Earnings season: Tesla steps on the gas with earnings beat

Equities

Tesla once again posts strong quarterly earnings figures and clears some major milestones.

Tesla earnings

Tesla’s headline stats

Released yesterday after US market close, Tesla’s Q2 2021 earnings beat Wall Street expectations.

The world’s foremost electric fortunes surged this quarter. Net income for 2021’s second quarter reached $1.14bn – surpassing the $1bn mark in a quarter for the first time. It’s also a ten-fold increase against Q2 2020’s net income levels.

Revenues generated from Tesla’s core automotive business clocked in at $10.21bn. Total revenues reached $11.96bn – nearly double the $6.04bn registered a year ago.

The company broke its previous vehicle delivery records too. Deliveries, a metric akin to sales when gauging Tesla’s success, amounted to 201,250 in the quarter ending June 30th 2021.

Production volumes stood at 206,421.

While the vast bulk of its revenue stream came from vehicle sales and associated services, Telsa also made money selling its government-sourced regulatory credits.

Regulatory credits are awarded to manufacturers as an incentive to develop electric vehicles. As Tesla only manufactures EVs, it gets these for free, which it then can sell on for a massive profit to other marques that have yet to meet regulatory requirements.

Sales of regulatory credits contributed 3.5% of revenues, equating to $354m.

Servicing looks like it is becoming a major money spinner for Tesla. With more vehicles on the roads, some 121% year-on-year, Tesla has boosted its service offer. It now operates 598 stores and service centres worldwide. According to its latest reports, service and maintenance generated $951 million this quarter.

One aspect where Tesla took a hit was its Bitcoin holdings. You may recall, the automaker caused consternation earlier in the year, when it snapped up $1.5bn in BTC tokens in March. Questions were raised around the validity of this strategy: is Tesla an auto manufacturer or a crypto trader?

CEO Elon Musk is famous for his enthusiasm for cryptocurrencies. However, he and his company were instrumental in instigating one of BTC’s famous price wobbles. First Tesla announced they were going to accept Bitcoin as payment for its vehicles in May. A week later, the company reneged on this, citing environmental concerns.

A $23m impairment on the value of Tesla’s BTC holdings was noted in this quarter’s report. This was filed under a “restructuring and other” operating expense.

Tesla’s post-earnings share action

Tesla shares rose 2% in after-hours trading following the earnings release.

As of Tuesday, pre-UK lunchtime, Tesla was trading for around $648 per share.

EPS beat Wall Street estimates. Forecast at $0.98, real earnings-per-share was valued at $1.45.

Upon this Street-beating report, sentiment on Tesla is naturally very positive.

Tesla senitment indicator.

Analyst recommendations rate Tesla as a “buy”.

Tesla analyst sentiment.

Where next for Tesla?

Despite having a bumper Q2, there still remains lots of challenges for the brand.

The largest is the global shortage of chips necessary for EV production. Volume production will be limited, Musk said on a call with investors yesterday, depending on whether supply shortages can be overcome.

This year, Tesla is aiming to boost deliveries by 50%.

Despite market suggestions, Musk dismissed ideas of Tesla setting up its own chip hub. “That would take us, even moving like lightning, 12 to 18 months,” he said.

Tesla claims it is on track towards building its first Model Y models in new facotires based in Berlin, Germany and Austin, Texas. Model Y cars should start rolling off production lines in these locations by the end of 2021.

However, the launch of its commercial semi-truck programme has been delayed. This is again due to supply chain snags, specifically the availability of battery cells.

No indication was given by Tesla as to when it will start production of its futuristic Cybertruck pick up platform.

Essentially, the next months will rely on the global chip status. Rising input costs in US and European plants, caused by rising worldwide commodities prices, may put the brakes on rapid expansion as the year progresses.

Cryptocurrency update: BTC hits accelerator on Telsa u-turn

After hitting the brakes on BTC payments, Tesla appears to have changed its tune, while El Salvador is fully in the cryptocurrency fast lane with a daring new strategy.

Crypto update

Musk’s Tesla Bitcoin handbrake turn

Bitcoin hit the accelerator this morning following yet another market-empowering tweet from Elon Musk.

