Bitcoin 2022: We’re Still So Early

An estimated 30,000 people attended this week’s Bitcoin 2022 conference in Miami, which is rapidly becoming a major global crypto-finance hub. Miami mayor Francis Suarez, who takes his salary in Bitcoin, kicked off the event by unveiling a giant cybernetic, laser-eyed bull statue modeled after the iconic Charging Bull installation that stands near the New York Stock Exchange (NYSE)—a not-so-subtle hint that the city wishes to brand itself as the “crypto Wall Street.”

It was a great pleasure seeing everyone from HIVE Blockchain Technologies, which helped sponsor the conference. I want to acknowledge their hard work in making HIVE among the most efficient, most profitable Bitcoin and Ether miners.

If there’s one theme that ran throughout the entire four-day event, it’s that we’re still so early. I believe that buying Bitcoin today is like investing in the internet back in 1995. There’s incredible upside potential, and for those who worry that Bitcoin is too expensive at $43,000, just wait another five to 10 years.

Like the Internet in 1995

Ask yourself this: Do you think Bitcoin adoption and ownership is going to go up over time, or down? At the moment, ownership is still relatively limited. In the U.S., for instance, only one in five people holds Bitcoin. But as its use cases become more obvious, and more people join the network, this figure should increase. This is what’s known as Metcalfe’s law.

Cryptocurrency ownership by country

Bitcoin’s critics say it has no utility and it’s wasteful. Warren Buffett calls it “rat poison.” The same type of FUD, which stands for fear, uncertainty and doubt, was being spread about the internet in 1995. If you had listened to people like astronomer Clifford Stoll—who in a now-famous Newsweek op-ed said it was “baloney” that we’d ever shop, read the news or attend school online—you’d have missed out on investing in Amazon, Google and many other companies you likely interact with on a weekly or even daily basis.

Just as they did back in the 90s, it’s the younger investors who seem to get it the most. The average user age of the commission-free Robinhood trading app is around 32. These investors have made Bitcoin the number one recurring buy asset on Robinhood—higher than Apple, higher than Tesla, higher even than broad-based equity index ETFs.

Bitcoin is the number one recurring buy asset on robinhood

But didn’t internet stocks crash in 2000? Yes, and many of the companies that survived are still around today and highly profitable. Besides Amazon, there’s eBay, Booking Holdings, Priceline and more.

According to CoinMarketCap, some 18,760 cryptocurrencies are currently being traded on more than 500 different exchanges. If a similar “dotcom bubble” were to burst right now, 99.99% of these “sh*tcoins,” as they’re called, would disappear overnight.

Bet on the winners. For me, that’s Bitcoin and Ether. Everything else is pure speculation.

My Top Takeaways

I attended so many great presentations and panels this week that it’s difficult for me to single any out, but I will try my best. Three different announcements come to mind.

The first announcement comes from Robinhood. The company’s chief product officer, Aparna Chennapragada, took the stage to tell everyone that, at long last, Robinhood would roll out digital wallets to as many as 2 million users who have been on a waitlist. What this means is they can now send and receive cryptos, including Bitcoin, peer-to-peer. In addition, Robinhood plans to integrate the Lightning Network, which will make such transactions instantaneous and virtually free.

The second announcement has to do with mass adoption. At last year’s conference, we learned that El Salvador would move to become the world’s first country to adopt Bitcoin as legal tender, something it’s now accomplished. This week we learned that two new jurisdictions are following in its footsteps.

Prospera, a new special economic zone in Honduras, just officially adopted Bitcoin, as did the autonomous Portuguese archipelago known as Madeira, home to more than a quarter of a million people. And believe it or not, Mexico may be next. Mexican senator Indira Kempis Martinez told the thousands in attendance she was working on legislation that would make Bitcoin legal tender in her country, where a third of adults are unbanked and lack access to credit. 

And finally, I want to mention an exciting announcement made by Strike CEO Jack Mallers. In a highly entertaining, breathless presentation, Mallers announced that his firm had partnered with not only Shopify but also the world’s biggest point-of-sale systems to make it possible for consumers to pay for a Big Mac at McDonald’s or wine at Costco using Bitcoin. Mallers framed this innovation as the first real evolution in payments processing technology since 1949, when the Diners Club credit card was conceived. Hundreds of household-named stores and restaurants are expected to begin accepting Bitcoin as payment, which will eliminate all third-party intermediaries and fees.

