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Business

Bitcoin is at a ‘tipping point’ between mainstream boom and speculative implosion. Citi says one is more likely

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U.S. stocks have started the week in strong fashion, as bond yields eased from last week’s highs early on Monday.

Two positive developments over the weekend have also buoyed investors: The U.S. House passed the Biden administration’s $1.9 trillion pandemic-relief package on Saturday before the Food and Drug Administration granted emergency authorization to Johnson & Johnson’s
JNJ
COVID-19 vaccine — the first single-shot dose available to Americans.

The price of bitcoin
BTCUSD
rose more than 5% to $47,691 on Monday, as it regained ground following the cryptocurrency’s worst week of the year last week, having climbed to a record high of $58,332 the previous weekend.

In our call of the day, Citi analysts said bitcoin was at a “tipping point” between mainstream acceptance or a “speculative implosion.” But recent developments, including electric-car maker Tesla’s
TSLA
$1.5 billion investment and moves by PayPal
PYPL,
Visa
V
and Mastercard
MA
to accept payments, pointed toward the former.  

The analysts, led by Citi GPS managing editor Kathleen Boyle, noted there was a “host of risks and obstacles” standing in the way of the cryptocurrency’s progress.

“But weighing these potential hurdles against the opportunities leads to the conclusion that bitcoin is at a tipping point and we could be at the start of massive transformation of cryptocurrency into the mainstream,” they said. 

The report added that bitcoin could eventually become “the currency of choice for international trade,” due to its global reach, neutrality and lack of foreign exchange exposure.

The biggest change in recent years has been the shift from a retail-focused endeavor to “something that looks attractive for institutional investors,” the authors noted.

If recent efforts lead to a central bank-backed digital currency, individuals and businesses would have digital wallets holding a variety of cryptocurrencies just like today, with checking, savings and treasury accounts, they said. “In this scenario bitcoin may be optimally positioned to become the preferred currency for global trade,” they added.

However, obstacles ahead along that path include upgrades to the marketplace and the potential for the cryptocurrency space to move closer to the oversight and rules of traditional financial regulators, Citi noted.

The markets

U.S. stocks made significant early gains, with the Dow Jones Industrial Average
DJIA
2%, or 620 points, higher shortly after the open. The S&P 500
SPX
and the Nasdaq Composite
COMP
were also up. European stocks climbed and Asian markets moved higher overnight on hopes for Biden’s U.S. stimulus package and following last week’s selloff.

The buzz

Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, said he would have “no hesitancy whatsoever” to take Johnson & Johnson’s COVID-19 vaccine, and that all three vaccines available to Americans were “highly efficacious.”

Reddit Chief Executive Steve Huffman reiterated his praise for the WallStreetBets forum that has sent Wall Street “meme stocks” reeling in recent weeks. Huffman said the community “exposed a gap” between those who have access to the financial markets and those on the outside.

U.K. home builders surged on Monday, on reports the government will try to boost homeownership with a new mortgage guarantee.

Cruise operator Royal Caribbean Group said it has commenced a $1.5 billion public stock offering.

Ladbrokes owner Entain
UK:ENT
said it has raised its offer for rival Swedish sports betting company Enlabs.

At the Golden Globe Awards, “The Crown,” “Schitt’s Creek” and “Nomadland” were among the big winners.

Random reads

Actor Ben Stiller’s baked trophy and other Golden Globes highlights.

Doctor appears in court video call while performing surgery.

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Business

A tangled market web of Tesla-bitcoin-ARK Investment could spell trouble for investors, warns strategist

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Tuesday is shaping up to be a tough one for technology stocks, after a selloff greeted investors to start the week.

The Nasdaq Composite
COMP,
-2.03%
— up 40% over the past 12 months — tumbled 2.5% on Monday over concerns rising bond yields could make those tech stocks look pricey. When so-called “risk-free” yields are climbing, it is that much tougher to justify equity valuations that seem lofty.

Leading techs lower in premarket is electric-car maker Tesla
TSLA,
-5.41%,
down 6% after a roughly 8% drop on Monday. Our call of the day comes from Saxo Bank’s head of equity strategy, Peter Garnry, who has been warning clients that Tesla is tangled up in a “risk cluster” that involves bitcoin and Cathie Wood’s ARK Investment Management firm.