The Tesla CEO and ardent cryptocurrency supporter has partially u-turned from the automaker’s decision to stop accepting Bitcoin as payment owing to crypto mining’s environmental impact.

Musk said Sunday 13th June that Tesla will resume bitcoin transactions once the electric vehicle maker confirms there is “reasonable” clean energy usage by miners.

In response to a tweet from cryptocurrency news aggregator Coin Telegraph, Musk confirmed his stance, while also addressing questions over Tesla’s own BTC holdings.

It’s not clear how exactly Musk and co. plan to vet crypto miners, or how they would check their green energy credentials. However, this is the first indicator we’ve had that Tesla is shifting its stance following its self-imposed BTC payment ban.

Tesla still owns a substantial number of Bitcoin tokens, valued at anywhere between $1-2bn. In selling a 10% stake in Q1 2021, the carmaker allegedly made more profit from BTC sales than from selling actual cars.

As is commonplace when Musk powers up the Twitter app on his smartphone, this latest tweet has acted as propellant for BTC prices. As of Monday morning, Bitcoin was looking to test the $40,000 level after a few weeks of sideways trading – a 12% leap. We’re still someway off April’s $65,000 record highs, though, and it might take time for the token to reach those levels again.

The environmental cost of cryptocurrency mining has been under intense scrutiny in recent weeks. China has cracked down on mining operations citing massive energy consumption concerns. Iran has banned all such activity until September as blackouts in capital Tehran were triggered by mining operations guzzling up power.

Again, there has been no real indicator as to how Tesla ensures its supply of Bitcoin tokens come from environmentally friendly miners. But green power and clean energy are at the core of Tesla’s philosophy. Ensuring its crypto strategy is in line with basic principles is good for brand image, but it does leave you questioning with a carmaker is dabbling with crypto trading anyway.

That’s legal tender! El Salvador pushes ahead with ambitious BTC plan

El Salvador has become the first country in the world to accept Bitcoin as legal tender.

Under Millennial meme-loving President Nayib Bukele, the Central American state has taken the radical step of turning the world’s most popular crypto into actual, legal currency. It will gain full legal tender status in 90 days’ time.

Merchants were already free to accept payment in BTC at their own discretion, but now they must do so unless they lack the proper technology.

The US dollar will remain El Salvador’s primary currency. Prices for goods and services will be listed in USD rather than BTC for instance. But BTC can now be used for everyday purchases and even for paying taxes.

It’s an interesting move, especially for a digital currency that revolves around decentralised finance. How would paying taxes work exactly – especially when regulators worldwide are keen to crack down on crypto-led money laundering and tax evasion?

What about energy and mining? While the bill that passed BTC into law does not specifically mention mining, President Bukele tweeted a drone-shot video showing a geothermal powerplant in action. Bitcoin by volcano anyone?

The government has set about guaranteeing convertibility of BTC to dollars through a $150 million trust created at the country’s development bank BANDESAL.

Why has El Salvador taken this path? Bukele says the move will help foster financial inclusion, investment, tourism, innovation and economic development.

Bukele is particularly hopeful remittance, i.e. payments sent back home from citizens living overseas, can pick up. Using BTC to pay these would cut out the middleman, and possibly result in billions of extra cash by negating conversion fees.

Others are wary of the decision.

The IMF, with which El Salvador is hashing out a $1bn economic relief deal, states the Central American country’s move “raises a number of macroeconomic, financial and legal issues that require very careful analysis”.

We’ve seen institutional digital currency support rise in recent months – but we’ve also seen numerous regulatory bodies urge caution. An entire country taking the leap to legitimising BTC has legal tender is entirely new ground. Cryptocurrencies, and especially Bitcoin, are inherently volatile. What El Salvador is doing could have considerable blowback.

El Salvador is thus a Central American guinea pig with its legal tender experiment.

Cryptocurrency update: China’s hard-line crypto stance gets harder

Crypto took a battering over the weekend as China stepped up its anti-mining squeeze. With Bitcoin gains wiped out, how will the market react?