It’s truly an exciting time, and I hope you’re participating. Cathie Wood, I think, said it best. During her panel with Michael Saylor, the ARK Invest chief called Bitcoin the “first open-source, global private digital rules-based monetary system in the history of the world.” We’re only just now starting to realize the full implications of that.

Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 0.28%. The S&P 500 Stock Index fell 1.26%, while the Nasdaq Composite fell 3.86%. The Russell 2000 small capitalization index lost 4.62% this week.
  • The Hang Seng Composite lost 0.69% this week; while Taiwan was down 5.13% and the KOSPI fell 9.31%.
  • The 10-year Treasury bond yield rose 3 basis points to 2.704%.

……

Emerging Markets

Strengths

  • The best performing country in emerging Europe for the week was Turkey, gaining 6.3%. The best performing country in Asia this week was Indonesia, gaining 1.9%.
  • The Russian ruble was the best relative performing currency in emerging Europe this week, gaining 7.6%. The Indian rupee was the best performing currency in Asia this week, losing 0.01%.
  • The final S&P Global Eurozone Service PMI was reported at 55.6 in March versus the preliminary 54.8. Bloomberg economists expected the Service PMI to remain unchanged at 54.8. A strong Service PMI pushed the Composite PMI in Europe to 54.9 from 54.5.

Weaknesses

  • The worst performing country in emerging Europe for the week was Hungary, losing 6.3%. The worst performing country in Asia this week was Taiwan, losing 2.00%.
  • The Hungarian forint was the worst performing currency in emerging Europe this week, losing 4.2%. The South Korea won was the worst performing currency in Asia this week, losing 0.70%.
  • Caixin reported very weak China Services and Composite PMIs for the month of March. The Services PMI came in at 42.0 versus 49.7 expected, and 50.2 in February. The Caixin Composite PMI fell sharply to 43.9 versus 50.1 in February. The Caixin Manufacturing PMI was released last week, and it too fell below the 50.0 level that separates expansion from contraction.

Opportunities

  • Credit Suisse lowered its real gross domestic product (GDP) growth forecast for 2022 for the emerging market economies. The broker now expects real GDP growth of 4.2%, down from 4.7% at the start of the year. The new forecast reflects the negative impact from the war in Europe. On a positive note, CSFB predicts all emerging countries’ economies will grow this year, with the exception of Russia. The Russian economy is expected to contract 6.4% this year, and 2.3% next year.
  • Poland’s government considers a construction of a dry port to help Ukraine’s exports of grains and other agricultural products. Almost all of Ukraine’s exports were through the Black Sea ports of Odesa and Mykolaiv, which are currently blocked by Russia.
  • China may cut the reserves requirement ratio (RRR) and interest rates in the second quarter to bolster its economy. Since the second half of last year, the country has twice reduced the RRR for financial institutions. In January, the central bank also cut the interest rates of its medium-term lending facility loans and reverse repos, and lowered benchmark lending rates.

Threats

  • The default risk for Russia has risen after the U.S. Treasury banned Russia from making any debt payments through U.S. banks. Russia so far has been able to fulfill its debt obligation but will face another round of dollar coupon payments in the last week of May. The Russian ruble bounced to pre-war levels, but it may quickly depreciate against the dollar if Russia will not be able to pay its debt obligations. Ed Hyman from Evercore ISI commented that Russia credit insurance shows a 99% chance of default within a year.
Russian Ruble Recovered to Pre-War Levels
  • Poland this week hiked its rate by 100 basis points while a rate increase of only 50 basis points was expected. The country’s inflation spiked to 10.9% year-over-year in March and most likely CPI will stay on its upward path. Central banks will continue to fight inflation by raising rates, a move adversely affecting economic growth.
  • The Federal Reserve (Fed) and European Central Bank (ECB) released minutes from their latest meetings and both banks indicated tighter monetary policies. The ECB’s March minutes signaled a need to act on inflation as the conflict in Ukraine will continue to push prices higher, weighting on economic activity. In Europe, the bond buying program may end as soon as June, and rate hikes will follow in a year. In the U.S, the Fed signaled a higher rate hike of 50 basis points as soon as next month. Tighter monetary policies may cause equites to slip.

