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The True Feasibility Of Moving Away From Fossil Fuels

The True Feasibility Of Moving Away From Fossil Fuels

Authored by Gail Tverberg via Our Finite World blog,

One of the great misconceptions…



This article was originally published by Zero Hedge

The True Feasibility Of Moving Away From Fossil Fuels

Authored by Gail Tverberg via Our Finite World blog,

One of the great misconceptions of our time is the belief that we can move away from fossil fuels if we make suitable choices on fuels. In one view, we can make the transition to a low-energy economy powered by wind, water, and solar. In other versions, we might include some other energy sources, such as biofuels or nuclear, but the story is not very different.

The problem is the same regardless of what lower bound a person chooses: our economy is way too dependent on consuming an amount of energy that grows with each added human participant in the economy. This added energy is necessary because each person needs food, transportation, housing, and clothing, all of which are dependent upon energy consumption. The economy operates under the laws of physics, and history shows disturbing outcomes if energy consumption per capita declines.

There are a number of issues:

  • The impact of alternative energy sources is smaller than commonly believed.

  • When countries have reduced their energy consumption per capita by significant amounts, the results have been very unsatisfactory.

  • Energy consumption plays a bigger role in our lives than most of us imagine.

  • It seems likely that fossil fuels will leave us before we can leave them.

  • The timing of when fossil fuels will leave us seems to depend on when central banks lose their ability to stimulate the economy through lower interest rates.

  • If fossil fuels leave us, the result could be the collapse of financial systems and governments.

[1] Wind, water and solar provide only a small share of energy consumption today; any transition to the use of renewables alone would have huge repercussions.

According to BP 2018 Statistical Review of World Energy data, wind, water and solar only accounted for 9.4% 0f total energy consumption in 2017.

Figure 1. Wind, Water and Solar as a percentage of total energy consumption, based on BP 2018 Statistical Review of World Energy.

Even if we make the assumption that these types of energy consumption will continue to achieve the same percentage increases as they have achieved in the last 10 years, it will still take 20 more years for wind, water, and solar to reach 20% of total energy consumption.

Thus, even in 20 years, the world would need to reduce energy consumption by 80% in order to operate the economy on wind, water and solar alone. To get down to today’s level of energy production provided by wind, water and solar, we would need to reduce energy consumption by 90%.

[2] Venezuela’s example (Figure 1, above) illustrates that even if a country has an above average contribution of renewables, plus significant oil reserves, it can still have major problems.

One point people miss is that having a large share of renewables doesn’t necessarily mean that the lights will stay on. A major issue is the need for long distance transmission lines to transport the renewable electricity from where it is generated to where it is to be used. These lines must constantly be maintained. Maintenance of electrical transmission lines has been an issue in both Venezuela’s electrical outages and in California’s recent fires attributed to the utility PG&E.

There is also the issue of variability of wind, water and solar energy. (Note the year-to-year variability indicated in the Venezuela line in Figure 1.) A country cannot really depend on its full amount of wind, water, and solar unless it has a truly huge amount of electrical storage: enough to last from season-to-season and year-to-year. Alternatively, an extraordinarily large quantity of long-distance transmission lines, plus the ability to maintain these lines for the long term, would seem to be required.

[3] When individual countries have experienced cutbacks in their energy consumption per capita, the effects have generally been extremely disruptive, even with cutbacks far more modest than the target level of 80% to 90% that we would need to get off fossil fuels. 

Notice that in these analyses, we are looking at “energy consumption per capita.” This calculation takes the total consumption of all kinds of energy (including oil, coal, natural gas, biofuels, nuclear, hydroelectric, and renewables) and divides it by the population.

Energy consumption per capita depends to a significant extent on what citizens within a given economy can afford. It also depends on the extent of industrialization of an economy. If a major portion of industrial jobs are sent to China and India and only service jobs are retained, energy consumption per capita can be expected to fall. This happens partly because local companies no longer need to use as many energy products. Additionally, workers find mostly service jobs available; these jobs pay enough less that workers must cut back on buying goods such as homes and cars, reducing their energy consumption.