Cryptocurrency update

China crypto crackdown continues

Chinese authorities continue to hammer domestic Bitcoin miners.

HashCow and BTC.TOP are the two latest miners to suspend or scale back operations after Beijing stepped up its anti-mining sentiment. Exchange Huobi said on Monday it will no longer be accepting new users from mainland China. The exchange will now be focussing on overseas customers.

This is seismic for the world of crypto mining as China accounts for 70% of global token supply.

It’s thought part of the reason for the move against miners is partly driven by environmental concerns. The two provinces where the bulk of Chinese mining takes place – Inner Mongolia Autonomous Region (IMAR) and the Xinjiang Uygur Autonomous Region (XUAR) – draw energy from coal-fired power stations. With China pledging to slash greenhouse gas emissions by 2060, it’s doing what it can to clean up its act. At least, that’s how it appears on the surface.

The reality is likely Beijing wanting to exert more control over cryptocurrencies. A statement made on Friday by the State Council said the move would “crackdown on Bitcoin mining and trading behaviour, and resolutely prevent the transmission of individual risks to the social field.” This latest move is a way for China’s government to exert its considerable influence over a new, rapidly evolving economic sector.

As you can expect, the consequences for crypto markets have been massive to say the least. Token prices have plummeted.

Miners, who typically don’t hedge all their minted digital tokens into fiat straight away, are thought to be divesting themselves of their stakes. A broader sell-off is underway, which has caused a freefall in crypto asset prices.

May has not been kind to digital currencies. Rumours of tighter crypto exchange regulations and capital gains tax hike proposals in the US gave investors jitters at the start of the month. Tesla turning its back on BTC payments caused further wobbles. China’s hard-line stance was enough to trigger the freefall.

BTC & ETH start on the long road to recovery

Crypto market bellwether crypto BTC took the heaviest body blows following the China news. BTC is trading just shy of 50% lower than April’s $64,000 all-time high at around $36,500.

At the bottom of the trough, prices had slumped to $31,107. Essentially, all gains made since February have been wiped out. Volatility in digital currency markets is nothing new, but BTC will have a long way to go before it reaches new all-time highs. Recovery, as we can see from the price action above, has started but it remains to be seen just how quickly it can regain traction.

Ether, which had only 17-days ago broken the $4,000 barrier for the first time, fell 17.4%, with its lowest level registered at $1,868.79. Since then, the token, used on the Ethereum blockchain, has climbed back to $2252.50. Even with the price hit, ETH is up over 159% year-to-date.

Musk defends the doge

Dogecoin, the memecoin beloved of Elon Musk and thousands of internet traders, gets support from the enigmatic billionaire.

Musk reiterated his position in response to an investor implying the Tesla CEO has an impressive Dogecoin holding.

Elon and his Twitter escapades are very familiar for crypto market investors and observers. Seemingly his every tweet has the power to create major price movements. And, despite all the volatility at hand, and Tesla u-turning on BTC acceptance, Musk is doubling down on crypto, although framing himself as some sort of crypto martyr.

Dogecoin has gained 3.4% as of Monday 24th May following the weekend’s bloodbath.

Cryptocurrency update: all aboard the Bitcoin rollercoaster

Strap yourself in and keep all hands and feet inside the ride at all times: Bitcoin is on another wild journey.

Bitcoin spins on Musk’s whims

Alton Towers’ Smiler rollercoaster features 14 inversions making it the ride with the most ups and downs in the world. If Alton Towers needs inspiration for a new ride to rival Smiler’s steely twists and turns it might consider the Elon Musk Bitcoin rollercoaster.

The tweet-happy mogul has been at it again. Last week, he sent BTC for a spin after revealing Tesla will no longer accept payment in Bitcoin. Musk and co. cited concerns over crypto mining’s harmful environmental impact as the reason for the U-turn.

Musk sent BTC prices whipsawing at the end of last week after seemingly agreeing with a tweet advising him a to sell Tesla’s Bitcoin holdings – valued between $1-2.5bn.

Bitcoin subsequently slid below $45,000 for the first time in three months.

Musk has since clarified Tesla’s position.