Tesla announced a $1.5 billion bitcoin investment earlier this month. Along with Tesla weakness, bitcoin was down 10% early Tuesday, which some attributed to criticism from Treasury Secretary Janet Yellen (see below). That crypto drop will “obviously illustrate the earnings volatility that Elon Musk has delivered to Tesla,” said Garnry.

Read: Tesla bitcoin gambit already made $1 billion, more than 2020 profit from car sales, estimates analyst

Meanwhile, Tesla “is also the biggest position across all ARK Invest ETFs which added pressure to its biggest fund the ARK Disruptive Innovation Fund
ARKK,
-6.11%
losing 6% yesterday. This is exactly the risk cluster that we have been worrying about and wrote about two weeks ago,” said the strategist.

Read: Stocks aren’t in a bubble, but here’s what is, according to fund manager Cathie Wood

In the Saxo note that deep-dived into the hugely popular, actively managed fund’s holdings, Garnry highlighted ARK’s concentration in biotech names that he said could be risky if the market decides to reverse. And Tesla shares represents 6.7% of total assets under management across ARK’s five actively managed ETFs, according to the data Saxo crunched two weeks ago.

“What it means is, that a correction in equities for whatever reasons, could be higher interest rates or prolonged COVID-19 lockdowns, could set in motion selloffs across either biotechnology stocks or Tesla shares and cause performance to deteriorate which could start net outflow of AUM and then the feedback loop has started,” said Garnry, at the time.

For her part, Wood, the chief executive of ARK Invest and manager of the popular ARK Innovation exchange-traded fund, last week said she was surprised by how fast companies are adopting bitcoin, and that her “confidence in Tesla has grown.”

The markets

Stocks
DJIA,
-0.43%

SPX,
-0.78%

COMP,
-2.03%
are selling off, led by techs, with European stocks
SXXP,
-0.49%
sinking apart from some travel stocks. Asian markets had a mixed day
000300,
-0.32%.
Oil prices
CL00,
-0.19%
are rising, while the closely watched yield on the 10-year Treasury note
TMUBMUSD10Y,
1.360%
is trading at around 1.35%.

The chart

Treasury Secretary Yellen may have let some steam out of bitcoin
BTCUSD,
-13.19%
after repeating some concerns about the cryptocurrency in an interview with the New York Times’ Dealbook. Bitcoin was last down 13% to $48,886, taking a bunch of other cryptos down with it.

The buzz

All eyes on Federal Reserve Chair Jerome Powell, who is kicking off two-day testimony on Capitol Hill. With more than 10 million Americans still jobless, “Mr. Powell will go out of his way, I am sure, to put tapering to bed and rightly so, as I dread to think what a taper-tantrum of the 2020s will look like,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.

We’ll also get the latest home-price indexes from S&P CoreLogic Case-Shiller and the Federal Housing Finance Agency, along with an update on consumer confidence.

Shares of home-improvement retailer Home Depot
HD,
-4.49%
are dropping despite upbeat results.

Shares of special-purpose acquisition company Churchill Capital
CCIV,
-31.65%,
also known as a blank-check company, are sinking. After weeks of rumors, Churchill finally announced a deal to buy electric-vehicle company Lucid Motors.

Mourning 500,000-plus American lives lost to COVID-19, President Joe Biden observed a moment of silence late on Monday and urged the public to “mask up.”

Social-media group Facebook
FB,
+0.83%
says it will restore links to news articles in Australia, five days after proposed media law changes in the country.

Random read

“I can mouth obscenities at people and they don’t have a clue.” Redditors on pandemic positives.

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Business

Forget bitcoin — fintech is the ‘real Covid-19 story,’ JPMorgan says

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A woman uses a Bitcoin ATM machine placed within a safety cage on January 29, 2021 in Barcelona, Spain.

Cesc Maymo | Getty Images

Bitcoin is an “economic side show” and fintech innovation is the story that will dominate financial services, according to JPMorgan.

Analysts at the bank said that, despite bitcoin’s monster rally, the cryptocurrency is still beset by a number of issues that may prevent it from becoming a mainstream asset.

“Bitcoin prices have continued their meteoric rise with Tesla, BNY Mellon and Mastercard’s announcements of greater acceptance of cryptocurrencies,” JPMorgan said in a research note last week.

