Bitcoin Moves into Mainstream, Trades Near $20,000. Pound and US Dollar Await Next Move

• This week seems to have been full of Bitcoin and crypto talk, how big of an impact is this having on the more traditional side of the market? 

The launch of the CBoe futures last weekend was a poignant moment in the cryptomarkets, with institutional money expected to pour into Bitcoin as a result, with next week’s CME Bitcoin futures also scheduled to launch.

This is perhaps the first step in terms of the evolution of the market into the mainstream. Taking a look at the Dow, which has gained 24% year-to-date, off the back of all the hype around Donald Trump, growth policies and the U.S economy, the gains pale into insignificance when compared with Bitcoin’s 15,000% rise year-to-date.

At some point, assuming that the bubble doesn’t burst, investors would likely begin to look at the cryptocurrencies, where they can take significantly less risk, whilst able to make significantly higher returns.

We are beginning to expect the ETFs and hedge funds to launch once the CME Bitcoin futures launch next week and, once the big players are in, we will expect the smaller players to follow.

We’ve heard the likes of Aberdeen Asset Management calling Bitcoin a bubble, like many others, but at some point, they will have to consider Bitcoin and cryptocurrencies as an asset class or face the risk of being left behind.

We haven’t really seen a fall in volumes across the more traditional markets yet, with Bitcoin and the rest having widened the investor base in the markets rather than solely redirect investors from the equity and currency markets.

The investor span has widened, but if prices continue to gain, even the most skeptical investor will have to reconsider and shift from the more traditional markets to the cryptocurrencies.

• A jump in UK wage growth took some pressure off the pound earlier this week, overall, what are your current thoughts on the Sterling? 

Economic data out of the UK this week has been good, with November retail sales coming in better than expected on Thursday. The jump in consumer spending coming in spite of inflationary pressure picking up again in the wake of the BoE’s November rate hike.

While we would have expected the Pound to reflect the BoE’s rate hike, the Pound has remained under pressure because of a lack of progress on Brexit.

While the Pound has been choppy, with economic data and political news shifting sentiment on a weekly basis, directly over the next few months will be hinged on how the UK government is able to progress on trade negotiations with the EU.

Economic data has been reasonable solid through the year, but things could change should trade talks go against the British government.

With wage growth lagging inflation, we could see business investment also deteriorate should the UK government be in a weaker position on trade talks, which could pressure the Pound with trade talks likely to start as early as next week.

• The FED has fairly optimistic growth expectations for 2018. However, investors are not so bullish. What is your take on the greenback in 2018? 

Based on current economic indicators, the outlook for the U.S economy remains rosy for next year. One thing that the FED has done is to incorporate some of the fiscal policy measures, particularly tax reforms, into the economic growth forecasts for next year.

One of the issues is that the latest Democrat victory in Alabama points to a challenging year ahead for the U.S administration in terms of being able to get other growth policies through. The market has been pretty bullish about the U.S economy, with hopes of $1tn infrastructure spending plan having been expected after the tax reform bill. With the balance of power relatively even between the Democrats and the Republicans following the Alabama loss and with some Republican senators not aligned with Trump’s policies, the outlook for next year is perhaps on the more optimistic side.

From a corporate earnings perspective, tax reforms will certainly help, so it will boil down to domestic consumption. With labor markets expected to tighten even further next year, this should support consumption, but we were expecting more from the U.S administration. Based on the current outlook on fiscal policy, the FED’s unlikely to shift from its projected 3 rate hikes for next year, which could lead to further Dollar weakness as other Central Banks continue to remove accommodative measures in the year ahead.