Money, Bitcoin & Earnings

By Jeff Kelly on April 23, 2021

This week we begin to look at the Cryptocurrency space. The things I read and hear about Crypto are quite extraordinary. I refer back to the old line from a Buffalo Springfield song “something happen’ in here, what it is ain’t exactly clear”. If you go to the website Cryptomarketcap.com and click on the Cryptocurrency tab, you can scroll through about 4,800 Crypto Currencies. Many have little or no value. There has been a free for all in the celebrated decentralized space. What is clear is before we can discuss Crypto and it’s place in the financial universe, we need to know what questions we want answered. It’s easy to get lost in the many rabbit holes dotting the crypto landscape. The biggest question I get is can Crypto, and specifically Bitcoin replace the U.S. Dollar. Can it be money, a currency? The place for Crypto will likely be much broader and with greater depth than any one question, but we need to start somewhere. There is also the question of the utility of the Blockchain technology (which is now largely undisputed) and Crypto. If we are going to answer the question of Bitcoin as a currency we first need to look at the properties and functions of money. As you look at the properties and functions think about the difference between a 100.00 bill and a piece of livestock. Both have been used as money at various times in history.

Properties of Money:

• Durability – Can it be used over and over to settle accounts?
• Portability – Can we move it easily from place to place?
• Uniformity – Is every unit the same?
• Divisibility – Can it be divided into parts?
• Generally Accepted – Do many different people accept it as having value?
• Scarcity – Is there a limited supply? If there was a money tree we likely wouldn’t accept it as a unit of value.

Functions of Money:

• Medium of exchange – Can it serve to facilitate the transfer of goods and services? Is it trusted broadly?
• Unit of Account – Can we use different values to buy different things?
• Store of Value – We need to know the money we own tonight will still be worth roughly the same amount tomorrow, next week, next month, next year.
• Ability to value deferred payments or debts – Like it or not debt is important. It allows purchases to be paid for in the future.

Next week we are going to take a look at Bitcoin, what it is and it’s characteristics as a currency. Does it meet the properties and functions of money? And if it’s not a currency, what is it or could it be? One thing is certain at this point, Cryptos and Bitcoin are not going away. Yet I received this in my inbox this morning:

BITCOIN BYE BYE

Source: Furey Research Partners

The hubris of knowing is always difficult. All things new or unconventional are labeled fantasy at their beginning. A correction or crash in the price of anything isn’t the end. I wrote this blog about Bitcoin in 2017. The Alfie Coins are still available if you want to start trading them.

Tulips, Cryptocurrencies, and The Alfie Coin

The biggest obstacle for any Crypto will continue to be government reactions. If any Crypto Currency believes they will replace the US dollar without a severe reaction from the US government they are delusional. There continue to be areas of fraud and abuse. These need to be addressed. But should Governments address these issues? One of the tenants behind the Crypto movement is decentralization. If governments intervein (and I think they should) is it really decentralized? We’ll address these questions and more in the coming weeks.

Charts From The Week Past

Some context for the price move in Bitcoin.

Source: BofA Global Research

Median existing home price up 17% year-to-date.

Seems totally sustainable as long as Bitcoin keeps rising in price….kidding this is unsustainable.

Source: National Association of Realtors

The chart below shows how the investment landscape has evolved.

Before 2014, hedge Funds controlled more assets than ETF and ETP’s. Now that complex is much larger.

Source: BarclayHedge, JP Morgan, Blackrock

Earnings so far.

116 of 500 S&P 500 companies have reported. So far earnings growth is 50.4%. The Financials are spectacular with 189.4% growth.

Source: Bloomberg

Existing home inventories with a new low.

It’s very hard for prices to decline when there is no supply.

Source: Bloomberg, NAR, Hedgeye

Services from the NY Fed.

Pretty remarkable.

Source: Bloomberg, Hedgeye

Banks have huge deposits and no one to lend to.

If they do begin to lend on a scale commensurate with deposits it will be quite a lot of fuel for both the economy and inflation.

Source: Furey Research, St. Louis Fred database

Despite lots of ups and downs in price of the NASDAQ, the NASDAQ Volatility has been pretty subdued.

Of course this can change in an instant.

Source: TrendSpyder

Not surprising but office vacancies pushing higher in San Francisco.

Source: Cushman & Wakefield via SocketSite.com

More energy coming from renewables.

They are becoming a force in the industry.

Source: IEA, CB

The glut of oil left from the pandemic is just about gone.

Higher prices likely ahead.

Source: IEA

The U.S. Dollar is rolling over again.

Seasonality is kicking in.

Source: Bloomberg, Strategas

Mini Tops in U.S. Dollar bear markets.

Source: Strategas, Bloomberg

Breath on the rally Wednesday was excellent.

Source: Bloomberg, Strategas

COVID is raging in India.

Source: Bloomberg

COVID is still killing many all over the world.

Source: FT, John Hopkins

Coca Cola had a few things to say about prices and inflation during their earnings conference call.

Spoiler, prices aren’t going down.

Source: Coca Cola

Lots of Bloomberg “Bubble” stories.

The most since 2000.

Source: Bloomberg

Insider selling looks huge but was likely impacted by the direct listing of Coinbase. 

The direct listing allows insiders to sell stock and they sure did.

Source: Thompson Reuters

Equity offerings are supply for the market to digest.

More supply makes it harder to digest. Likely one of many reasons for a pause.

Source: Danielle Park, Factset

More firearms per person than anywhere. 

Source: Statista

Weekend Homework

Our Partners in Peace in Saudi Arabia sentencing aid worker to 20 years in prison. 

FDD | Saudi Arabia Sentences Aid Worker to 20 Years

House votes 415-2 to renew the National Bone Marrow Donor program. 

GOP Reps. Lauren Boebert and Marjorie Taylor Greene were the only ‘no’ votes on a bill reauthorizing the National Marrow donor Program

PBS Ken Burns documentary on Ernest Hemingway. Really great stuff.

PBS | HEMINGWAY – A FILM BY KEN BURNS AND LYNN NOVICK

Jamie Catherwood’s excellent Blog takes a look at inflation through time. Really great stuff. We are expecting some inflation to continue not a reenactment of the Weimar Republic. This blog shows why those crying wolf are once again likely wrong.

INVESTOR AMNESIA | Inflated Fears by Jamie Catherwood

THE HERO CODE is Admiral McRaven’s ringing tribute to the real, everyday heroes he’s met over the years, from battlefields to hospitals to college campuses, who are doing their part to save the world. When Bill McRaven was a young boy growing up in Texas, he dreamed of being a superhero. He longed to put on a cape and use his superpowers to save the earth from destruction. But as he grew older and traveled the world, he found real heroes everywhere he went — and none of them had superpowers. None of them wore capes or cowls. But they all possessed qualities that gave them the power to help others, to make a difference, to save the world: courage, both physical and moral; humility; a willingness to sacrifice; and a deep sense of integrity.

THE HERO CODE is not a cypher, a puzzle, or a secret message. It is a code of conduct; lessons in virtues that can become the foundations of our character as we build a life worthy of honor and respect.

Have a terrific weekend.

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