Example 1. Spain and Greece Between 2007-2014

Figure 2. Greece and Spain energy consumption per capita. Energy data is from BP 2018 Statistical Review of World Energy; population estimates are UN 2017 population estimates.

The period between 2007 and 2014 was a period when oil prices tended to be very high. Both Greece and Spain are very dependent on oil because of their sizable tourist industries. Higher oil prices made the tourism services these countries sold more expensive for their consumers. In both countries, energy consumption per capita started falling in 2008 and continued to fall until 2014, when oil prices began falling. Spain’s energy consumption per capita fell by 18% between 2007 and 2014; Greece’s fell by 24% over the same period.

Both Greece and Spain experienced high unemployment rates, and both have needed debt bailouts to keep their financial systems operating. Austerity measures were forced on Greece. The effects on the economies of these countries were severe. Regarding Spain, Wikipedia has a section called, “2008 to 2014 Spanish financial crisis,” suggesting that the loss of energy consumption per capita was highly correlated with the country’s financial crisis.

Example 2: France and the UK, 2004 – 2017

Both France and the UK have experienced falling energy consumption per capita since 2004, as oil production dropped (UK) and as industrialization was shifted to countries with a cheaper total cost of labor and fuel. Immigrant labor was added, as well, to better compete with the cost structures of the countries that France and the UK were competing against. With the new mix of workers and jobs, the quantity of goods and services that these workers could afford (per capita) has been falling.

Figure 3. France and UK energy consumption per capita. Energy data is from BP 2018 Statistical Review of World Energy; population estimates are UN 2017 population estimates.

Comparing 2017 to 2004, energy consumption per capita is down 16% for France and 25% in the UK. Many UK citizens have been very unhappy, wanting to leave the European Union.

France recently has been experiencing “Yellow Vest” protests, at least partly related to an increase in carbon taxes. Higher carbon taxes would make energy-based goods and services less affordable. This would likely reduce France’s energy consumption per capita even further. French citizens with their protests are clearly not happy about how they are being affected by these changes.

Example 3: Syria (2006-2016) and Yemen (2009-2016)

Both Syria and Yemen are examples of formerly oil-exporting countries that are far past their peak production. Declining energy consumption per capita has been forced on both countries because, with their oil exports falling, the countries can no longer afford to use as much energy as they did in the past for previous uses, such as irrigation. If less irrigation is used, food production and jobs are lost. (Syria and Yemen)

Figure 4. Syria and Yemen energy consumption per capita. Energy consumption data from US Energy Information Administration; population estimates are UN 2017 estimates.

Between Yemen’s peak year in energy consumption per capita (2009) and the last year shown (2016), its energy consumption per capita dropped by 66%. Yemen has been named by the United Nations as the country with the “world’s worst humanitarian crisis.” Yemen cannot provide adequate food and water for its citizens. Yemen is involved in a civil war that others have entered into as well. I would describe the war as being at least partly a resource war.

The situation with Syria is similar. Syria’s energy consumption per capita declined 55% between its peak year (2006) and the last year available (2016). Syria is also involved in a civil war that has been entered into by others. Here again, the issue seems to be inadequate resources per capita; war participants are to some extent fighting over the limited resources that are available.

Example 4: Venezuela (2008-2017)

Figure 5. Energy consumption per capita for Venezuela, based on BP 2018 Statistical Review of World Energy data and UN 2017 population estimates.

Between 2008 and 2017, energy consumption per capita in Venezuela declined by 23%. This is a little less than the decreases experienced by the UK and Greece during their periods of decline.

Even with this level of decline, Venezuela has been having difficulty providing adequate services to its citizens. There have been reports of empty supermarket shelves. Venezuela has not been able to maintain its electrical system properly, leading to many outages.

[4] Most people are surprised to learn that energy is required for every part of the economy. When adequate energy is not available, an economy is likely to first shrink back in recession; eventually, it may collapse entirely.

