Bitcoin and Natural Gas Walk Into a Black Hole...And That's Just the Beginning

• Two of the more volatile markets are living up to their reputations as both bitcoin and natural gas make big moves Tuesday.
• I was asked which of would be worse to be tempted by, natural gas or bitcoin?
• My initial reaction was bitcoin, and after giving it some basic economic analysis I'll stick with my original decision.

I recently saw a story about how a team of US Berkeley astronomers discovered, for the first time, what was believed to be a free-floating black hold. As the tagline read, “It’s an incredibly rare discovery, since black holes are invisible.” My response was it’s a fascinating idea, if true, and will certainly lead me to reread the chapter of black holes in Stephen Hawking’s classic book “A Brief History of Time”. 

Shortly after I posted my response, a good friend sent this great question, “Speaking of throwing money down a black hole, is it worse to be tempted by natural gas or bitcoin?” My Blink response (based on the Malcolm Gladwell book “Blink”) was that it would be worse to be tempted by bitcoin. But why? It comes down to simple economics: There is nothing backing cryptocurrencies, including bitcoin (BTCUSD), meaning they have no more real value than NASS’ imaginary weekly crop condition numbers (My apologies. I said I wouldn’t mention those the rest of the season.) Since late March, bitcoin has dropped from nearly $48,000 to below $23,000 early Tuesday (June 14), a decrease of 53%. 

On the other hand, natural gas (NGN22) recently posted a high of $9.664 before plummeting to a low Tuesday morning of $7.008. This was a price decrease of 27%, granted over a much shorter period of roughly 4 days. From a technical point of view the famed Widow Maker (natural gas) is doing what it should after posting a bearish key reversal on its daily chart on Wednesday, June 8. How far might it fall? It’s hard to say, or guess, but at some point it will bottom out and buyers will jump back into the market. Why? Because there is an actual, physical commodity tied the market. 

And that’s the key difference between these two markets that both turn market bulls into steers in the blink of an eye. One has real supply and demand, the other has fundamentals that seem as imaginary as finding an invisible black hole somewhere in the infinity of space. 

What’s driving the breakdown in natural gas recently, other than it’s just being true to its nature? Some are pointing the finger at news Freeport was delaying its facility restart, possibly for 90 days, following the recent explosion last Wednesday (funny how that corresponds to the bearish technical pattern established that day). But the reality is once this sell-storm washes out, the global supply and demand situation has not changed. Europe is going to need more natural gas given Russia’ Putin won’t be leaving Ukraine any time soon, and the US looks to be one of the key exporters of those much-needed supplies. 

As for bitcoin, it has no real fundamentals to fall back on, meaning it can continue to plummet until someone steps in more for fun than anything else. With the world awash in inflation, global traders remain focused on real currencies with real backing, leaving the games that use imaginary money to those who see the industry as nothing more than a game of Monopoly.