“But fintech innovation and increased demand for digital services are the real Covid-19 story with the rise of online start-ups and expansion of digital platforms into credit and payments.”

Bitcoin has gained traction with major Wall Street banks and Fortune 500 companies, a development which has boosted its price and saw it hit $1 trillion in market value last week.

Investors have drawn comparisons between bitcoin and gold, viewing the former as a new digital store of value thanks to its limited supply — the total number of bitcoins that will ever exist is capped at 21 million.

JPMorgan’s own strategists say that bitcoin could rally as high as $146,000 as it competes with gold as a potential hedge against inflation in the coronavirus crisis.

Still, skeptics remain unconvinced. Economists like Nouriel Roubini say that bitcoin and other cryptocurrencies have no intrinsic value. And a recent Deutsche Bank survey said investors view bitcoin as the most extreme bubble in financial markets.

Digital gold?

JPMorgan’s strategists said current bitcoin prices appear to be “unsustainable” unless the cryptocurrency becomes less volatile. They added their $146,000 price target hinged on bitcoin’s volatility “converging to that of gold,” which would likely take years to happen.

Meanwhile, cryptocurrencies have “questionable diversification benefits” and rank as the “poorest hedge” against significant drops in stock prices, JPMorgan’s analysts said.

JPMorgan has been making a push into blockchain technology with its own cryptocurrency called JPM Coin and a new business unit called Onyx.

The rise of digital finance and demand for fintech alternatives is the “real financial transformation story of the Covid-19 era,” according to JPMorgan.

“Competition between banks and fintech is intensifying, with Big Tech possessing the most potent digital platforms due to their access to customer data,” the bank said.

“‘Co-opetition’ between ‘Fin’ and ‘Tech’ players lies ahead, with banks stepping up investment to narrow the technology gap, and the battle between US banks and non-bank fintech is also playing out on the regulatory front.”

Major tech firms like Apple and Google have shown increased interest in financial services lately. Apple launched its own credit card in partnership with Goldman Sachs, while Google is letting its users open checking accounts following a tie-up with Citigroup.

“Traditional banks could emerge as endgame winners in the digital age of banking due to their advantage from deposit franchise, risk management and regulation,” JPMorgan said.

Digital banking has boomed in the coronavirus era, with large lenders and fintechs alike seeing a surge in adoption as people are spending more time at home due to public health restrictions.

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Business

Bitcoin blows past $45,000 and reaches as high as $48,000, driven by Tesla’s investment

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The price of bitcoin reached as high as $48,000 on Tuesday, building on gains following news that electric-car maker Tesla has invested $1.5 billion in the cryptocurrency and may accept it as future payment for products.

After reaching a record of near $44,000 on Monday, bitcoin prices
BTCUSD,
+2.48%
hit $45,000, $46,000 and $47,000 later that evening, according to CoinDesk. Prices reached a high of $48,226 early Tuesday and have since pulled back to $46,450, according to CoinDesk.

Sparking the fresh surge for bitcoin was a Tesla
TSLA,
+1.31%
regulatory filing with the Securities and Exchange Commission on Monday. It revealed Tesla acquired $1.5 billion in bitcoins in January and plans to accept it “as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.” 

Read: Musk’s Tesla says it invested $1.5 billion in bitcoin, sending the cryptocurrency to record levels near $44,000

That’s as Musk has been recently voicing support for cryptocurrencies on his Twitter account.

For the bitcoin faithful, it was a monumental move by a big company to invest in the digital currency and allow payments. But on the other side, some analysts questioned Tesla’s move, given the volatility of the cryptocurrency, as well as share prices of the electric car maker.

Even if bitcoin’s price multiplied by five over the past year, it could still come crashing down, Ipek Ozkardeskaya, senior analyst at Swissquote, told clients in a note. “The high volatility in Bitcoin’s value will therefore inevitably inject a certain volatility in Tesla’s revenue, and decrease the predictability of the company’s performance.”

Bitcoin’s year-to-date gain is up more than 60% in 2021. That’s against a 4% rise for the S&P 500
SPX,
+0.74%
and an 8.5% gain for the Nasdaq Composite Index
COMP,
+0.95%,
while gold
GC00,
+0.47%
is down around 3% and crude oil prices
CL.1,
+0.17%
are up 20%.

Read: Should I buy dogecoin? Why prices of the cryptocurrency are surging — but risky

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