Physics tells us that energy consumption in a thermodynamically open system enables all kinds of “complexity.” Energy consumption enables specialization and hierarchical organizations. For example, growing energy consumption enables the organizations and supply lines needed to manufacture computers and other high-tech goods. Of course, energy consumption also enables what we think of as typical energy uses: the transportation of goods, the smelting of metals, the heating and air-conditioning of buildings, and the construction of roads. Energy is even required to allow pixels to appear on a computer screen.

Pre-humans learned to control fire over one million years ago. The burning of biomass was a tool that could be used for many purposes, including keeping warm in colder climates, frightening away predators, and creating better tools. Perhaps its most important use was to permit food to be cooked, because cooking increases food’s nutritional availability. Cooked food seems to have been important in allowing the brains of humans to grow bigger at the same time that teeth, jaws and guts could shrink compared to those of ancestors. Humans today need to be able to continue to cook part of their food to have a reasonable chance of survival.

Any kind of governmental organization requires energy. Having a single leader takes the least energy, especially if the leader can continue to perform his non-leadership duties. Any kind of added governmental service (such as roads or schools) requires energy. Having elected leaders who vote on decisions takes more energy than having a king with a few high-level aides. Having multiple layers of government takes energy. Each new intergovernmental organization requires energy to fly its officials around and implement its programs.

International trade clearly requires energy consumption. In fact, pretty much every activity of businesses requires energy consumption.

Needless to say, the study of science or of medicine requires energy consumption, because without significant energy consumption to leverage human energy, nearly every person must be a subsistence level farmer, with little time to study or to take time off from farming to write (or even read) books. Of course, manufacturing medicines and test tubes requires energy, as does creating sterile environments.

We think of the many parts of the economy as requiring money, but it is really the physical goods and services that money can buy, and the energy that makes these goods and services possible, that are important. These goods and services depend to a very large extent on the supply of energy being consumed at a given point in time–for example, the amount of electricity being delivered to customers and the amount of gasoline and diesel being sold. Supply chains are very dependent on each part of the system being available when needed. If one part is missing, long delays and eventually collapse can occur.

[5] If the supply of energy to an economy is reduced for any reason, the result tends to be very disruptive, as shown in the examples given in Section [3], above.

When an economy doesn’t have enough energy, its self-organizing feature starts eliminating pieces of the economic system that it cannot support. The financial system tends to be very vulnerable because without adequate economic growth, it becomes very difficult for borrowers to repay debt with interest. This was part of the problem that Greece and Spain had in the period when their energy consumption per capita declined. A person wonders what would have happened to these countries without bailouts from the European Union and others.

Another part that is very vulnerable is governmental organizations, especially the higher layers of government that were added last. In 1991, the Soviet Union’s central government was lost, leaving the governments of the 15 republics that were part of the Soviet Union. As energy consumption per capita declines, the European Union would seem to be very vulnerable. Other international organizations, such as the World Trade Organization and the International Monetary Fund, would seem to be vulnerable, as well.

The electrical system is very complex. It seems to be easily disrupted if there is a material decrease in energy consumption per capita because maintenance of the system becomes difficult.

If energy consumption per capita falls dramatically, many changes that don’t seem directly energy-related can be expected. For example, the roles of men and women are likely to change. Without modern medical care, women will likely need to become the mothers of several children in order that an average of two can survive long enough to raise their own children. Men will be valued for the heavy manual labor that they can perform. Today’s view of the equality of the sexes is likely to disappear because sex differences will become much more important in a low-energy world.

Needless to say, other aspects of a low-energy economy might be very different as well. For example, one very low-energy type of economic system is a “gift economy.” In such an economy, the status of each individual is determined by the amount that that person can give away. Anything a person obtains must automatically be shared with the local group or the individual will be expelled from the group. In an economy with very low complexity, this kind of economy seems to work. A gift economy doesn’t require money or debt!

