Bring On The Weekend: Grexit & China QE

Screen Shot 2015-07-03 at 3.45.39 pm
Shanghai Composite Index, Bloomberg


Greeks head to the polls this weekend to vote on whether or not to accept the now expired EU bailout package. 5 years of can kicking has finally come to a definitive vote on Greece remaining in the EU currency union. The issues and implications have been covered ad nauseam by countless blogs and the financial news media.

In a nutshell:

No Vote: The bank run and capital controls will continue. Greece will attempt to negotiate further with the Troika, but the likely outcome is Grexit.

Yes Vote: The bank run and capital controls will continue unless the ECB provides more Euro liquidity to Greek banks. A new government will likely be formed, and negotiations will begin anew. Grexit isn’t off the table, but the timeline is pushed further into the future.

Impact on Bitcoin:

No Vote: Grexit becomes a very likely scenario, and global asset markets fall. Bitcoin sentiment improves as the misery imposed by capital controls and the shortage of goods continues. Positive price impact.

Yes Vote: The capital controls will still be in place. Global asset markets will rally, but could fade quickly as the facts on the ground will not materially change. This is the scenario that is priced into the markets currently. Bitcoin sentiment might be dampened somewhat, but the fact that capital controls will remain and the ECB still might not provide more Euros to banks means that the Bitcoin story begin pushed by the MSM will continue to gain ground. Neutral price impact.


China QE

The second and more important development is the continuation of the crash in the Chinese equities market. This past weekend the PBOC launched a double rate cut (the one-year lending rate and the Reserve Ratio Requirement). The last time they did that was October 2008 on the heels of the Lehman Brothers bankruptcy. Investors didn’t play ball instead sending equites sharply lower on the week. The Shanghai Composite was down 10% on the week and closed below 4,000.

Regulators are in full panic mode. The government ordered state owned news sites to only publish positive news about the stock market. [ZH] Many analysts expect the margin calls to continue as the various shadow conduits (Umbrella Trusts) of equity market leverage continue to unwind. Calls for additional easing from the PBOC (People’s Bank of China) and outright quantitative easing are growing. The addition of the global market turmoil surrounding Greece means that the PBOC will likely add additional easing measures this weekend. They like to announce rate cuts on Saturday or Sunday. Bitcoin will react positively from additional easing out of China.

The Greek vote and the possibility of PBOC easing is the perfect setup for another Bitcoin rally over the weekend. After almost reaching $270, Bitcoin has retraced $20. The Greek vote is Sunday. Buy the rumour sell the fact. On Friday and Saturday, begin accumulating a long Bitcoin position with XBTN15 while spot is below $255. The Greek vote will be known Sunday night European time right before Asian financial markets open on Monday. That is the optimal time to close the position whether in profit or loss.