“To clarify speculation, Tesla has not sold any Bitcoin,” he wrote in reply to a Twitter user pointing out the considerable impact his posts have on Bitcoin prices.

Bitcoin jumped 5% after Musk’s clarification, but at the time of writing, it is still trying to break through $45,000 convincingly.

There’s not really much more to say about Bitcoin. It’s volatile, speculative, and apparently easy to manipulate, as our Chief Markets Analyst Neil Wilson points out.

As Bitcoin falls, so do other tokens. Such are the perils of following the cryptocurrency’s bellwether. ETH, recently soaring to all-time highs, as dropped 9%. Dogecoin, another Musk favourite, is down 5%.

Bitcoin is actually most volatile on the weekends, so maybe this whole situation should not have come as a surprise. On Saturdays and Sundays in 2021, the token’s average price movement is 4.95%.

Crypto liquidations surge in 24 hours

The fallout from the above has caused a surge of liquidations.

According to ByBit data, approximately $2.34bn in total liquidations has taken place over the past 24 hours. Over half of that, $1.26bn, has come from Bitcoin alone.

Cryptocurrency’s total market cap has dropped by $300bn.

While this is still significant, it is not the largest long-position liquidation to hit crypto markets recently. $9bn disappeared shortly after Bitcoin reached its current all-time high on April 17th, 2021.

What the above shows, however, is just how volatile the sector is. While billions have been wiped out, the resulting upswing in price will add more back on to Bitcoin and crypto’s total market valuation. But the short-term losses for Bitcoin holders are proving rather dramatic.

It also goes to show how reactive crypto sellers are to single tweets. It’s probably best to not buy and sell on the whims of a single celebrity investor, but yet Musk’s itchy tweeting finger continues to play havoc with Bitcoin markets.

Asset managers take cautious crypto stance

Institutional fund managers, triggered by the Tesla BTC fiasco, have expressed reservations around cryptocurrencies reports the Financial Times.

Amongst those investment firms advising caution are UBS Wealth Management, Pimco, T Rowe Price, and Glenmede Investment Management.

“Our stance with clients is the 10-foot pole rule: stay away from it,” said Jason Pride, chief investment officer of private wealth at Glenmede. “I don’t think the Fed and other regulators are fans of the current market structure for cryptocurrencies.”

Rob Sharps of T Rowe Price flagged the high level of speculation within the cryptocurrency sector as unsuitable for his clients’ investment strategies. The other major cause for concern is the sheer volatility of cryptocurrency.

This latest wave of cautionary sentiment comes after Bank of England Governor Andrew Bailey last week reaffirmed his stance that cryptocurrencies have no inherent value. Bailey advised investors to buy crypto “only if you’re prepared to lose all your money”.

Slow Monday morning for equities, gold higher on real yield slide

Morning Note

Reopening day in Britain – today is a big step forward for the economy, not so big for the stock market. Markets move well in advance, of course. Reopening trades have performed well this year, but the real test comes as the reopening process proceeds – do people get out and spend, do they take on more debt and do banks lend more? These are questions for policymakers, but also for investors. 

 

After a very choppy week, global stock markets were up on Friday, apparently surviving the big test of the previous few sessions. European stock markets are a tad weaker in early trade, whilst US futures indicate a slightly soft open on Wall Street, with the S&P 500 currently seen opening about 10pts off Friday’s close. Vixx trades higher in the 21-22 range this morning, which could indicate stress for equity markets.  

 

Asian shares were mixed as Chinese retail sales figures missed expectations. Year-on-year sales rose 17.7% in April, missing the +24.9% expected. It was also a sharp slowdown from the +34% in March. Industrial output rose 9.8%, in line with expectations, whilst fixed asset investment rose 19.9%, slightly ahead of forecast. Rising cases in Singapore and Taiwan are a worry. 

