Bitcoin Crosses $42,000

That’s still a higher low since January 24th as the crypto attempts to recover from a November plunge.

Markets are green too with Europe’s Stoxx up 1.8% following a day of gains that saw Nasdaq up 2.15%.

US futures indicate green for today as well, by about 0.4%, on the back of a strong earnings season.

Shanghai is seeing red instead, down 1.25%, as house prices in China continue to fall with Asia’s giant facing a downturn.

That may make European and US markets more appealing, especially in light of a fast growing economy and Treasuries now providing some return.

It’s not clear whether the western economy will keep this level of growth however. Some of it was just a bounce from the lockdowns, but there may also be structural changes that hopefully shift the economy to a faster lane.

That can be due to Fed targeting higher than 2% inflation, investment leaving China for the west, and years of billions poured into innovation research and development now starting to bring products to market.

Institutions like IMF have lowered growth targets however, but that seems to be in part because of the risks of “a more permanent fragmentation of the world economy into geopolitical blocs.”

“Such a tectonic shift would entail high adjustment costs and long-run efficiency losses as supply chains and production networks are reconfigured,” said Pierre-Olivier Gourinchas, IMF’s Chief Economist.

Yet there should be plenty of efficiency gains from sending back ships full to China, rather than half empty as currently.

In addition, raw data can’t measure the cost of innovation loss due to production being in 19th century style governance countries with a semi-absolute ruler who house arrests entrepreneurs.

Nor can it measure the cost of ending up funding an expansionist neighbor as Europe was fooled into doing, with the market dip in the past few weeks probably caused due to speculations that Europe might cut off Russian oil.

That won’t happen instantly. New suppliers need to be found, transition delivery methods worked out, wit and diplomacy exercised, and then maybe the new year can start without Russian oil.

That risk of an instant cut off being lifted may have contributed to this green in markets as there isn’t much uncertainty left now and if China enters a proper downturn, it will leave room for the west to grow properly.

That’s because raw resources, including oil but also iron etc, probably can’t accommodate good growth in both China and the west. Which may be why China’s GDP has 10x-ed since 2008, while Europe has stagnated, in addition to investors leaving the then stagnating European market for growth in China.

With that growth now reaching its limits following overbuilding and over infrastructure investment, the ping pong might continue as the US and European infrastructure need significant investment.

As bitcoin clearly seems to be following western markets, rather than China’s, that might translate to more gains, but bitcoin correlates until it doesn’t. Although its Nasdaq correlation is one of the longest we have observed.