2021 Starts With Large Moves in the U.S. Government and Bitcoin Markets

Will Nemirovsky -

The government transition has created significant contention, as well as uncertainty around policy changes. These factors contributed to a slowing equities market after new highs were reached last week. Bitcoin experienced price appreciation to a new all-time high prior to a significant correction. Even after this correction, the currency is trading well above the price from this time last month.  

  • Investor behavior has largely pursued risk-on investments recently, despite uncertainty around the U.S. economy and political transition. Equities set new all-time highs last week, but have been relatively flat since then. Relatedly, safe debt instruments have seen their yields increase recently. Treasury yields have reached their highest levels since March of last year, with the ten-year yield at 1.13%. These yields are still significantly below those prior to the COVID-19 crisis. Quarterly earnings reports from important financial institutions including BlackRock, JPMorgan Chase, and PNC Financial will be released this week.
  • The presidential transition continues to create uncertainty around policy changes, as well a notable division among the political parties. Protests at the Capitol Building delayed certification of the presidential election results. House democrats have initiated the process for a second impeachment of Donald Trump, due to his role in inciting the protests. Relatedly, Facebook and Twitter have temporarily banned Trump from their platforms to prevent further provocative messages through their platforms. Both companies have seen their stock prices decline, as the political nature of these decisions introduces unique risks to the large tech companies.
  • Joe Biden has announced economic support programs at a high-level, with more specific details set to follow later this week. The plan is expected to include trillions of dollars in spending, more direct payments to citizens, and increases to the federal minimum wage. Biden is set to continue the unprecedented stimulus measures the U.S. economy experienced through most of 2020. The Federal Reserve has indicated intentions to keep interest rates near 0% through 2023, with most other countries offering similar positions. The U.S. jobs report for December was bleak, with 140,000 jobs lost. Key economic indicators reports, including CPI and jobless claims, will be released later this week.
  • Bitcoin has seen significant price appreciation in recent weeks, with an all-time high of $41,986.37 being reached last week. The currency has experienced a significant correction from that high, and is currently trading around $34,000. Despite the correction, current prices are nearly double the value from one month prior. The price drop was exacerbated by a long squeeze, with Bitcoin bulls experiencing several billion dollars worth of liquidations daily. At the same time, the Financial Crimes Enforcement Network(FinCEN), has put forth new regulation requiring financial institutions to collect the names and physical addresses of non-customers for cryptocurrency transactions over $3,000. The proposed regulation has met with significant backlash from financial institutions.

Market Outlook

The worst of the protests related to the presidential transition seem to be behind us, but this will be worth watching until Biden is sworn in. Updates to Biden’s economic plans, quarterly earnings reports, and economic indicators are all expected to have significant impacts on markets this week. Bitcoin markets are up by most metrics, despite being well below the new all-time highs. The currency saw significant volatility in the past month during the rapid price run up.