 

Last week was all about inflation. Various Fed speakers sought to calm speculation as breakevens broke higher. Yields were kept in check, with the benchmark 10-year Treasury yield retreating from 1.70% at its highest point last week to around 1.62% this morning. That pop in real yields left gold on the back foot but the subsequent drop in nominal rates against persistently high inflation expectations has seen real yields plunge with 10yr TIPS back to –0.88%, whilst 30yr TIPS have flipped negative again. This has helped gold rally to fresh 3-month highs above $1,850. Next stop $1,880 – the 50% retracement of the downtrend since Aug, with support around the 38.2% retracement at $1,832. Looking ahead to this week, minutes from the latest FOMC meeting will be watched for any signals policymakers are worried about inflation and/or financial stability. Likewise, the Bank of England’s Bailey, Ramsden and Broadbent will face questions about the impact of QE and risks to financial stability when they appear before the House of Lords Economic Affairs Committee on Tuesday. 

 

Finally, I thought Donald Trump’s ban from Twitter would mean markets would suffer less ‘noise’. I was wrong. First meme stocks came along, now we have Elon Musk moving crypto prices with his missives. The latest in the drama saw Bitcoin jump about $2.5k this morning after Elon Musk denied Tesla had sold its Bitcoin holdings. A nice pop, but this is small versus the Musk-induced selling that has been taking place lately. In addition to Tesla saying it would stop accepting Bitcoin as payment, Musk indicated in a reply to a tweet that the company was dumping or had already dumped all its Bitcoin. Prices fell sharply over the weekend and at $44k the crypto asset is still down by around a third from the all-time high near $66k set in April. There is nothing new I can say about Bitcoin – volatile, highly speculative, easy to manipulate; a bubble.

Charts of VIXX, BTC, Gold and USA 500 indices.

Bitcoin, Musk & the great Tesla U-Turn

Investments

Elon Musk, eh? His influence on cryptocurrency seems total. Even his smallest tweet can cause seismic price movements. He’s been at it again, this time with a major statement that has wiped billions off Bitcoin’s market cap. 

Musk voices big Bitcoin concerns 

On Wednesday, Musk announced Tesla will no longer be accepting payment in Bitcoin. The enigmatic billionaire cited concerns over “rapidly increasing use of fossil fuels for bitcoin mining”, as reasons for this big U-turn. 

“Cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost to the environment,” Musk wrote in a long statement posted as a tweet. 

It appears, at least on the surface, that Musk’s cryptocurrency jitters have been triggered by some pioneering research from Cambridge University.  

The Cambridge Bitcoin Electricity Index measures the volume of electricity needed to power Bitcoin mining, the complex computational conundrum that generates the in-demand tokens. 

Cambridge’s findings are shocking, to say the least. Generating new Bitcoin tokens requires more energy than countries like Sweden or Malaysia. Fossil fuels, particularly coal, are heavily involved in Bitcoin’s power generation chain.  

The conclusion is simple: heavier Bitcoin mining means higher greenhouse gas emissions. 

Musk’s decision to stop accepting Bitcoin as payment is also a realisation of a fact: people don’t want to spend their Bitcoin. People are investing in it, not spending it. It’s less a currency than an investment asset to buy and hold (or HODL). 

The U-turn that turned into a slide 

Markets were not happy. Losses mounted quickly. Musk’s comments initially led to a $365.8 million drop in value for Bitcoin, heavily biting into its previous $2.5tn market cap valuation. 

Bitcoin, which recently passed the $61,000 mark for the first time, had been trading around $56,000. It subsequently dipped below $50,000, hitting $46,000 to reach the lowest levels since early March.  

Bitcoin is a crypto bellwether. Usually, when it goes, all the other tokens go with it. That was the case on Wednesday evening. 10 of the major cryptos, including joke-but-not-actually-a-joke token Dogecoin, a pet favourite of Musk, fell precipitously too. 

Despite its wild price swing, BTC is still making gains at a frenzied pace. The world’s most popular crypto is up 400% year-to-date.  

What’s next?  

It all depends on how Bitcoin mining reacts. If it keeps up its current energy consumption levels using fossil fuel-powered energy generation, then the damage to the environment will rise. That may cause further ripples of discontent against the crypto. 

The complexity of the algorithm required to mint fresh Bitcoin tokens is increasing too. It will require more computing power to create new coins. More power will be needed. Not great for the environment. 

Some steps are being taken. China announced in March that crypto mining operations in the Inner Mongolia region will be shut thanks to their power-hungry energy requirements becoming too high for example. 

