(BTC) Archives

The Largest Risk to Tech Growth Shares

The U.S. Central Bank has chosen to be as accommodative as possible in order to put a floor under the stock market with near-zero interest rates and large-scale asset purchases.

This will have an inordinate effect on tech stocks moving forward because the rhetoric from the Fed is as close as one can get to admitting that tech stocks should be bought in droves.

Fed policy won’t kill the rally and talk up higher interest rates until “substantial further progress (to unemployment numbers) has been made,” and “is likely to take some time” to achieve said Fed Governor Jerome Powell.

Yes, it’s possible to attribute some of the bullishness to the “reopening” trade and the massive migration to digital, but the loose monetary policy is overwhelmingly the predominant catalyst to higher tech shares.

As Powell spoke, the Nasdaq did a wicked U-turn in real-time after being in the red almost 4% and sprinted higher to finish up the trading day only ½ of a percent down on the day.

What does this mean for the broader tech market and Nasdaq index?

We started seeing all sorts of wonky moves like Tesla (TSLA) making a $1.5 billion bitcoin (BTC) investment earlier this month.

Fintech player Square (SQ) bought Bitcoin on the dip pouring $170 million into it.

Yes, this isn’t a joke.

Corporations are becoming the dip buyers in bitcoin which would have never been fathomable a year ago from today.

The risk-taking has literally gone into hyper-acceleration in the tech world and is transforming into a fantasy world of corporations swimming knee-deep in capital trying to outdo one another with fresh bitcoin orders of millions upon billions.

That’s where we are at right now in the tech markets.

Treasury Secretary Janet Yellen has also gotten into the bitcoin story condemning the digital gold by saying that bitcoin is an “extremely inefficient” way to conduct monetary transactions.

But because of the extreme low-rate nature of debt, this just gives investors another entry point into the digital gold.

This sets the stage for a correction in tech stocks and the likely reason for it would possibly be higher interest rates or even negative lockdown news or some combination of both.

On the technical side of things, a result of this magnitude would be set off by first, cascading sell orders at one time, eerily similar to what got us the March 2020 low.

This could happen in either biotechnology stocks or Tesla shares and cause performance to deteriorate which could trigger net outflow and that would trigger a violent feedback loop.

Catherine D. Wood is the Founder, CEO, and CIO of ARK Invest and has been hyping up the super-growth tech assets like she was betting her life on it.

The only way she can get away with this chutzpah is in an anemic rate environment that pushes investors to search for yield.

Her reaction to yesterday’s market action wasn’t to buy bitcoin on the dip but go into a safer asset that actually produces something, and she bought another big chunk of Tesla.

Risk-taking and leverage in tech shares have gone up the wazoo which means that any incremental rising of rates is harder for the overall tech market to absorb.

Bitcoin is now being viewed as just one risk point higher on the risk curve than Tesla and that is a dangerous concept.

Technology often promises investors that they are paying for future cash flows of tomorrow and that story doesn’t work if the margins are turning against the management.

The low rates offer the impetus for characters like Wood to boast that she was surprised by how fast companies are adopting bitcoin and that her “confidence in Tesla has grown.”

It is just a sign of the times and even more money has been injected into zombie companies that have no hope of improving margins ala the retail sector.

Awash in liquidity has the ultimate effect of making tech growth stocks even more attractive than the rest of the crowd which is why we have been seeing sharp upward moves in second derivative plays to bitcoin like PayPal (PYPL), Square while the FANGs, aside from Google (GOOGL), have treaded sideways.

Markets tend to overshoot on the upside and downside and as the sell-off was met with shares that came roaring back in a speculative frenzy, we are now in a situation with many markets, even the foreign ones, hitting fresh records, even as the nations they were based in suffered their sharpest recessions since at least the Great Depression.

The overshooting tends to come from the fear of missing out (FOMO) amongst other reasons.

Ultimately, as the corporate list of characters and billionaire hedge fund community load up on tech growth stocks, just a small movement to higher yield could cause a Jenga-like toppling of their strategy and profits.

This could snowball into a massive unwind of positions to meet margin calls after margin calls.

If we can avoid this indiscriminate fire sale, then, like Bank of America recently just said, it’s hard to make a different analysis aside from being overly bullish as the treasury, Fed, and macroeconomic factors have made a major sell-off less likely.

I am bullish technology and would advise readers to go back into growth names as volatility subsides, but keep an eye out for rates creeping higher because, at the end of the day, it’s clearly the biggest risk to the tech sector.

