time ever, the market is treating Bitcoin as a hedge against inflation. What is the traditional hedge against inflation? Gold. So, in fact, it looks like the market is coming around to the idea that Bitcoin is digital gold.
That’s a profound concept, with enormously positive implications for altcoins, or cryptocurrencies other than Bitcoin.
The Next Step for Cryptos
If you consider the so-called “learning curve” of cryptos, coming to understand that Bitcoin is digital gold is step one. Steps two, three, and four are coming to understand that altcoins are not fantasy internet money, that they can have real economic implications, and that they are presently creating processes and systems that are 10X better than today’s centralized processes and systems.
The market is coming around to step one on its learning curve right now. What comes next? Steps two, three, and four – which means that within the next few months and years, the market will likely come to understand the real-world economic impact of cryptocurrencies and get very bullish on the long-term potential of altcoins.
That’s why we don’t particularly care about the near-term price action in Bitcoin. Don’t get me wrong. We love it. But what we love more is the fact that it looks like the world is about to accept altcoins as the future – and that means the long-term upside potential for good altcoins has never looked so good.
But what makes a “good” altcoin?
A lot of factors, and to fully dig through and comprehend all those factors, you need to do a lot of homework.
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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