Since Black Thursday 2020, few asset classes have run as wild on a total ROI basis than Bitcoin and cryptocurrencies, as well as commodities like lumber. The rise of the assets with limited supplies is associated with post-pandemic inflation as well as an ongoing supply crunch due to shutdowns.
However, both lumber futures and cryptocurrencies have had a sizable pullback since the recent Fed meeting where they only spoke hawkishly about raising rates in 2023. Here’s what that could mean in terms of inflation, and the Bitcoin as digital gold narrative.
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When COVID first struck in Q1 of 2020, it sent markets haywire and due to the surplus of stimulus money that’s flooded the economy since, asset prices are now several times higher than they were back then.
A supply crunch related to lockdown conditions and widespread unemployment still lingers, influencing housing, consumer prices, cryptocurrencies, stocks, and even the price of commodities like lumber.
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The situation has resulted in a parabolic market in both Bitcoin and in lumber. But these markets have since reversed, and once the Fed began talking about raising interest rates, sentiment has turned even worse.
The Bitcoin digital gold narrative, was fueled by the thought that the ultra-scarce cryptocurrency would be the fastest horse in the race against inflation. FOMO did the rest, taking prices to more than $65,000 per coin.
With Bitcoin and lumber now trading at around 50% of their peak, is this a sign that inflation fears were overblown?
Bitcoin and lumber futures have followed a similar path | Source: BTCUSD on TradingView.com
Does The Fall Of Lumber Damage The Digital Gold Narrative?
With trillions added to the total money supply over the last year alone, inflation fears are also spiking. Consumer prices are rising in tandem, and only time will tell if the Fed can keep it from spiraling out of control.
Bitcoin and lumber falling might also suggest that inflation fears got overblown too quickly due to supply constraints.
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But the government isn’t planning on slowing down stimulus efforts, and although the Fed’s stance was viewed hawkishly there won’t be interest rate increases for at least another full calendar year.
That’s plenty of time to see the real impact of inflation and could allow risk asset like Bitcoin and stocks to continue to run. With the housing market still just as hot, lumber also might only be experiencing a sharp pullback from profit-taking, and isn’t a sign the trend is over that it looks like.
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