Others say increased crypto mining activity could act as a catalyst for renewable energy.  

Cathie Wood of Ark Investment fame, alongside Square’s Jack Dorsey, has put out a memo with words to that effect, but critics are not so sure. They claim Woods and Dorsey have a vested interest in touting Bitcoin’s potential positive environmental impact when the current research suggests the opposite. 

There’s a bit of hypocrisy, or at least contradiction, at play for Tesla too. The company makes electric vehicles that are viewed as the environmentally-friendly alternative to internal combustion motoring (questions around battery component mining notwithstanding).  

Can it really be seen to continue investing in Bitcoin for its balance sheet with the current conversation around crypto mining’s sustainability? 

Eagle-eyed crypto hounds will no doubt recall Tesla padding its balance sheet with $1.5bn of Bitcoin earlier in the year. Its stake had grown to $2.5bn as of May 2021.  

Trading reports suggest the automaker even made more profit from cryptocurrency trading than from the actual sales of cars in Q1 2021. 

CFO Mark Kirkhorn said in Tesla’s April earnings call that he believes in the token’s long-term value and was planning on using customer purchases to acquire more. Obviously, customer-generated BTC acquisition is off the cards, but will Tesla continue to dabble on crypto exchanges? 

ESG, environmental, social & governance, is a growing concern for investors. Some Tesla shareholders may be feeling a little queasy at the automaker’s crypto dalliance. After all, this is meant to be a company pioneering a greener mode of travel. If it continues to work with Bitcoin, some shareholders’ green thinking may cause them to pull out and that could affect the share price. 

Bitcoin probably isn’t going anywhere any time soon either. This volatility is something we’ve come to expect from the world’s most popular crypto. But with ESG and sustainability conversations intensifying, it’s going to be an interesting year for the digital currency. 

Cryptocurrency update: ETH soars while Dogecoin spins

Ether starts the week strongly, breaching all-time highs, while Dogecoin chases its tail.

Cryptocurrency update

Ether soars to all-time high

It makes for refreshing reading when a cryptocurrency that isn’t Bitcoin makes its own stellar gains.
This week, it’s Ether (ETH), the digital token for the Ethereum blockchain. The token has reached a new all-time high, breaking above $4,000.

While Bitcoin steals the headlines, ETH has actually made more substantial gains across 2021 so far. As of May 10th, 2021, Ether’s year-to-date return was a cool 435% against Bitcoin’s 104%.

Ether’s total market cap is now valued at around $470bn. For context, the stock market valuation of JPMorgan Chase, the US’ largest bank, floats around $488bn.

Behind the ETH drive is intensified worldwide interest in Decentralised Finance (DeFi). DeFi is functions around trading, lending, and other financial processes, that seek to match those of traditional banking and financial firms, executed via blockchain technology.

The Ethereum blockchain serves as the foundation for the DeFi world, as well as being a basis for non-fungible tokens, one of cryptocurrencies hottest trends. Transactions undertaken on the Ethereum blockchain are charged in a small amount of Ether, giving the token a practical use.

The more use the Ethereum blockchain gets from DeFi developers then the higher ETH prices will climb, in theory, and that’s what we’re currently seeing.

Elon Musk sets Dogecoin’s tail wagging

Shiba Inus are known to be bold, strong-willed, quirky, and confident. It’s a dog breed likes to do things differently; one that doesn’t always do what its owners want.

While very cute, and with massive meme-potential as the internet has clearly shown, there’s no telling what a Shiba will do from one minute to the next.

Those characteristics that make fuzzy, feisty Shibas a bit of a handful apply neatly to Dogecoin, the once joke currency that runs to the beat of its own drum. Choosing the Shiba Inu as the token’s mascot is looking more appropriate every day.

Dogecoin had an exceptionally eventful weekend after notorious tweeter and Dogecoin meme supporter Elon musk sent the token spinning.

Firstly, on Saturday 8th May when hosting Saturday Night Live, Musk triggered a Dogecoin sell off after calling the currency a “hustle” during his opening monologue. The currency’s value subsequently tumbled.

