Speculative Mania

Steve Saretsky -

Not everyone’s a fan of the crypto bull market. Bank of Canada deputy Governor Tim Lane, was on record this past week, denouncing the latest run up, suggesting “The recent spike in their prices looks less like a trend and more like a speculative mania — an atmosphere in which one high-profile tweet is enough to trigger a sudden jump in price.”

However, the market seems to disagree. The Central Banks comments surfaced during the same week further evidence of widespread adoption continues. Over the past week we have seen companies such as Tesla, Mastercard, BNY Mellon all unveil policies supporting crypto. Furthermore, the first ever bitcoin ETF in North America was also approved this week. Purpose Investments Inc. said Canadian securities regulators have cleared the launch of the Purpose Bitcoin ETF, making it the first to gain regulatory approval in North America. Whether you believe in the crypto space or not, it is here to stay.

What is perhaps most ironic about the banks comments is that their policies of zero interest rates and unlimited QE have actually supported and will continue to support the price of crypto currencies. The price movement in bitcoin signals societies growing preference for opting out of the existing financial system. People are losing faith in our institutions, but do you blame them?

Consider this, while the Bank of Canada has been quick to denounce crypto currencies as a speculative bubble, they have, at the same time, repeatedly ignored any notion of a housing bubble. We have record home sales, and record prices in the midst of incredibly weak economic fundamentals. House prices across many suburban markets are growing at a 20-30% annual pace as wages languish. While the majority of society does not understand the financial system, they understand something is inherently broken.

Trust is fragile, and I fear policy makers are on the verge of completely shattering that trust. Governor Tim Lane is right, there is a speculative mania in crypto, but its not just in crypto, its in every single asset class- including housing, and their policies certainly deserve part of the blame.

Three Things I’m Watching:

1. Canada invited over 27,000 express entry candidates to apply for permanent residency, nearly six times larger than the previous record, as the Trudeau Government desperately tries to hit ambitious immigration targets. (Source: Ben Rabidoux, North Cove Advisors)

2. Final government data showed Canada added 184,370 permanent residents in 2020, down from 341,175 a year earlier. That appears to be the lowest intake since the late 1990s. (Source Bloomberg)

3. Bitcoin price hits record high as first ever North American bitcoin ETF gains approval.

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The Saretsky Report. December 2022