Bitcoin, Ethereum and Spreads

Bitcoin, Ethereum and Spreads

The annual inflation rate in the eurozone by the end of January 2022, according to preliminary estimates, was 5.1%, which was the highest indicator in the entire history of observations, according to Eurostat. In December 2021, annual inflation in the Eurozone was 5%.

Central banks are in the grip of inflation and spreads, and this makes them frantically search for a way out. What does this mean for Bitcoin and Ethereum? Bullish attitude towards cryptocurrencies?

Probably yes, and this is what we will talk about in today’s article, considering what room for maneuver central banks have, and what impact they can have on both Bitcoin and the rest of the industry

Before proceeding to the analysis, it is necessary to make a few introductory remarks. Despite the fact that Bitcoin is outside the sphere of traditional finance, certain decisions of the Fed and the ECB will certainly affect the cryptocurrency world. Bitcoin will be the main driver of the sector, and Ethereum may have some space, albeit minimal, to act against the trend.

The second premise concerns the expansion of the economic situation and the factors that we will have to take into account. The ECB has announced its plan to return to the (important and repeated) purchase of government bonds. This led to the fact that the spread in the markets widened again, especially on bonds of Italy, Spain and Portugal. A relatively new situation, although in fact it was predictable. But let’s continue in order.

The spread has returned to Europe: are the ECB’s hands tied?

The ECB was caught between two fires. On the one hand, inflation shows no signs of weakening, which will require decisive action from Frankfurt, especially in the form of measures to tighten monetary policy. This will mean raising interest rates and stopping purchases, with at least the second part of the “horse treatment” recently announced by Christine Lagarde due to end in March.

However, on the other hand, we have a very worrying situation with the debts of Italy and, to a lesser extent, Spain and Portugal. A debt situation that cannot afford higher rates on pain of a specific threat of default.

Inflation in the Eurozone 2022. Source: Eurostat
Inflation in the Eurozone 2022. Source: Eurostat

While it is true that the ECB is doing something, at least in terms of stopping purchases, it is also true that the reaction of the markets was relatively violent. And that this has led to the fact that rates on Italian 10-year bonds have reached levels not seen since May 2020, that is, in the midst of the first phase of the pandemic emergency.

The ECB will have to balance – that’s why we don’t consider a sharp rate hike a real possibility. And this is all without taking into account the fact that there is no growth, that industrial data, including from Germany, are not positive, and that there is very little growth to return to the financial norm.

Bitcoin and Spreads: what correlation can we make?

Correlation has always existed, or almost always, i.e. the growth of rates was accompanied by the growth of BTC, albeit several times, until December last year. The deviation between these two values occurred in early 2022, just before it happened for NASDAQ and the crypto sector.

For those who want to engage in fundamental analysis, it will be much more important to see how the ECB decides to act, especially with regard to what impact the spread will have on the markets and mainly on the external debts of the EU member states. And for those who believe that the current spread is far from what we considered a warning level just a few years ago, it is worth remembering that these government debts have increased significantly during the pandemic, and therefore even an increase in effective interest rates of this kind may be decisive for their situation.

The right time for Bitcoin and Ethereum: to become a store of value?

The cryptocurrency market has been positively influenced by the strong expansionist policies of the Fed and the ECB over the past 2 years. However, it could be a turning point in the face of a major potential economic crisis to become a store of value again.

Historical chart of Bitcoin. Source:
Historical chart of Bitcoin. Source:
Historical graph to Ethereum. Source:
Historical graph to Ethereum. Source:

So, is it too early for Bitcoin and Ethereum to become digital gold and silver, respectively? In our opinion, no, and a break from stock market indicators can be a very good signal in this regard. A signal that could usher in a new bullish era, just at a time when other stocks are experiencing a downturn. Investors and banks are already turning to Bitcoin.

Wells Fargo is Betting on Cryptocurrencies, and Warren Buffett was Wrong Twice

This is an event that we can consider from at least two sides. The first party is a large banking group that has finally opened up to the world of Bitcoin and cryptocurrencies today, saying that there is one step left before full implementation.

The second is the legend of investing Warren Buffett, who not only always attacks Bitcoin, but also got rid of important shares that he held in this very bank.

Wells Fargo is betting on Bitcoin and cryptocurrencies, and is betting that their adoption will become more and more common. This to some extent repeats what until recently we only heard from enthusiasts and industry players:

“In this sector, we will be early, but not too early, on the parabola, which should repeat the parabola of the Internet in the late 1990s”.

This opinion was expressed by one of the analysts of Wells Fargo, a banking group that may be almost unknown in Europe, but is one of the most important in the United States. If the analysis is confirmed by the facts, it will be great news for Bitcoin, as well as for the rest of the industry, from the bank, which, of course, was not one of the first to support this revolution, but on the contrary.

Warren Buffett’s Berkshire Hathaway was one of the main shareholders of the bank, and not so long ago Buffett quickly got rid of the group’s shares.

“We believe that cryptocurrencies are a viable investment today, even if they are in the early stages of their development as an asset. For now, we recommend professional management, since the horizon for intermediaries is still being formed”.

This is Wells Fargo’s opinion, if you will, a strong opinion that refutes the “too late to invest” sentiment that dominates at least some of the sentiments of those who have not invested yet.

Will Warren Buffett lose the last bet?

“Bitcoin is worth zero”” “Bitcoin is rat poison”” and many other opinions in a state of trance, voiced from the lips of Warren Buffett himself or his assistants. Opinions that scared the markets at the time, but which now show that they were rather short-sighted, even if we limit ourselves to the purely financial aspect.

To paraphrase one of the most famous phrases of the maximalist from Omaha, a legendary investor mainly in stocks, we can say that it is always better not to invest in what you do not understand. And that’s the only excuse he has for not investing in Bitcoin and getting rid of Wells Fargo.

The chasm that once separated classic banks and finance from the Bitcoin world is now hard to find. And over time, integration will become inevitable. Perhaps even for Warren Buffett, the legend of investing, who taught us a lot, but who was wrong about Bitcoin.