Energy & Natural Resources

Strengths

  • The best performing commodity for the week was natural gas, up 10.56%. Europe’s ambition to wean itself off natural gas is putting a new floor under energy prices.  Records from the International Energy Agency shows that the European Union (EU) imported about 155 billion cubic meters of natural gas from Russia last year, but the bloc wants to reduce that by two-thirds by the end of this year. The U.S. is a potential swing producer of natural gas, but that will command higher prices.
  • Electric cars got a boost, or should we say battery metals got another vote of support by Hertz Global Holdings announcing plans to buy 65,000 electric vehicles from Polestar over the next five years. In addition, an infrastructure plan announced by President Biden includes $8 billion in federal funds earmarked for so-called hydrogen hubs which more than a dozen states will be competing for.
  • Another round of potash price increases is occurring as Russian seaborne supply has now largely dried up on the back of the indirect effects of sanctions. As a result of these sanctions 40% of global potash supply is currently absent from the export market. It was also a strong week for steel, with hot rolled hitting $1,450 per ton, up 45% over the past month. Russia’s invasion of Ukraine has impacted global steel trade flows and higher pricing for metallics, which have surged as a result.

Weaknesses

  • The worst performing commodity for the week was zinc, down 4.63%. Zinc jumped in London to head for its highest close since 2006 earlier this week, as further declines in exchange inventories add to mounting evidence of strained supply. Orders to withdraw zinc from warehouses tracked by the LME jumped by a third to reach 59,550 tons, the highest level since November. The metal used in galvanizing has rallied 25% this year on the London Metal Exchange and spiked to an intraday record of $4,896 a in a day of frenzied trading on fresh memories of the recent nickel trading fiasco. For the rest of the week zinc trailed off as momentum waned.
  • Europe’s ambitious timetable for building its way out of a dependence on Russian energy faces potential delays and billions of dollars in extra costs, writes Bloomberg, as the war in Ukraine makes steel, copper, and aluminum scarce and more expensive. A rush to replace Russian fossil fuels is prompting the continent to focus on shoring up flows of liquefied natural gas in the near term and increasing generation from renewable sources by 2030. Germany pledges to build two LNG terminals, the article continues, and France wants to resume talks with Spain about a connecting pipeline, while the U.K. seeks more homegrown wind, solar and nuclear power.
  • Oil fell to the lowest since mid-March after the International Energy Agency (IEA) said it will deploy 60 million barrels of oil from emergency stockpiles to bolster the historic release announced by the Biden Administration, reports Bloomberg. West Texas Intermediate closed below $97 a barrel after earlier rising as high as $104 on Wednesday. The IEA’s Fatih Birol said members will release 120 million additional barrels of oil, including about 60 million from the U.S. Meanwhile, government data showed U.S. crude stockpiles rose by more than 2 million barrels last week.

Opportunities

  • Looking at battery technology, EV manufactures rely heavily on lithium-ion batteries with NMC and NCA cathodes, although LFP batteries have been gaining market share. Yet, innovations keep coming, with solid state and potentially sodium-ion batteries also being discussed; the first can run on similar cathodes than today’s batteries, the second would go without nickel/ cobalt. Incidentally, and beyond that, operators have refocused from pure graphite toward composite and pure silicon anodes. This can help increase energy density, which in turn may reduce metals demand.
  • Global refining utilization rates are increasing to reflect new capacity delays and permanent closures and there may be further upside risks if China product exports stay low. Refined product demand should remain strong on elevated gas-to-oil switching, recovering jet fuel demand and a rebound in China demand from COVID-led dips in the first half of 2022. Global utilization rates are trending toward the 2015-17 upcycle, but energy costs remain high as well, particularly in Europe, which should support net margins in Asia and the U.S. given their better cost curve positioning.
  • The White House announced that President Biden will authorize the use of the Defense Production Act (DPA) to enhance domestic production of critical materials used for large capacity batteries. Specifically, the DPA will be authorized to support “production and processing of minerals and materials…such as lithium, nickel, cobalt, graphite, and manganese.” The President is also reviewing potential further uses of DPA beyond minerals and materials in order “to secure safer, cleaner, and more resilient energy for America.”

Threats

  • Despite Europe’s policymakers facing a new energy trilemma between their objectives of 1) net zero, 2) energy independence, and 3) containing energy price inflation, Europe’s oil and gas industry remains well-insulated from interventionist attempts to tap ‘windfall earnings’ in Europe.
  • The fact that consumers across the board are feeling pain at the pump is common sense, but the magnitude varies a great deal from country to country. Overall, the near-term economic impact and thus risk of oil demand destruction is smaller than commonly believed. A prolonged period of triple-digit oil prices would stimulate faster adoption of electric mobility, accelerating oil demand displacement, though that will take time.
  • The Financial Conduct Authority and Bank of England will undertake reviews into the governance, market oversight and risk management of the London Metal Exchange after a massive short squeeze led to weeks of turmoil that paralyzed the nickel market.