[6] Most people assume that moving away from fossil fuels is something we can choose to do with whatever timing we would like. I would argue that we are not in charge of the process. Instead, fossil fuels will leave us when we lose the ability to reduce interest rates sufficiently to keep oil and other fossil fuel prices high enough for energy producers.

Something that may seem strange to those who do not follow the issue is the fact that oil (and other energy prices) seem to be very much influenced by interest rates and the level of debt. In general, the lower the interest rate, the more affordable high-priced goods such as factories, homes, and automobiles become, and the higher commodity prices of all kinds can be. “Demand” increases with falling interest rates, causing energy prices of all types to rise.


Figure 6.


The cost of extracting oil is less important in determining oil prices than a person might expect. Instead, prices seem to be determined by what end products consumers (in the aggregate) can afford. In general, the more debt that individual citizens, businesses and governments can obtain, the higher that oil and other energy prices can rise. Of course, if interest rates start rising (instead of falling), there is a significant chance of a debt bubble popping, as defaults rise and asset prices decline.

Interest rates have been generally falling since 1981 (Figure 7). This is the direction needed to support ever-higher energy prices.

Figure 7. Chart of 3-month and 10-year interest rates, prepared by the FRED, using data through March 27, 2019.

The danger now is that interest rates are approaching the lowest level that they can possibly reach. We need lower interest rates to support the higher prices that oil producers require, as their costs rise because of depletion. In fact, if we compare Figures 7 and 8, the Federal Reserve has been supporting higher oil and other energy prices with falling interest rates practically the whole time since oil prices rose above the inflation adjusted level of $20 per barrel!

Figure 8. Historical inflation adjusted prices oil, based on data from 2018 BP Statistical Review of World Energy, with the low price period for oil highlighted.

Once the Federal Reserve and other central banks lose their ability to cut interest rates further to support the need for ever-rising oil prices, the danger is that oil and other commodity prices will fall too low for producers. The situation is likely to look like the second half of 2008 in Figure 6. The difference, as we reach limits on how low interest rates can fall, is that it will no longer be possible to stimulate the economy to get energy and other commodity prices back up to an acceptable level for producers.

[7] Once we hit the “no more stimulus impasse,” fossil fuels will begin leaving us because prices will fall too low for companies extracting these fuels. They will be forced to leave because they cannot make an adequate profit.

One example of an oil producer whose production was affected by an extended period of low prices is the Soviet Union (or USSR).

Figure 9. Oil production of the former Soviet Union together with oil prices in 2017 US$. All amounts from 2018 BP Statistical Review of World Energy.

The US substantially raised interest rates in 1980-1981 (Figure 7). This led to a sharp reduction in oil prices, as the higher interest rates cut back investment of many kinds, around the world. Given the low price of oil, the Soviet Union reduced new investment in new fields. This slowdown in investment first reduced the rate of growth in oil production, and eventually led to a decline in production in 1988 (Figure 9). When oil prices rose again, production did also.

Figure 10. Energy consumption per capita for the former Soviet Union, based on BP 2018 Statistical Review of World Energy data and UN 2017 population estimates.

The Soviet Union’s energy consumption per capita reached its highest level in 1988 and began declining in 1989. The central government of the Soviet Union did not collapse until late 1991, as the economy was increasingly affected by falling oil export revenue.

Some of the changes that occurred as the economy simplified itself were the loss of the central government, the loss of a large share of industry, and a great deal of job loss. Energy consumption per capita dropped by 36% between 1988 and 1998. It has never regained its former level.

Venezuela is another example of an oil exporter that, in theory, could export more oil, if oil prices were higher. It is interesting to note that Venezuela’s highest energy consumption per capita occurred in 2008, when oil prices were high.

We are now getting a chance to observe what the collapse in Venezuela looks like on a day- by-day basis. Figure 5, above, shows Venezuela’s energy consumption per capita pattern through 2017. Low oil prices since 2014 have particularly adversely affected the country.

[8] Conclusion: We can’t know exactly what is ahead, but it is clear that moving away from fossil fuels will be far more destructive of our current economy than nearly everyone expects. 