But come Monday 10th, Musk was giving Dogecoin a bone again. This time, the billionaire meme machine said his SpaceX firm would be accepting payment via Dogecoin from a Canadian firm Geometric Energy Corp, to send a satellite to the moon.

Yes, Musk and Co. are planning to literally send Dogecoin to the moon. The DOGE-1 satellite mission is said to be launching in Q1 2022.

“This mission will demonstrate the application of cryptocurrency beyond Earth orbit and set the foundation for interplanetary commerce,” SpaceX Vice President of Commercial Sales Tom Ochinero said in a press release. “We’re excited to launch DOGE-1 to the Moon!”

According to GSC, the rocket’s payload will “obtain lunar-spatial intelligence from sensors and cameras on-board using communications and computational systems”.

Does anyone else think this is getting out of hand now? Thanks to the power of Musk’s tweets, Dogecoin has gained an almost unbelievable 11,000% year-to-date. Perhaps it’s not the Shiba Inus that need putting on a leash but Musk himself.

After all, real currency from real pepole is being pumped into Dogecoin at the whims of a figure who clearly sees it all as a bit of a joke. Of course, the token did start life as a novelty, but its huge gains, and the spotlight afforded by Musk and his ilk, is turning it into something serious. Let’s hope no one gets bitten.

BoE’s Bailey gives stark crypto warning

“I’m going to say this very bluntly again: buy crypto only if you’re prepared to lose all your money.”

Harsh words from Bank of England Governor Andrew Bailey, speaking at the Bank’s Thursday May 6th press conference.

When asked for his opinion on crypto, Bailey said: “They have no intrinsic value. That doesn’t mean to say people don’t put value on them, because they can have extrinsic value. But they have no intrinsic value.”

Bailey’s words echo those of the UK’s Financial Conduct Authority. In January, the FCA said: “Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money.”

Cryptocurrency trading is currently not available in the UK for retail customers.

It will be interesting to see if Bailey’s thoughts have any actual effect on token prices.

Institutional support for cryptos as a whole as been up this year, mirroring crypto gains. Visa and Mastercard are upping their crypto offering; Tesla is dabbling with crypto trading alongside its core EV business; Banks like Deutsche Bank are exploring more crypto services.

Bailey’s comments do represent the fact that full support amongst financial circles for digital currencies has yet to be realised. They also reinforce the fact that volatility is never far away from cryptos. Massive price increases have been paired against violent crashes. Losses are a very real possibility – something all crypto traders should keep in mind.

Cryptocurrency update: Bitcoin breaks $61,000, Tesla & BTC, and NFTs, NFTs, NFTs

Another week, another BTC high, which looks like good news for Elon Musk and Tesla. Elsewhere, NFT fever sweeps across cryptos, but will that affect prices?

Cryptocurrency update

Bitcoin new record high

Bitcoin spiked on Saturday 13th March, crossing the $60,000 barrier for the first time, and reaching above $61,500 before pulling back.

At the time of writing, Bitcoin futures were trading back around $55,000.

So, what was behind this fresh Bitcoin rocket ride? It’s our old friend institutional support. Chinese software firm Meitu is the latest in a long line of companies snapping up digital tokens for their treasuries and putting support on BTC prices.

Meitu has picked up $17.9m in Bitcoin but also bought $22m of Ether in the same transaction, which is fairly interesting – most probably because Ether is cheaper per-unit than Bitcoin, but still has a lot of institutional interest.

JPMorgan has also stated it’s launching a structured investment product featuring indirect exposure to cryptocurrency markets for its clients by the end of March. The investment bank’s structured debt product will maintain stock holdings in companies that have their own exposure to BTC. Retail and institutional investors would then have the opportunity to buy into the debt issuance with a minimum investment of $1,000 without direct BTC exposure.

There’s a long, long list of supporters of BTC has it continues to shift from outsider alternative currency to mainstream token. JPMorgan and Meitu are the latest names to join it, while Deutsche Bank and others have been there for a couple of months now.

