The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, December 28, 2016.
Why is Bitcoin going through the roof? Some would have you believe it's solely because of Yuan depreciation risk, with most of the buying coming out of China. This is certainly a factor, and likely chief trigger of the present melt-up, however this is not the entire reason. Others would be quick to add it's the scarcity factor (only 21 million units in circulation) and the 'check' blockchain technology provides. And again, these are factors as well. But there's another reason. Of all the alternative currency markets, with precious metals the king daddy, Bitcoin is not a controlled market or political target run by Western control mechanisms - centered on futures markets.
Bitcoin has no 'credible' futures market or stock exchange derivative alternatives. Therefore, unlike precious metals, speculators who wish to participate in Bitcoin must actually buy Bitcoin, not a derivative used to splinter the market and redirect demand into falsities used to manage prices. This of course illuminates the idiocy of COMEX and its hedge fund / banker players with respect to precious metals.
So how high can Bitcoin go?
It's a bubble now, and positively correlated with the nexus of fiat based bubbles (stock, debt, etc.) that are sure to pop at some point, so although it can go much higher (for the wrong reasons), it should be pointed out once the Chinese buying dries up, considerable volatility should arrive. What's more, besides the fact(s) it's supply is both controlled and monitored, it's backed by nothing, which in fact makes it a fiat animal as well (because supply constraints can be changed), given it's much better behaved than sovereign alternatives (don't tell the public). So, it's risky - make no mistake. Scarcity, in and of itself, is not sufficient reason to act irrationally in the full measure of time.
Of course there are those that would argue precious metals are a great value right now, and far less risky, however they are controlled; and can't rise to their full potential(s). And this is true - so let's hope for change - no?
More on Bitcoin in future commentaries.
What needs to change? In the end, it's pricing control. As long as officialdom's shitty paper alternatives continue to sap demand for the real metals, expect the status quo to survive. So, it appears the status quo must go. This is what The Donald sort of promised in his campaign platform - so it will be interesting to see if he is willing to 'jump this shark' here as well. Within the full measure of time of his term he may be forced to revalue US reserves from $42 per ounce to a price much higher in order to tap that asset (even if it doesn't exist) in a pinch. So pinch me when this happens, because it maybe the only way prices rise as long as US banks and hedge funds continue to play stupid COMEX games.
Speaking of which, here we are in this year's 'Santa Claus Rally', and sure enough stocks are going up and precious metals down on little to no volume, as forecast. Come next week however, again, as forecast, this should change if only temporarily, much like the year 2000 pattern (template?), even if for different reasons. In the end however, the reasons are not different - especially the big one - which is keeping the 'fat cats' (especially the ones in New York) in 'cash logs' to throw on the Christmas fire. (i.e. because cash will be banned next year.) And the risk adjusted S&P 500 (SPX) chart confirms our hypothesis, where it would not be surprising to see it close right on the top fan rail this year due to another CBOE Volatility Index (VIX) 'smash job' in order to ensure the end result. (See Figure 1)
Of course if the risk adjusted NASDAQ is any indication, we may need wait for higher prices until next year, since it appears 'stuck' at preliminary Fibonacci resonance related resistance, as can be seen below. There's still the rest of the week, and the fifth wave presently unfolding could extend further, however either outcome should not be considered 'surprising' with how stretched things are, and only the dumbest money on the street is buying here. That said, there are boatloads of dumb people out there, so again, nothing should surprise. You will remember my SPX target for next year is 2450ish, so there's no telling how it noodles up to this target. That said, we need the VIX to correct higher in order to reload the gun, so again, a 5% sell-off next week is still the 'preferred outcome' in terms of keeping things predicable. (See Figure 2)
That will be the trick next year - keeping things predictable. Because as discussed previously, even though Donald Trump will undoubtedly give it his best shot, because of the three bozos before him, you know the 'three amigos' that sold America out on an increasing basis (that's debatable as many would put that honor on Clinton), he's got his work cut out for himself. Thing is, the horse is already out the barn, so 'draining the swamp' will be a 'moot point'. And again, despite this, something fundamental will need to change in precious metals price discovery if they are ever to go higher, where it looks like rigged (think COMEX and LBMA) Western bullion markets will literally need to be 'run dry' before this can be expected to change. (See Figure 3)
The count displayed above on the weekly plot is suggestive hope exists after another leg down in gold's larger corrective count, however one does need wonder just what will prevent the banking cabal from stopping precious metals going the other way in the next rally again as well - especially if the banker (Commercial) / hedge fund (Large Speculators) circle jerk (think Comex) remains the primary price discovery mechanism of the world. What's to prevent the bankers from holding their collective finger on the sell button the next time silver gets back up to $20 until the funds blow their collective brains out once more. This is of course a rhetorical question because although we don't know the answer, we know there's a good reason if the count is correct.
In the meantime however, which could be anywhere between two months to two years, with COT distributions for gold and silver being what they are at present, which is still lopsided in terms of bullish exposure, especially for silver, all we can say is it will be a miracle if silver doesn't hit single digits when the stock market turns lower and the stubborn speculators are compelled to sell as a mass deleveraging episode gets underway. I find it incredible this can happen exactly the same way time after time in such a short period, with the last liquidity event being 2008, when silver was forced under $10 by the hot money morons that run the (trading) circles at COMEX. It's amazing people can't remember how this story ends. This amazes me.
Thing is, again, the waves tell us change is on the way. So perhaps more reckless hedge funds are forced to close their doors. Or perhaps it's hyperinflation? Or perhaps it's both.
See you next time.