Yellen Triggers Crypto AND S&P Sell-Off — Crypto Hiccup

In today’s Money Morning…this is a crypto hiccup, because BTC is becoming more hedge than speculation…I don’t buy that narrative…S&P 500 mega-stocks face more headwinds than crypto post-Yellen comments…and more…

[Editor’s note: I sit down with Editorial Director Greg Canavan and Editor Ryan Dinse to discuss how crypto fits into the global financial system, which they argue became irreparably broken during the GFC. They also discuss a new project they’ve been working on for the better part of the last year. Click here for a direct download link, it’s a great chat if you’re into the future of money.]

The biggest story of the day is that US Treasury Secretary Janet Yellen sent jitters through both crypto and traditional finance (TradFi) markets with rate remarks.

Bitcoin [BTC] recorded its biggest loss in two weeks and Ethereum [ETH] ended its nine-day winning run.

Meanwhile, the now tech-heavy S&P 500 fell by the most since March.

What happened?

Here are Yellen’s comments which came via a video interview in The Atlantic:

[I]t may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat…It could cause some very modest increases in interest rates.

So, within the same day she was on another interview with the Wall Street Journal walking it back:

It’s not something I’m predicting or recommending…If anyone appreciates the independence of the Federal Reserve, I think that person is me.

The first comment sounds a hell of a lot like a recommendation to me.

After Trump spent most of his Presidency telling JPow (Jerome Powell, current Fed Chair) what to do, this slip of the tongue by Yellen was poorly timed.

Regardless of the charges of hypocrisy around independence of the Fed, the damage was already done.

Here’s what Yellen’s comments mean for both crypto and the giant tech stocks…

This is a crypto hiccup, because BTC is becoming more hedge than speculation

Major outlets no doubt will frame the BTC sell-off combined with the S&P sell-off as a ‘risk-off’ event.

‘Risk-off’ is a jargon term which basically means that BTC, a purportedly risky asset, will sell off when investors seek a safe haven.

Worried about (insert bad event), cycle out of this asset and into this asset.

I don’t buy that narrative.

I’ve long maintained that if you take a long enough timescale, BTC is actually more ‘risk-off’ than ‘risk-on’.

That’s a point Leigh Travers of DigitalX Ltd [ASX:DCC] was driving home in my first Money Morning Podcast.

Inflation hedge, safe haven asset, store of value — all of these are words usually attached to ‘risk-off’ gold.

And that’s what BTC is, in my view.

Don’t get me wrong, BTC is volatile and will face more of these sell-off events going forward.

But the only straight line in the room is the flow of monetary and fiscal stimulus from governments and central banks around the world.

That’s why I think this is a crypto hiccup. BTC and even ETH are fast becoming more hedge than speculation.

On the flip side, I see more risk to the top end of the S&P 500, despite their stellar earnings.

I’ll explain why.

S&P 500 mega-stocks face more headwinds than crypto post-Yellen comments

Not only does the FAMGA/FANNG club face regulatory/antitrust worries, the old spectre of bond yields could smack them around a little bit.

The bond yield rise is tapering — with the yield on a US 10-year Treasury standing at a modest 1.591% right now.

It’s a complex puzzle. Crypto’s future is easy to put together compared to that of the S&P 500.

Yellen gave a bit of the game away.

For me at least, they point to the fact that ‘overheating’ is definitely on the horizon, even when Mr Powell says he’s not worried.

Meaning commodities should thrive, gold could lift, and if you look at some of the growth numbers coming out of the US, the economy could bounce back ‘too strong’.

For instance, US GDP growth sits at 6.4% for the first quarter.

That’s a fair clip.

Credit where credit is due, the US vaccine rollout is starting to tick all the boxes for more boom times ahead.

Now, I know there are devil’s advocates (bears) out there that will say this is all a sham.

And it is.

But fake it ‘til you make it. Or trade the trend.

An ‘X-factor’ in the form of a China/Taiwan conflict, Ukraine/Russia conflict, or even a big manufacturing slowdown triggered by a global chip shortage could lead to a collapse.

All those point to greater risk for the S&P 500 than crypto in my book.

Especially if crypto morphs into a hedge, not a punt.

That’s something huge to consider as the concept of money changes.


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Lachlann Tierney,
For Money Morning

PS: Promising Small-Cap Stocks: Market expert Ryan Clarkson-Ledward reveals why these four undervalued stocks could potentially soar in 2021. Click here to learn more.

Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Lachlann is involved in two publications:

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