It is very easy to make optimistic forecasts about the future if a person doesn’t carefully examine what the data and the science seem to be telling us. Most researchers come from narrow academic backgrounds that do not seek out insights from other fields, so they tend not to understand the background story.

A second issue is the desire for a “happy ever after” ending to our current energy predicament. If a researcher is creating an economic model without understanding the underlying principles, why not offer an outcome that citizens will like? Such a solution can help politicians get re-elected and can help researchers get grants for more research.

We should be examining the situation more closely than most people have considered. The fact that interest rates cannot drop much further is particularly concerning.

Tyler Durden
Tue, 10/26/2021 – 22:10

Author: Tyler Durden


Global Food Prices Near Record as Inflation Headaches Accelerate

Food costs around the world soared even closer to a record-high last month, creating a headache for both consumers and
The post Global Food Prices Near…

Food costs around the world soared even closer to a record-high last month, creating a headache for both consumers and governments as surging inflation becomes increasingly more permanent.

According to the United Nation’s latest FAO report, global food prices accelerated 1.2% in November, forcing households to allocate a greater proportion of their income towards groceries, and further catapulting the worsening hunger crisis across developing countries. The majority of the price gains were concentrated across staple food items such as grains and dairy, while meat and vegetable oil prices declined.

Various factors have been pushing global food prices substantially higher as of late, including adverse climate conditions, supply chain disruptions, labour shortages, and surging energy costs. To make matters worse, fertilizer prices have also increased as of late, threatening to further raise input costs for producers ahead of the growing season in the northern hemisphere.

Last month, the FAO cautioned that import costs for foods will likely rise to record-high levels before the end of the year, due to increases in global logistics and shipping costs. The issue is particularly alarming for developing economies, which predominantly rely on imports for their food supply.

With food inflation rapidly accelerating long past the transitory phase, governments and central banks have been under increased scrutiny to dial back Covid-19 related fiscal and monetary policies, particularly in the US and Europe. Earlier this week, Fed Chair Jerome Powell finally acknowledged it’s time to retire the word transitory when talking about inflation, announcing that the central bank may even dial back its bond purchases several months in advance of previous forecasts.

Information for this briefing was found via the FAO. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Global Food Prices Near Record as Inflation Headaches Accelerate appeared first on the deep dive.

Author: Hermina Paull

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Goldman Cuts GDP Forecast Due To Omicron, Setting The Stage For More Central Banks Stimulus

Goldman Cuts GDP Forecast Due To Omicron, Setting The Stage For More Central Banks Stimulus

It was less than a month ago when bank after bank…

Goldman Cuts GDP Forecast Due To Omicron, Setting The Stage For More Central Banks Stimulus

It was less than a month ago when bank after bank triumphantly revealed their extremely optimistic year-ahead growth forecasts, in which chief economists trumpeted 2022 GDP expectations in the mid- to high-single digits despite knowing well that these numbers are completely unattainable (as a reminder, the reason the forward swap yield curve just inverted is because even the market now understands that Powell is hiking into an imminent recession). An example of this is the following Nov 8 blurb from Goldman’s Jan Hatzius:

Although the fastest pace of recovery now lies behind us, we expect strong global growth in coming quarters, thanks to continued medical improvements, a consumption boost from pent-up saving, and inventory rebuilding. For 2022 as a whole, global GDP is likely to rise 4½%, more than 1pp above potential.

At the time we made the decision to simply ignore these forecasts which came just as speculation was emerging of a new covid variant, and which we – correctly – predicted would lead to imminent outlook cuts.

Once again we were right, because one day after the IMF revealed the endgame with the latest “Omicron variant” farce, saying that it would downgrade global growth due to Omicron – despite nobody knowing what the full impact of omicron will be, and as a reminder some such as JPMorgan have even predicted it would be bullish – in the process greenlighting trillions more in fiscal and monetary stimulus just in time for the 2022 midterm elections (because with the world addicted to stimmies and Universal Basic Income there is no other way any more), overnight Goldman became the first Wall Street bank to admit that its full-year forecast published just a few weeks ago was garbage and the bank just cut its Q1 and Q2 GDP forecasts due to, wait for it, Omicron… even though, once again, nobody has any clue yet what the real impact of the newest covid variant will be.

