Stocks rallied yesterday because there is still hope for a happy surprise from the central bank rainmakers in Washington DC. Bitcoin turned heads with a sizable daily rift yesterday… business as normal.
Bring the magic. You are minding your own business. You work hard, sometimes you play a bit too hard, but for the most part you follow the rules. You invest whatever money you can, and you have a long-term plan, which you mostly stick to. You buy stocks that are well-known which allow you to easily parrot the consensus thesis story at cocktail parties. You wish you had more time to read, and you will, someday, get good at golf… you hope. But then one day it happens. At first you ignore it, because it sounds like some made-up story. But then you hear about it again. You don’t want to lose focus, so, once again, you ignore it. Your kid or grandkid mentions it to you, and you smile, pretend you know what they are talking about, and quickly change the topic, but this time it remains on your brain. You add it to your list of “things to look into.”
And then you see it on the front page of your favorite, highly respected newspaper… which you also have plans of reading cover to cover every day… someday. Now, you simply cannot ignore it any longer. You do some quick Googling, and you find out that the Securities and Exchange Commission, the SEC, a US Government Agency, has not really in any way endorsed it, so you drop it, and you tuck back into your life plan. That all changes in January of 2024 when you find out that the SEC has finally approved the first Bitcoin ETF’s. You drop everything, and you suddenly have that feeling you get when you realize that you missed your stop on the train. Sidenote: that happened to me recently 🫢. You own lots of ETFs and they have done really well for you. You have no interest in getting involved in crypto wallets and adding more passwords that you are likely to forget. Your time is now. You buy some Bitcoin ETFs because you feel that there is some upside for the cryptocurrency market and that it has not nearly begun to realize its true potential. You are happy and you call your kid or grandkid you yak it up like old friends. You are in the club. You go on your merry way and consider a new set of golf clubs but pass when you see the price and realize that you probably will only use them twice in the next year.
Behind the scenes at that Bitcoin ETF you just invested in, the managers must go out to the market and buy some… um… um, Bitcoin because of your investment. You are not alone in your newfound interest in Bitcoin ETFs, so the manager must buy quite a bit of it. Remember, we are talking about markets here, so increased demand almost always means increase in prices. By early February, Bitcoin began to climb. By that point, you realized that things were going your way, so you bought more of the ETF. Still all good because you are a thoughtful investor. BUT NOT ALL INVESTORS ARE THOUGHTFUL. You see, some folks are looking for the fast lane to fame and wealth. Those folks, once they heard that Bitcoin rose above $60,000 bought a bunch of it… on margin… yes, leverage. Their thought was “why not double the upside by borrowing money to invest.” Those folks rarely remember that leverage works in both directions, making you really happy when your investments go up but really sad when they go down. Those levered investments caused Bitcoin to go higher yet.
And guess what happened next. Nothing, really. Everyone was in and waiting for the next big move. Everyone who wanted to buy… um, bought. End of story. No real news, good or bad. Bitcoin starts to trade sideways and slips below $70,000. Someone gets nervous and starts to sell. Even folks who are nervous are not keen on selling and paying capital gains tax, so they hold on. But soon they panic and sell. The selling causes Bitcoin to go lower. That causes the equity value of the margined traders’ accounts to go down causing margin clerks to have to make uncomfortable phone calls which typically result in selling to cover shortfalls. This adds further pressure to Bitcoin causing it to fall by -5.35% in a single day. News Media loves a good story, and they love to trash Bitcoin, so they seize the opportunity to write headlines like “Single Biggest Day Loss Since blah blah blah,” and your partner asks if you know what you are doing. You get a bit nervous and sell half of your ETF position, proud of your gains. The managers of the ETF must then sell some Bitcoin. And so on, and so on, and so on.
The next day, you wake up and realize that you have witnessed this many, many times in the past but with different ETFs in different asset classes. And then it hits you. Bitcoin is an asset class. It is an established currency, used to conduct transactions. Some people use it, and some people don’t. But it works, and it is becoming more mainstream. People speculate in it, which is no different than speculation in any other currency. You realize that it is volatile. That same volatility allowed you to make significant returns in a short period of time. And then you remember, just like any other of your favorite volatile stocks, that sometimes, they also go down. There it is! Bitcoin is not magical. It is now a mainstream investment class, and ETFs simplify the process, no different than investing in junk bonds through an ETF. Now that you understand its volatility, you understand the risk… and the potential return. You now watch it every day, just like all your other investments, and you look for an opportunity to get back in.
YOUR LIST OF WHAT’S GOING UP AND DOWN THIS MORNING
Intel Corp (INTC) shares are higher by +3.73% in the premarket after President Biden announced that the company will receive close to $20 billion in grants and loans to help it expand its footprint in the US. That is big news for the company that has struggled to keep up with its principal competition and from YOU KNOW WHO, which has capitalized in the AI boom. Insiders have increased their holdings by +16.6% in the past 6 months. Dividend yield: 1.18%. Potential average analyst target upside: +12.5%.
Super Micro Computer Inc (SMCI) shares are lower by -2.19% in the premarket after it announced a proposed secondary offering, which causes earnings dilution. The company, which makes specialized servers for AI data centers, has had a huge +220% run-up year to date… for obvious reasons. Of the analysts that cover the stock, 70.6% rate the company a BUY, 23.5% rate it a HOLD, and the remaining 5.9% rate it a sell. Potential average analyst target upside: +1.6%.
YESTERDAY’S MARKET
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