…………..

Blockchain and Digital Currencies

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Bitcoin Metaverse, rising 1,603.46%.
  • According to a recent survey published by Investopedia, 28% of U.S. millennials polled said they expect to use cryptocurrency to support themselves in retirement. This figure was higher than those who said they would use savings (25%) and stock investments (27%) to fund their retirement, writes CoinTelegraph. 
  • MicroStrategy’s war chest of Bitcoin is getting bigger and bigger with the software firm announcing on Tuesday that it bought another 4,167 of the digital tokens, bringing its holdings to more than 129,000. The purchase vaults the total value of its Bitcoin assets to just shy of $6 billion, which exceeds its entire market cap by $500 million, writes Bloomberg.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Lord Token, down 100%.
  • Cryptocurrency exchange Binance announced it was temporarily suspending all Solana withdrawals due to network issues. The company said that it was aware of the current issues regarding withdrawals on the Solana network and has halted withdrawals for the time being, reports CryptoPotato. This isn’t the first time the exchange has faced an issue like this – halting several times before to clear the backlogs.
  • Treasury Secretary Janet Yellen said a digital dollar would take years to develop if the U.S. decides to proceed with one, underscoring a deliberate approach by American policymakers as they flesh out their regulatory plans to address the rapid spread of digital assets. U.S. regulators are now engaged in a six-month review aimed at coming up with recommendations on a raft of issues linked to digital assets including a digital version of the U.S. sovereign currency, writes Bloomberg.

Opportunities

  • Billionaire crypto investor Michael Novogratz says that once the Federal Reserve takes a pause, Bitcoin could start taking off again. Novogratz spoke at the Bitcoin 2022 conference in Miami that attracted more than 25,000 attendees this week to Miami, FL. 
  • Tiger Global has led a $350 million investment in Near Protocol Blockchain, reports Bloomberg, which is more than double what it got just three months ago. The investment is a sign of the frenzy surrounding crypto startups, the article goes on to explain. As of Tuesday, Near Protocol’s market cap was more than $10 billion.
  • Ultimate Fighting Champion (UFC) athletes will be paid bonuses in Bitcoin as a result of the partnership between the mixed martial arts organization and Crypto.com. Bitcoin bonuses will be awarded to the three stand-out fighters at each UFC pay-per view event, as voted for by fans across the world, writes Bloomberg. 

Threats

  • Bears have $100 million reasons to keep the Bitcoin price under $45,000 until Friday’s options expire, writes CoinTelegraph. Some analysts argue that Bitcoin rallied too fast and too soon and the weakness that we saw on April 7 is a result of that.
  • Billionaire and venture investor Peter Thiel took aim at ESG in a wide-ranging speech at Bitcoin 2022 in Miami where he called Warren Buffett, Jamie Dimon, and Larry Fink members of a “finance gerontocracy” opposed to a “revolutionary youth movement” that embraces Bitcoin. He said Buffett tops an “enemies list” of people who are trying to stop cryptocurrency. Thiel went on to accuse Buffett, Dimon, and Fink of using investing practices focused on environmental, social and governance goals as a “hate factory” to undermine Bitcoin and other businesses.
  • The European Union on Friday targeted crypto wallets, banks, currencies, and trusts in its fifth package of sanctions on Russia in a bid to close potential loopholes which could allow Russians to move money abroad, according to U.S. news.

Gold Market

This week gold futures closed at $1,948.50, up $24.80 per ounce, or 1.29%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 0.39%. The S&P/TSX Venture Index came in off 1.03%. The U.S. Trade-Weighted Dollar jumped 1.23%.

 

Date Event Survey Actual Prior
Apr-4 Durable Goods Orders -2.2% -2.1% -2.2%
Apr-7 Initial Jobless Claims 200k 166k 171k
Apr-12 Germany CPI YoY 7.3% 7.3%
Apr-12 Germany ZEW Survey Expectations -48.5 -39.3
Apr-12 Germany ZEW Current Situation -35.0 -21.4
Apr-12 CPI YoY 8.4% 7.9%
Apr-13 PPI Final Demand YoY 10.6% 10.0%
Apr-14 ECB Main Refinancing Rate 0.000% 0.000%
Apr-14 Initial Jobless Claims 173k 166k