February 10, 2021

Tech Letter

Mad Hedge Technology Letter
February 10, 2021
Fiat Lux

Featured Trade:

(THE CORPORATIZATION OF BITCOIN)
(TSLA), (BTC)

The Corporatization of Bitcoin

Tech Letter

Bitcoin (BTC) is going corporate and that is great for the digital currency and the stock market.

That is the big takeaway from Tesla (TSLA) investing $1.5 billion into the cryptocurrency and announcing that Tesla lovers will be able to buy the car with the digital gold.

Hard to believe that Bitcoin has come so far so fast, but with governments doing their best to cultivate fiscal distrust along with a pandemic driving the entire global business world to the internet, Bitcoin is well placed to reap the benefits just like digital cloud companies.

The big question is what is next for the computer gold?

This could open the floodgates for the likes of Apple, Microsoft, Facebook, Google, and Amazon to join the bitcoin party by making their own investments into the industry.

This could come in the form of just dipping their toe by holding bitcoin reserves or buying a fintech company that facilitates the operations of it.

Have you noticed that as of late, fintech companies like PayPal and Square have broken out to the upside representing a proxy of bitcoin exuberance?

No doubt some of the established tech titans are taking note of Elon Musk’s plunge into the digital unknown, but it does send the message the next leg up in tech development is via bitcoin and the synergies surrounding it.

Apple was the one that, out of thin air, brought us the iPod and iPhone which spawned a million copycats from China and a tsunami of capital that came along with it.

It’s undeniable that bitcoin is picking up traction with recent news in October 2020 that Square invested $50 million into Bitcoin.

That was about 1% of the company’s total assets at the end of Q2 2020.

That move came after the Cash app had offered the ability to buy Bitcoin for several years.

2020 also saw more traditional veteran investors like Stanley Druckenmiller and Paul Tudor Jones become Bitcoin promoters.

Long-term investment analysts have determined that today, bitcoin gives corporations a foothold into the future while operating in the real world.

Asset preservation is also another phenomenon where many insiders believe that the value of the dollar is in slow decline which could hurt U.S. corporation’s ability to compete globally.

Bitcoin bulls believe more institutional investments will lead to more stability and naturally, increased value and I agree that is exactly what is happening no matter if Warren Buffet and his sort go on air to proclaim the asset is snake oil.

It’s getting to the point where large companies cannot deny the potential upside to bitcoin because of fear of missing out.

They do not want to be the new Blackberry to the Apple’s iPhone.

Then is the brute fact that the aforementioned tech giants have the resources to take the jump.

Ark Investments sees Bitcoin growing to $70,000 per coin if US companies put 1% into it, and $400,000 a coin if companies put 10% into the cryptocurrency.

If bitcoin finally becomes convertible globally, US companies will be tearing their hair out because they missed the chance to get in at a cheaper price.

What I just said would be absolutely bonkers in the financial world before the pandemic, but that shows how much the narrative has moved along and there are even more outlandish analysts who believe the likes of Apple and Amazon should move 50% of total assets into bitcoin.

Apple does have Apple Pay which they could integrate with the digital currency much like Square and PayPal have done.

If Tesla invested 1% of total assets into bitcoin and if a solid case nudging other companies to outdo this 1% and go to 2-3% comes to realization even if it’s a speculative bet on the future appreciation of the asset, it could be a moneymaker.

A company like Apple currently has $207 billion and so the pieces are on the board to make a bold move if they are willing to do so.

If we stand back and look at the bigger picture, US companies will undoubtedly lead the digital currency revolution for the next 25 years.

Europe is too regulated for their companies to jump in and Chinese authorities will stop companies like Alibaba hoping to operate in a currency that isn’t the Renminbi.

Like US companies created the cloud, internet, personal computer, and so on, they are on the cusp of making the bitcoin industry their own.

Another strong aspect I love is that Elon Musk clearly felt comfortable with the bitcoin’s foundational security, infrastructure and mechanisms in place in 2021 to facilitate this deal.

I am convinced that he had his best developers go into the meat and bones of the technology to find any structural flaws or lack of them.

Remember that bitcoin has been dogged by security breaches and hackers.

There is so much to love about this move and long term, bitcoin will hit $100,000.

January 19, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
January 19, 2021
Fiat Lux

FEATURED TRADE:

(CAN NOVAVAX EXTEND ITS WINNING STREAK?)
(NVAX), (MRNA), (PFE), (AZN), (BNTX), (BTC)

Can Novavax Extend Its Winning Streak?

