Cryptocurrencies have enjoyed their biggest July price performance in eight years, as dollar investors desperately sought a new refuge for their cash.
Bitcoin surged 24% to $11,350 over the month, its highest monthly close since its all-time high, nearly two and a half years ago.
Ether, a rival cryptocurrency, saw a July gain of 54%, according to Coindesk. Chainlink’s LINK token was the month’s top-performing digital currency over the month, with a gain of 70%.
…prices were quite capable of moving higher because this made their value more conspicuous in the eyes of the beholder
There are good reasons for the gains. For one, the dollar has been on the slide, and US investors are seeking safer havens for their cash. Some are reluctantly checking out the euro. Others are keen on gold, silver and short-dated bonds.
Elsewhere, the Washington D.C.-based Office of the Comptroller of the Currency has decided to allow nationally chartered US banks to provide custody services for cryptocurrencies, clearing the way for banks to hold digital assets for their clients.
The banks will be allowed to provide crypto services to any lawful business they choose, as long as they can manage the risks. The Financial Stability Board is planning to outline its final proposals on regulating digital assets in October.
With or without the regulator, a number of crypto bulls have latched onto a shortage of supply and decentralised finance – commonly known as DeFi – which is supposed to have the potential to break away from established markets.
However, it is also worth reflecting that a strong price rise for bitcoin, and its buddies, remains a Veblen good, developed out of the theories of US economist Thorstein Veblen, who saw the value in conspicuous consumption.
In his view, prices were quite capable of moving higher because this made their value more conspicuous in the eyes of the beholder.
Veblen attached this view to luxury goods, while Scottish economist Sir Robert Giffen said the trend can apply to everyday items like bread and rice, when people hoard food, or can’t afford to eat cake.
Whether or not you want to see the latest bitcoin price rise as a Veblen good is an open question. But there are an awful lot of crypto analysts out there keen to embrace the trend to validate their beliefs and make their fortunes.
Their bullish remarks could well help to push the price higher over the short term. This, in turn, can drive the momentum traders like to see before they jump on board, particularly when fiat currencies like the dollar are weak.
Youtube economist Nicholas Merten believes the bitcoin breakout is already underway. After consulting price charts, he believes bitcoin will hit $100,000 by 2022.
Even Thorstein Veblen would be impressed by that.