Strengths

  • The best performing precious metal for the week was palladium, up 6.28%. Palladium surged late Friday after the London market suspended two state-owned Russian refineries from its accreditation lists, potentially disrupting 40% of the world’s supply chain. However, China consumes about 30% of the world’s demand for palladium so it is possible Russia could bypass Zurich and London and ship directly to China.
  • Canada’s Centerra Gold Inc. has agreed to hand control of its expropriated gold mine to Kyrgyzstan’s government. The agreement calls for Centerra to yield control of its owned subsidiary Kumtor Gold Co. and an affiliate to state-owned refiner Kyrgyzaltyn OJSC. In exchange for control, Kyrgyzaltyn is to transfer its 26% stake in Centerra back to the Canadian company, which plans to cancel the shares. The minority stake is valued at about (CA) $972 million, equivalent to $776 million USD. Centerra will pay $36 million for the shares to Kyrgyzaltyn and to Canadian tax authorities alongside other potential payments.
  • Exchange-traded funds added 176,458 troy ounces of gold to their holdings, bringing this year’s net purchases to 8.06 million ounces, according to data compiled by Bloomberg. The purchases were equivalent to $339.8 million at the previous spot price. Total gold held by ETFs rose 8.2% this year to 105.9 million ounces, the highest level since February 18, 2021.

Weaknesses

  • The worst performing precious metal for the week was platinum, down 1.21%, but still up on Friday with the London news. In what may be a double-edged sword, South African platinum miners’ output of nickel and copper could increase as much as 40% over the next 20 years, according to RMB Morgan Stanley. South African output of platinum group metals (PGMs) would decline by more than 25% over that period, but the PGM miners currently lack the sufficient plant capacity to process the base metals.
  • UBS decreased its fiscal year 2022 estimated earnings forecasts for Northam by 34% following a disappointing first half result and revised management guidance. Lower earnings and cash flow resulted in a 20% cut to the group’s price target of R160 per share. As highlighted in its first read, group EBITDA missed UBS’ forecast by 40% during the period, with management cutting full-year production guidance by 9% to 680-710,000 ounces and lifting unit cost guidance by 14%.
  • Gold jewelry demand in China, which has been hit by lockdowns in major cities and concerns over the spread of COVID, may take a few months to recover, according to London-based precious metals consultancy Metals Focus. Jewelry stores are closed in the provinces and districts under lockdown, although shops in areas with no lockdowns but with minor outbreaks are operating as normal, said Managing Director Philip Newman, citing feedback from colleagues in Hong Kong and Shanghai.

Opportunities

  • Gold Road is buying DGO Gold, in an all-scrip offer of 2.16 Gold Road shares for every DGO Gold share, implying an offer price of A$3.55 per share and an equity value of about A$308 million on a diluted basis. The offer represents an implied premium 20% over the last trading day, Gold Road says. The offer is subject to an 80% minimum acceptance by DGO shareholders.
  • Asante Gold Corp. announced it is entering an exclusive deal to purchase the Chirano Gold Mine in Ghana from Kinross Gold. The Chirano Gold Mine is located immediately adjacent to Asante’s Bibiani Gold Mine which is being brought back into production. Chirano will establish Asante as a gold producer with a growth pipeline that utilizes existing infrastructure.
  • Kinross also announced the sale of its Russian portfolio to Highland Gold for a total $680 million in potential proceeds, of which $100 million will be received up-front and the balance paid over 2023-27.

Threats

  • Sprott Resource Lending, who holds an $80 million credit facility as part of Ascot’s financing package ($20 million of which is already drawn) will not be releasing the remaining funds to Ascot, as the two sides cannot meet in agreement on terms. Sprott now requires 12 months of ore inventory to be in the Proven category, rather than Probable. Ascot’s reserve base is all classified as Probable
  • Zimbabwe’s mining industry sees a funding shortfall of $10 billion over the next five years, a challenge compounded by erratic power supplies and exchange-rate volatility. While Zimbabwe has the world’s third-biggest reserves of platinum-group metals, plus gold, diamond and chrome mines, development has been stymied by political instability, economic collapse and rules that deter foreign investment.
  • Natascha Viljoen, chief executive officer of Anglo-American Plc’s platinum business, said women do not feel safe working underground in South African mines. While the mining industry’s toxic culture is no secret, an explosive report from Rio Tinto Group in February laid bare the scale and severity of the problem. The abuse of women in mines from Australia to South Africa is increasing investor scrutiny of the world’s biggest mining companies.

 

Read the full article at https://www.usfunds.com/resource/bitcoin-2022-were-still-so-early/

Author: Frank Holmes
Date Posted: April 8, 2022