Biotech Letter

Would you believe that there was a bigger winner than Bitcoin (BTC) in 2020?

Amid the fanfare generated by COVID-19 vaccine developers like Moderna (MRNA) and Pfizer (PFE), there’s one biotechnology company that has quietly boosted its humble $4 share price to an impressive $128: Novavax (NVAX).

As incredible as that sounds, this isn’t the most unbelievable prediction for Novavax.

Despite recording a jaw-dropping 2,600% increase last year, this Maryland-based biotechnology company is projected to sustain the momentum in 2021 and beyond.

Let me share how Novavax can achieve a long-lasting winning streak.

Unlike Moderna and Pfizer, Novavax did not utilize RNA technology to develop NVX-CoV2373. Instead, the company opted for a more established approach.

The decision to pursue a more established technology could be viewed as a cost-cutting strategy for Novavax.

Doing so means dramatically lowering supply chain pressures, such as storage issues.

In effect, the Novavax vaccine would be the more convenient option that offers an equally potent result.

At this point, Novavax has yet to reveal its Phase 3 trial results. The tests, which involve trials in the UK, would prove to be the turning point for the company’s future.

Here’s a rough estimate of how the results could affect Novavax shares.

If the results show that NVX-CoV2373 is 90% effective, this would put the vaccine in the same league as Pfizer and Moderna. Consequently, shares will go up by 30% with this news.

Meanwhile, an efficacy result clocking in at less than 80% would have the stock falling by up to 20% primarily due to the strong competition in the COVID-19 market.

Approximately $40 billion in COVID-19 revenue is at stake this year.

While competitors Pfizer, Moderna, and AstraZeneca (AZN) have already had their vaccines approved for emergency use, Novavax still has a strong chance of getting a piece of the action.

Despite these candidates getting rolled out in other countries, Novavax’s NVAX-CoV2373 remains a heavy favorite among experts and analysts alike.

At this rate, NVX-CoV2373 could generate at least $4 billion of the $40 billion COVID-19 market in 2021.

Considering that Novavax has an $8 billion market capitalization, this alone more than justifies the company’s valuation.

Admittedly, Pfizer and Moderna hold the competitive advantage in being the first to market. It wouldn’t be surprising if both would end up gobbling up market share while Novavax awaits regulatory approval.

More importantly, both have achieved the coveted name recognition when it comes to COVID-19 vaccine so that could offer them power in the soon-to-be-crowded marketplace down the road.

However, both vaccine leaders have a considerable drawback.

Their vaccines require extremely delicate storage and transportation.

In fact, Pfizer and BioNTech’s (BNTX) BNT162b2 must be stored at minus 94 degrees—a requirement that not all countries, much less commercial distributors could adhere to.

This is where Novavax’s vaccine comes in.

NVX-CoV2373 can be stored and transported at refrigerated temperatures. This means it would be easier to distribute particularly in remote areas.

Any hiccups with storage or transportation involving the Moderna or Pfizer vaccines could offer Novavax an opening to generate vaccine sales that would otherwise no longer be available.

This scenario would translate to a more dominant presence of Novavax in the second half of 2021 until the early part of 2022.

Pfizer and Moderna may have been the first to market, but Novavax’s vaccine holds the potential to generate a sizable impact on sales over the long term.

In terms of revenue, the vaccine would be a significant boost for Novavax. It would transform from a zero product revenue to billions in a short period.

While Novavax has yet to announce the official pricing for the product, we can use its US price of $16 per dose as a benchmark for the rest of the contracts.

So far, Novavax has secured roughly orders for 300 million doses in the US alone. This would amount to $4.8 billion in sales—and all signs point to the number climbing higher this year.

Novavax has been ramping up its capacity to produce as many as 2 billion doses by mid-2021.

In comparison, Pfizer has a maximum capacity of 1.3 billion doses this year while Moderna would peak at 1 billion.

Evidently, Novavax holds an edge over the two companies in terms of capacity to fill orders.

Outside its COVID-19 efforts, Novavax has another potential blockbuster in its pipeline.

Although data is sparse, the company is expected to file for regulatory approval for its experimental flu vaccine called NanoFlu.

Oddly enough, NanoFlu was the reason that Novavax trounced the cryptocurrency surges in 2020.

Investors got all fired up following the promising showing of the flu vaccine candidate, with the stock gaining unprecedented attention when it reported remarkable results in a head-to-head study against the leading flu vaccine in the market today, Sanofi’s (SNY) FluZone Quadrivalent.

