Weekly Asset Heatmap

Weekly Asset Heatmap: Bitcoin

Spikes in online interest in bitcoin tend to precede price gains.

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Bitcoin: When we last wrote about digital currencies in early August, bitcoin was trading around $3,000. Today — despite months of bubble warnings from Wall Street, exchange crackdowns by China and other governments, and "hard forks" — bitcoin is worth more than $6,000. But our analysis of the patterns of online interest correlated with bitcoin's price suggests the digital currency may be overheating and that herding behavior could explain the latest price surge.

Fed Chair: White House officials are saying Trump will nominate Jerome Powell to replace Janet Yellen as Federal Reserve chair. Our signals give little reason to doubt that, though online interest in John Taylor remains high.

The Bitcoin Boom: What Lies Beneath

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Recently, our signal that tracks interest in bitcoin on social and collaborative media has risen ahead of strong upward momentum in the price of the cryptocurrency. Similarly, the price has tended to follow the monitor signal down. It seems online interest is correlated with bitcoin's price — which is unsurprising, given most are unfamiliar with cryptocurrency and would research it online before buying.

But signs of herding behavior suggest bitcoin's latest surge to $6,000 could be weak.

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When bitcoin was trading around $4,000, interest in it was research-based, generated by internet users seeking to understand the technical aspects of the cryptocurrency. Engagement with pages and accounts on subjects such as blockchain databases and the hyperledger were the main drivers of our Bitcoin Interest Monitor.

By contrast, the recent uptick in bitcoin interest has not been driven by in-depth research. The signal's main drivers have reflected what appears to be superficial and potentially speculative interest in bitcoin. This analysis suggests that whereas past surges in the price were driven by well-informed purchasers, this latest spike was driven more by the herd behavior of less serious investors. The foundation of this price bump may be weaker than previous ones.

Other cryptocurrencies are not showing the same online interest trend

etherium

Ethereum, another popular digital coin, has gained only modestly since the end of July 2017 and not matched bitcoin's boom. But, based on the nature of online interest, recent gains in ethereum may be more stable. The main drivers of interest in ethereum have remained constant and esoteric — concepts such as proof-of-stake, proof-of-work, smart contracts, and shard. That attention to the fundamental protocols and applications of the ethereum blockchain is driving online interest in the cryptocurrency suggests a more-informed investor base than that for bitcoin



The Fed Chair Race

With Trump's announcement planned for Thursday, Powell and Taylor are still garnering the most attention on social media

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According to our signals, Jerome Powell and John B. Taylor are still netting the most interest among online audiences. Attention to Kevin Warsh has dramatically tanked, even though a White House source told Politico that should the notoriously mercurial president change his mind between now and Thursday, Warsh would be the most likely candidate.



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Current Guidance

On October 24, our signals pointed toward a big move in the DXY and 10-yr yields within the next 30 days. At the time of our writing, the DXY was trading at 93.827 and U.S. 10-yr yields were 2.37%.

On October 17, our signals suggested that there was going to be a big move in the Swedish krona and 10-yr yields within the next 30 days. Last week, both experienced notable moves. 

On October 10, our signals suggested that NAFTA concerns might lead to a depreciation in the peso. At the time of our writing, the USDMXN was trading at 18.67 with a 1-month forward rate of 18.77. In line with our expectations, the USDMXN closed at a 5-month high the next day.

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