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Hi Everyone, Five months ago, one of the great economists of our time, Howard Marks, wrote a beautiful note to investors in which he described some of the likely effects we might see due to the growing trend of negative interest rates. For those of you who aren't on the up and up of global central banking, interest rates that banks offer for holding spare cash in your account have been declining steadily, not due to market forces, but as a result of deliberate manipulation by the Federal Reserve and their counterparts across the globe. It used to be that parking your money in a low-risk environment could net you some 5% to 10% a year, but today you'll be lucky to get 1%. Marks envisioned how this might affect large multinational corporations who tend to keep large stockpiles of cash on their balance sheets, namely how the market might begin seeing that as a net negative for the company and could end up punishing their share price for it. However, that hasn't quite panned out. As we can see, the stock market has gone a bit crazy lately, and stocks continue to climb based on brand recognition and forward looking sentiment regardless of what their balance sheet might look like. In some cases, even companies that are bleeding cash or completely bankrupt have seen their shares completely rip. What Marks could not have foreseen, in the days before Michael Saylor began buying bitcoin on behalf of MicroStrategy, would be the desire for these companies to diversify themselves away from cash and right into bitcoin. As we have emphasized, Tesla has been a leader in many things, and it's interesting to see them as one of the early adopters of this strategy. The question that seems to be on everybody's mind today is "who's next?" | |
Fit the profile Well, the logical answer might be any company that has a large amount of excess cash melting away on their balance sheets. The Fed's artificial interest regimen has made money basically free for anyone with credit, which has led to a fair bit of monkey business in financial markets. Stock buybacks, mergers and acquisitions, and other sort of things companies do with free money have been happening at increasing levels over the last decade. Not that a YOLO call on bitcoin is any less ridiculous, but in this particular span of time when the money creation mechanism has been working overtime, it sort of makes sense. The kinds of companies that might make such a move are almost certainly leaders in technology. After Tesla, it may well become trendy from a corporate perspective, and we've seen a fair few trends that have gotten completely out of hand lately. Not even gonna name them. In line with the technology aspect, we might expect that the companies now buying and yet to reveal are bold. After all, bitcoin is a super-risky asset to hold, and we're not really talking about hedge funds, whose job it is to make such speculative bets. The idea of this play, of course, is more long-term, and that would imply that they'll need to weigh the very real possibility that they may be holding through a rather large drawdown. As we know, crypto drawdowns can be quite brutal, frequently involving a decline of 80% from the peak or even more. There's a lot of speculation online at this time about who. My personal picks are Visa, MasterCard, and PayPal, all of whom have been warming up to bitcoin and crypto in the last few months, and who have been rumored to be buying bitcoin. It will be interesting to see if we can peruse any U.S. Securities and Exchange Commission filings similar to the Tesla one from either of those three. Basically, all the FAANGM stocks are suspect. Facebook, Apple, Amazon, Netflix, Google, and Microsoft basically fit the bill to a T. The number one bet on social media though is Oracle. Larry Ellison, who is the founder, chairman and chief technology officer, is reportedly very tight with Elon Musk and frequently advises him on these matters. | |
Rapidly changing Whatever the profile above, it seems safe to say at this point that the profile of a bitcoin holder has undergone some drastic changes over the years, particularly in the last few weeks. Recently, Gemini exchange put together a scientific study to try and profile the typical profile of a bitcoin holder. Of course, while the data is quite fascinating, it's almost certainly useless by now. So it's interesting to see how we've gone from this... | |
...in just a few months. That's just the speed of crypto, I guess. Wishing you an awesome evening. Best regards, | |
Mati Greenspan Analysis, Advisory, Money Management | | |
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