With all these in mind, Novavax’s earnings outlook is showing strong signs of even more stellar and stronger performance than that of Moderna this year.

So far, earnings per share for Novavax this year is estimated at $21 while Moderna’s is $10.

Another possible game-changer for Novavax is its plan to combine a flu-coronavirus vaccine to be marketed post-pandemic.

Before making any moves though, it’s important to invest in Novavax with all the facts out in the open.

Inasmuch as it’s a promising stock, this is still a risky investment. This means that only aggressive investors should consider buying this biotechnology stock.

In a number of ways, Novavax and Bitcoin share some similarities.

Both are speculative assets that could either skyrocket or sink. They’re extremely attractive to aggressive investors on the lookout for big wins but also unafraid of massive risks.

The main difference is that with Novavax, it’s simpler to understand the reason for its rise or fall.

The potential drivers for its success or failure appear to be less cryptic than those behind the cryptocurrency.

October 25, 2018

Tech Letter

Mad Hedge Technology Letter
October 25, 2018
Fiat Lux

Featured Trade:

(HOW ENVIRONMENTALISTS MAY KILL OFF BITCOIN),
(BTC), (ETH), (TWTR), (SQ)

How Environmentalists May Kill Off Bitcoin

Tech Letter

If Jack Dorsey's proclamation that bitcoin will be anointed as the global "single currency," it could spawn a crescendo of pollution the world has never seen before.

In a candid interview with The Times of London, Dorsey, the workaholic CEO of Twitter (TWTR) and Square (SQ), offered a 10-year time horizon for his claim to come to fruition.

The originators of cryptocurrency derive from a Robin Hood-type mentality circumnavigating the costly fees and control associated with banks and central governments.

Unfolding before our eyes is a potential catastrophe that knows no limits.

Carbon emissions are on track to cut short 153 million lives as environmental issues start to spin out of control while the world's population explodes to 9.7 billion in 2050, from 8.5 billion people in 2030, up from the 7.3 billion today.

All these people will need to barter in bitcoin, according to Jack Dorsey.

Cryptocurrency is demoralizingly energy-intensive, and the recent institutional participation in crypto server farms will exacerbate the environmental knock-on effects by displacing communities, destroying wildlife, and climate-changing carbon emissions.

This seemingly controversial means to outmaneuver the modern financial system has transformed into a murky arms race among greedy cryptocurrency miners to use the cheapest energy sources and the most efficient equipment in a no-holds-barred money grab.

Bitcoin and Ethereum mining combined with energy consumption would place them as the 38th-largest energy consuming country in the world - if they were a country - one place ahead of Austria.

Mining a bitcoin adjacent to a hydropower dam is not a coincidence. In fact, these locales are ground zero for the mining movement. The common denominator is the access to cheap energy usually five times cheaper than standard prices.

Big institutions that mine cryptocurrency install thousands of machines packed like a can of sardines into cavernous warehouses.

In 2015, a documentary detailed a large-scale foreign mining operation with an electricity outlay of $100,000 per month creating 4,000 bitcoins. These are popping up all over the world.

An additional white paper from a Cambridge University study uncovered that 58% of bitcoin mining comes from China.

Cheap power equals dirty power. Chinese mining outfits have bet the ranch on low-cost coal and hydroelectric generators. The carbon footprint measured at one mine per day emitted carbon dioxide at the same rate as five Boeing 747 planes.

The Chinese mining ban in January set off a domino effect with the Chinese mining operations relocating to mainly Canada, Iceland, and the United States.

Effectively, China has just exported a tidal wave of new pollution and carbon emissions.

Bitcoin is mined every second of every day and currently has a supply of approximately 17 million today, up from 11 million in 2013.

Bitcoin's electricity consumption has been elevated compared to alternative digital payment currencies because the dollar price of bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it.

To add more granularity, miners buy more servers to maintain profitability then upgrade to more powerful servers. However, the new calculating power simply boosted the solution complexity even faster.

Mines are practically outdated upon launch and profitability could only occur by massively scaling up.

Consumer grade personal computers are useless now because the math problems are so advanced and complicated.

Specialized hardware called Application-Specific Integrated Circuit (ASIC) is required. These mining machines are massive, hot, and guzzle electricity.

Bitcoin disciples would counter, describing the finite number of bitcoins - 21 million. This was part of the groundwork laid down by Satoshi Nakamoto (a pseudonym), the anonymous creator of bitcoin when he (or they) constructed the digital form of money.

Nakamoto could not have predicted his digital experiment backfiring in his face.

