Bitcoin blasts through $10,000

November 29, 2017 09:04 AM

Investors shrug off North Korean threat; oil edges lower as oil producers meet to discuss extension; Bitcoin blasts through $10,000.

U.S. equity markets are on course to build on Tuesday’s gains as we near the open on Wall Street, with the latest North Korea missile launch doing little to deter investors.

Not so long ago, the threat of escalation caused by such action would send investors fleeing for safe havens but as time has gone on and nothing has escalated beyond tough talk, investors have become less sensitive to the tests. Even gold, the traditional safe haven, has seen only minor flows on the back of the launch and continues to trade below $1,300 which has been a notable resistance level for the yellow metal.

Sterling is trading at a two month high against the dollar this morning, after reports that the UK has agreed to a divorce settlement with the EU following months of negotiations. While nothing has been explicitly confirmed and is unlikely to be given the tight political spot Theresa May finds herself in, if this is correct then this would be a major step towards moving negotiations on to transition deals and a future trade agreement.

Progress has come at a snail’s pace so far and this agreement, if true, comes as May is put under substantial pressure by businesses demanding assurances on the future relationship with the EU and how it will impact them. While an agreement will come as a relief, as reflected in the rise in the pound, there’s still a long way to go and there’s likely to be many many more difficulties faced along the way. This is the first of many large hurdles on the way to Brexit, but it’s a very important first step.

Brent and WTI crude are heading for a third consecutive daily loss on Wednesday as OPEC and non-OPEC officials preparing to meet in Vienna to discuss a possible extension to production cuts. The current cuts expire in March and there appears to be a broad agreement that more needs to be done in order to bring the market back into balance.

The next 12 months is going to continue to be challenging for oil producers and the higher oil prices get, the more we may see US shale companies turning on the taps and undoing the hard work. Still, oil prices have recovered strongly since the cuts were initially agreed and should producers agree to a nine-month extension, it should keep prices at these more sustainable levels. That said, with an extension looking almost entirely priced in, I wonder if we’ll see a similar response to last time when oil plummeted in the aftermath of the announcement.

Bitcoin is tearing higher once again on Wednesday, having broken through the much talked about $10,000 level for the first time ever earlier in the day and is already closing in on $11,000, only hours later. The move takes Bitcoins gains to more than 30% since Saturday morning and more than 900% since the start of the year. It’s no wonder why people are questioning whether this is a bubble.

That said, people have been calling this a bubble for months, if not years, and that hasn’t stopped it making record after record. Clearly widespread acceptance and even adoption has aided the rally but the moves we’ve seen in recent days suggest there’s been a substantial speculative component. Perhaps the additional coverage Bitcoin has received on its approach to $10,000 has fuelled the rally and speeded up the process. Whatever the cause, I fear a substantial correction is not far away and this could be the true test of the correct value of the cryptocurrency.

About the Author

Craig Erlam is senior market analyst at OANDA who also writes for OANDA’s Market Pulse site,