Bitcoin prices continued to surge over the weekend. (Photo illustration by Dan Kitwood/Getty Images)
Key Takeaways
- Bitcoin Surges Past $106K, But Remains A Highly Volatile Asset
- Nasdaq 100 Adds Bitcoin Proxy MicroStrategy Amid Annual Rebalancing
- Oil Prices Approach $75, Raising Potential Inflation Concerns Again
It was a mixed week for stocks last week with the S&P 500 falling 0.6% and the Nasdaq Composite gaining 0.3%. Both the Dow Jones Industrial Average and Russell 2000 fell by 2%. In the meantime, crypto assets continued to rally to new highs.
The surge in bitcoin has been nothing short of amazing in the past few months. Over the weekend, prices surpassed $106-thousand, and many are now talking about the next stop being $120 thousand. I would remind readers that this is a volatile product. In 2021, we saw bitcoin reach nearly $70 thousand before falling to $14 thousand just a few months later. Therefore, while I understand the enthusiasm and potential for deregulation in the coming years, I would also caution readers to remember the velocity with which this product can move.
An interesting development with respect to bitcoin has to do with the Nasdaq 100 Index. Each year, this index goes through a rebalancing in December where companies are added, and some are removed. It is a market capitalization weighted index as well. As a part of this year’s rebalancing, Palantir, MicroStrategy and Axon Enterprises are all being added to the index while Moderna, Super Micro Computer and Illumina will be removed. It’s the addition of MicroStrategy that I find most interesting because this is a company that has come to represent a proxy for bitcoin. Therefore, if bitcoin prices continue surging, taking MicroStrategy higher in the process, the index will become more correlated with bitcoin and by extension, potentially more volatile. This is something I will be very closely watching because I do see this as a possible tipping point where crypto either becomes a bigger part of investable assets or potentially a scapegoat should enthusiasm wane and take the Nasdaq lower.
Another product I’m watching this week is oil. Last week, oil prices surged nearly 5.5%. I’ve spoken many times about the potential for oil to reignite inflation. At roughly $70 per barrel, I’m not too concerned, but should we breach $75, then I think that is something that will begin factoring into the inflation outlook. I think, when discussing oil prices, it’s also worth remembering what I’ve said about interest rates. We have seen the long end of the interest rate curve spike recently. That suggests that in the longer term, markets are concerned about inflation, and I’ll be paying attention to oil as a potential confirmation signal.
Speaking of interest rates, we’re going to hear from the Federal Reserve Open Market Committe (FOMC) on Wednesday. Heading into the week, there is a 97% chance the Fed will cut rates by one-quarter of a point. What I’m more interested in hearing, however, are the forward-looking projections which will also be released at the conclusion of the meeting. While the Fed can cut rates at the short end of the curve, I want to know what they’re thinking about longer duration rates being so high and if that impacts their forecasts.
A couple other items of note, Moody’s cut their rating on France over the weekend. That caused French stocks and bonds to fall. While you may not care much about French markets, this is something that can impact the euro and dollar. In premarket trading the euro is slightly higher but I think the broader relationship between the euro and the U.S. dollar is one that will bear watching for at least the next year.
Finally, for today and this week, it is a quadruple witching expiration. That means stock options, futures options, index options and futures indices all expire on Friday. Since this is the last expiration of the year, it can be a volatile one as investors either roll out to next year or begin making decisions on taking gains or losses for tax purposes. Because of that, it’s common for markets to experience one or two days of volatility during the week of December expiration. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