The bottom line is most people use bitcoins to literally create money out of thin air in digital form, rather than using it as a monetary instrument to purchase a good or service.

That is why people mine cryptocurrency, period.

Now, excuse me while I go into the weeds for a moment.

Enter hard fork.

A finite 21 million coins is a misnomer.

A hard fork is a way for developers to alter bitcoin's software code. Once bitcoin reaches a certain block height, miners switch from bitcoin's core software to the fork's version. Miners begin mining the new currency's blocks after the bifurcation creating a new chain entirely and a brand-spanking new currency.

Theoretically, bitcoin could hard fork into infinite new machinations, and that is exactly what is happening.

Bitcoin Cash was the inaugural hard fork derived from the bitcoin's blockchain, followed by Bitcoin Gold and Bitcoin Diamond.

Recently, the market of hard fork derivations includes Super Bitcoin, Lightning Bitcoin, Bitcoin God, Bitcoin Uranium, Bitcoin Cash Plus, BitcoinSilver, and Bitcoin Atom.

All will be mined.

The hard fork phenomenon could generate millions of upstart cryptocurrency server farms universally planning to infuse market share because new currencies will be forced to build up a fresh supply of coins.

If Peter Thiel's prognostication of a 20% to 50% chance of bitcoin's price rising in the future is true, it could set off a cryptocurrency server farm mania.

By the way, Thiel also believes that there is a 30% chance that Bitcoin could go to zero.

A surge in the price of bitcoin results in mining cryptocurrency operations everywhere by any type of electricity, especially if the surge maintains price stability. Even mining in Denmark, where one finds the world's costliest electricity at $14,275 per bitcoin, would make sense.

Recently, miners' appetite for power is causing local governments to implement surcharges for extra infrastructure and moratoriums on new mines. Even these mines built adjacent to hydro projects are crimping the supply lines, and consumers are forced to buy power from outside suppliers. Miners are often required to pay utility bills months in advance.

By July 2019, mining will possibly need more electricity than the entire United States consumes. And by February 2020, bitcoin mining will need as much electricity as the entire world does today, according to Grist, an environmental news website.

Geographically, most locations around the world were profitable based on May's bitcoin price of $10,000.

However, the sudden slide down to $6,400 reaffirms why the Mad Hedge Technology Letter avoids this asset class like the plague.

The most unrealistic operational locations are distant, tropical islands, such as the Cook Islands at $15,861, to mine one bitcoin.

If you'd like to drop your life and make a fortune mining bitcoin, then Venezuela is the most lucrative at $531 per bitcoin.

As bitcoin's nosedive perpetuates, Venezuela might be the last place on earth with mining farms.

Who doesn't like free money? Set up a few devices, crank up the power, collect the coins, pay off the electricity bill, pocket the difference and hopefully the world - or Venezuela - hasn't keeled over by then.

SHOW ME THE MONEY

July 9, 2018

Tech Letter

Mad Hedge Technology Letter
July 9, 2018
Fiat Lux

Featured Trade:
(HOW ENVIRONMENTALISTS MAY KILL OFF BITCOIN),
(BTC), (ETH), (TWTR), (SQ)

How Environmentalists May Kill Off Bitcoin

Tech Letter

If Jack Dorsey's proclamation that bitcoin will be anointed the global "single currency," it could spawn a crescendo of pollution the world has never seen before.

In a candid interview with The Times of London, Dorsey, the workaholic CEO of Twitter (TWTR) and Square (SQ), offered a 10-year time horizon for his claim to come to fruition.

The originators of cryptocurrency derive from a Robin Hood-type mentality circumnavigating the costly fees and control associated with banks and central governments.

Unfolding before our eyes is a potential catastrophe that knows no limits.

Carbon emissions are on track to cut short 153 million lives as environmental issues start to spin out of control while the world's population explodes to 9.7 billion in 2050, from 8.5 billion people in 2030, up from the 7.3 billion today.

All these people will need to barter in bitcoin, according to Jack Dorsey.

Cryptocurrency is demoralizingly energy intensive, and the recent institutional participation in crypto server farms will exacerbate the environmental knock on effects by displacing communities, destroying wildlife, and climate-changing carbon emissions.

This seemingly controversial means to outmaneuver the modern financial system has transformed into a murky arms race among greedy cryptocurrency miners to use the cheapest energy sources and the most efficient equipment in a no-holds-barred money grab.

Bitcoin and Ethereum mining combined energy consumption would place them as the 38th-largest energy consuming country in the world - if they were a country - one place ahead of Austria.