Setting the stage for the next round of GDP cuts and hawkish forecast revisions, which eventually will culminate into a narrative that the US needs, nay demands trillions more in stimmies, Goldman’s Hatzius writes that “the emergence of the Omicron variant increases the risks and uncertainty around the US economic outlook” and while even the chief economist admits that “many questions remain unanswered, we now think a moderate downside scenario where the virus spreads more quickly but immunity against severe disease is only slightly weakened is most likely.”

In this scenario –  the one scenario which magically translates into a modest slowdown which requires more stimmies but does not lead to a recession or outright depression that would crush markets, Goldman sees three main effects on the US economy.

  • First, Omicron could slow economic reopening, but we expect only a modest drag on service spending because domestic virus-control policy and economic activity have become significantly less sensitive to virus spread.
  • Second, Omicron could exacerbate goods supply shortages if virus spread in other countries necessitates tight restrictions. This was a major problem during the Delta wave, but increases in vaccination rates in foreign trade partners since then should limit the scope for severe supply disruptions.
  • Third, Omicron could delay the timeline for some people feeling comfortable returning to work and cause worker shortages to linger somewhat longer.

Quantitatively this translates into Goldman’s admission that its cheerful 2022 GDP outlook was crap, and as Hatzius writes today, “we have updated our GDP forecasts to incorporate our updated virus outlook as well as the latest GDP tracking data. These changes result in a +0.5pp (qoq ar) boost to our Q4 growth forecast based mostly on stronger inventory data, and a -1.5pp cut to growth in Q1 and -0.5pp cut in Q2 due to virus-related drags on reopening and goods supply.

In other words, Goldman now expects GDP growth of +6.5%/+3.0%/+3.5%/+3.0%/+2.0% in 2021Q4-2022Q4, which implies 2022 GDP growth of +3.8% (vs. 4.2% previously) on a full-year basis and +2.9% (vs. +3.3% previously) on a Q4/Q4 basis.

This, as we have warned previously, is just the first of many GDP cuts coming, and the banks will use any and every possible excuse to “glideslope” their 2022 GDP forecast to drop to around 1% if not lower by year end. That’s the number that will be needed by the Fed to quietly forget all about its hiking plans.

But what about surging inflation? After all didn’t Powell himself say that “transitory” has to be retired.

Well, here Goldman finds a loophole too, because with oil tumbling (for now, before exploding higher in 2022) and gas prices set to slide creating the impression that inflation is now gone, Goldman says that it sees mixed implications for inflation, to wit:

reduced demand for virus-sensitive services such as travel could have a disinflationary impact in the near term, but prior virus waves suggest that such pressures would be temporary and reverse as demand recovers. In contrast, further supply chain disruptions due to Omicron or further delays in the recovery of labor supply could have a somewhat more lasting inflationary impact.

And lest someone accuses us of being hypocritical and reading too much into this initial narrative shift, which is completely innocent and has no bearing on central bank plans, on Friday Bloomberg reported that uncertainty surrounding the omicron variant is making some Bank of Japan officials see increased risk in ending or scaling back a Covid funding program set to expire in March.

While credit conditions for big firms have improved along with the market for corporate bonds and commercial paper, it may be risky to announce a reduction in support now, the people said. The new variant has fueled concern over the economic outlook and shaken financial markets, they said.

If financial market hadn’t been roiled by the new variant, the BOJ would have had an easier time deciding to lower their limit on corporate debt purchases, as long as the Tankan showed big firms were comfortable in their ability to raise funds, the people said. 

Of course, there will always be something that “roils” markets, and if there is no external trigger then the very act of central banks unwinding their stimulus will be catalyst.

