Bitcoin is down 30% in the last 24 hours while stocks look set to open materially down. The immediate catalyst for the drop in Bitcoin seems to have been tightening of the regulatory constraints in China. That led to a sell-off in cryptocurrencies overnight and stocks soon followed. The bigger issue for cryptocurrencies seems to be that the wide-spread adoption that was heralded a few months ago when Tesla announced that it would allow buyers to purchase cars with Bitcoin does not seem to be happening. Indeed, Tesla itself no longer accepts Bitcoin. It is hard to tell whether the equity sell-off is a case of the tail (Bitcoin) wagging the dog (stocks) or whether equities are just responding the broader theme that the period of massive liquidity is coming to an end. Regardless, the negative market sentiment has led to the broad strengthening in the US dollar this morning. The Canadian dollar is actually holding up relatively well against the USD (down only 0.2% as of this writing). The reason the Loonie is not selling off more is that inflation numbers released this morning showed that price increases accelerated to 3.4 per cent in April, compared with 2.2 per cent in March. The expectation had been for a 3.2% increase. On a monthly basis, inflation rose 0.5 per cent versus the 0.2 per cent economists were expecting. It remains to be seen whether, as central bankers have predicted, this bout of inflation is transitory or whether it will be with us for a while to come. Expect a volatile day in USD to CAD as the exchange rate reacts to the overall tumult in the markets today.
