Posted by Chuck Reynolds on May 25, 2017 - 4:10pm

Who's Behind The Spike In Bitcoin?
The chart of the week, this week, has to be bitcoin.
Here's a look...

  

Bitcoin is up 30% since Friday's opening prices. It's doubled in a month.

The Nasdaq continues to defy gravity, sniffing back toward new record highs today. It took two days to shed 3%. And four business days to get it all back. The VIX (the index that measures the demand big investors have for downside protection) has had its spike and return to back to "no fear" land. Meanwhile, yields (market interest rates) followed the slide in stocks last week, with a slide back down in the low 2.20% area. But we still sit around 2.26% (not the v-shaped bounce we've had in stocks). This is something to keep a close eye on (the lack of bounce). It was my chart of the week, last Friday.

And the hedge fund community has now swung from bets of higher rates to bets of lower rates from here (the most bearish on rates since last 2014, before rates ran back below 2%). Where's the demand coming from? It looks like China. Chinese stocks are down around 8% in the past month. Meanwhile, global stocks have been bid (German stocks +6%, U.S. stocks +7%). And gold is flat. But bond yields (as discussed above) are down about 15 basis points (all over the past month)--which means demand coming into the safety of Treasurys (bond prices up, yields, down).

With that, it looks like Chinese money is going into bitcoin, global stocks, and bonds. But not gold. Remember, the story of the latter 2016 and early 2017 period, out of China, has been the Chinese government's efforts to restrict domestic capital from leaving China. It doesn't appear that they are winning.

Chuck Reynolds
Contributor
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