One final point: as we noted yesterday, the forward TSY curve slope as indicated by 4Y1Y less 2Y1Y fwd swap OIS, just inverted the most since late 2018. As a reminder, just a few weeks later, Powell was forced to abandon his tightening cycle as the Ghost of ’37 struck, sending stocks into a painful but brief bear market on Dec 24, 2018. Fast forward to today when the market is again saying that the Fed will also be forced to abandon its plans for rate hikes in coming months… or else the market gets it.

Which is why now that the IMF has revealed the Omicron endgame, and banks like Goldman have begun effectuating it, we see the near-term as follows:

  • in a few weeks, banks will trim their hawkish forecasts.
  • In 1-2 months they will predict tapering is postponed
  • in 2-3 months rate hikes will be off the table.

And yes, all of that is just the pretext for central banks to take the needed measures to avoid another market crash.

Tyler Durden
Sat, 12/04/2021 – 13:00

Author: Tyler Durden

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Leveraged Bitcoin Traders Flushed Out In Epic Overnight Crash

Leveraged Bitcoin Traders Flushed Out In Epic Overnight Crash

The price of Bitcoin was rangebound on early Friday around the $56k handle….

Leveraged Bitcoin Traders Flushed Out In Epic Overnight Crash

The price of Bitcoin was rangebound on early Friday around the $56k handle. The world’s largest cryptocurrency then spiked when the kneejerk read of the November payrolls came in as very disappointing, seen as postponing the Fed’s plans to accelerate the taper but then began to decline during the US cash session to about $54k-$53k handle by late afternoon as the narrative flipflopped and near unanimous consensus emerged around a Fed announcement that Powell would announce a much faster taper on Dec 15 leading to rate lift off by June.

Then at midnight into the early hours of Saturday morning, during the traditionally illiquid Asian session when things normally go splat in the night for cryptos as one or more super levered Asian momentum chasers blow up, Bitcoin suffered a massive liquidation and crashed into a bear market down to the $42k level, tumbling into a bear market. Price has recovered some, now trading around $47k. 

We noted that the action was that of a margined whale getting liquidated…

… an assessment Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore agreed with, telling Bloomberg the action overnight was leveraged buyers of Bitcoin being flushed out. 

“Markets have also been jittery with all the uncertainty around omicron, with cases now appearing in many countries,” Ayyar said. “It’s hard to say what that means for economies and markets and hence the uncertainty.”

And sure enough, according to Coinglass, over 410K crypto accounts were liquidated in the past 24 hours totaling $2.6 billion with the largest liquidation being $27 million.

So far, Bitcoin has found support just below the 200dma. 

The plunge is just another sign of risk aversion sweeping across global markets as equities sink and fate havens soar. Spiking inflation is forcing central banks to tighten monetary policy, reducing liquidity for risk assets. However, as we first pointed out yesterday, we are now at the point where the market is starting to price in the first future rate cut – sometime in 2023-2024 – resulting from the Fed’s overtightening cycle.

The omicron variant of COVID-19 has also compounded risk aversion as it derails the global economic reopening. 

Today’s global cryptocurrency market cap is $2.28 Trillion, down 17.5% in the last 24 hours. Total cryptocurrency trading volume in the last day is at $236 billion. Bitcoin’s market cap of all crypto is 38.68%. 

That said, El Salvador President Nayib Bukele is using the dip to buy even more Bitcoin. 

And as the storm of schadenfreude readies to strike, declaring ‘bitcoin is dead’, remember, this is the 434th time that call has been made…


Finally, we note that while Ethereum (and every coin) has been crushed, it has outperformed Bitcoin in this carnage and has pushed up to its strongest relative to the larger market cap coin since 

“It seems that investors are taking ETH as a hedge here,” said Crypto Birb, an independent market analyst in a tweet Saturday, pointing to a four-hour ETH/BTC price chart (as shown below) that showed the pair retracing sharply after testing its 200-period moving average (the orange wave) as support.

Tyler Durden
Sat, 12/04/2021 – 07:46

Author: Tyler Durden

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