Another factor that could be playing into a new BTC rally is Joe Biden’s mega stimulus package. $1.9 trillion in extra stimulus is coming to the US economy with $1,400 going to US citizens. Could some of that be pumped into retail cryptocurrency investment?

At its highest, Bitcoin’s market cap reached $1.14 trillion – more than the entire GDP of Indonesia or Mexico. Volatility is the fundamental characteristic of Bitcoin, however. After its most recent rally, when it smashed through the $50,000 barrier, BTC retracted down to $33,000 before rising again. It’s a heady rollercoaster ride, but one that encourages shorting. Some sort of stability would be nice.

While institutions are jumping aboard the Bitcoin/crypto train, regulatory reform is in the break car, desperately trying to put a slowdown on the market before investors go off the tracks. India, for instance, is proposing a strict cryptocurrency ban, wanting to prohibit “possession, issuance, mining, trading and transferring crypto-assets”, according to Reuters.

This regulatory tug of war will be ongoing, but it doesn’t really seem like it’s going to slow BTC volatility in the short-term.

Tesla makes big BTC profit

The shadow of Elon Musk looms large over the cryptocurrency world. The man with the itchy Twitter finger’s influence on price movements and crypto legitimacy has been seemingly all pervasive in recent months. When news came his carmaker Tesla had sunk $1.5bn in BTC in its last financial update at the start of February, it caused a stir. Is that a smart move for a EV manufacturer to be exploring? Apparently so.

With BTC breaking over $61,000, Tesla’s move to fill its coffers with digital coinage looked like a good one.  At that high, Tesla was up $1.2bn on its BTC trade.

Companies storing spare cash in securities like Treasury bills is nothing new. But Treasury bills are usually nowhere near as volatile as cryptocurrencies. It’s hard to argue with the results, but there are some lingering questions.

The $1.2bn crypto profit is more than Tesla has made from selling cars across the last decade, nominally the core mission of Tesla as a company. Of course, launching a new car marque into a congest marketplace takes massive overheads. You’ve got spend money to make money (and cars), but the ratio of investment to profit from digital tokens Tesla just showed versus its central business function is an interesting one.

Will Tesla move more of its capital into digital currencies? How will this affect its core business? What will the market think?

Tesla’s shares dropped by 20% after its BTC play was revealed, falling from $863 per share to around $694 at current levels, suggesting it doesn’t think too kindly on Tesla doing this. Musk has essentially tied Tesla and BTC together at the hip with such a move, which may have caused investors to question Tesla’s ongoing growth strategy.

In the short-term, it has paid off, but is it really sustainable for Tesla to pour money into BTC – especially with rivals like Lucid Motors gaining traction, and legacy car manufacturers making in roads into the EV segment. It’s one to watch for the future.

Could NFT upswing lead to higher crypto prices?

NFTs are getting more headlines recently, following a $69m purchase of a digital graphic from Designer Mike Winkleman, aka Beeple, by the pseudonymous founder of NFT-fund MetaPurse MetaKovan.

An NFT is a non-fungible token, a not-so-sexy name for assets sold on blockchains. This includes artwork, music, digital collectibles, virtual items for video games like weapons or skins, and even tokenised real-world assets like designer trainers, cars and property.

Everyone is getting in the act with Kings of Leon releasing their latest album via NFTs and Elon Musk’s (who else?) Wife Grimes selling $6m worth of artworks on blockchains via NFTs.

Non-fungible tokens are bought with cryptocurrency. For instance, MetaKovan picked up Beeple’s “Everdays” with $69m worth of ETH.

NFTs are valuable because they prove an artwork’s scarcity. “Everdays” is a one-off, thus its value was huge – although that is partly tied into a broader discussion on the value of art, which we won’t dive into here.

Depending on the type of NFT sold, the purchaser would become the sole owner. So, using “Everdays” as an example, MetaKovan is that artwork’s sole owner.

In the case of the Kings of Leon release, buying it as an NFT would mean you own a digital copy of the album, like you would if you were to buy it off iTunes or pick up a physical copy.

Bitcoin surges on Tesla filing

Bitcoin shot to a record high, clearing $43,000 after Tesla reported in an SEC filing that it has bought $1.5bn worth of the cryptocurrency and said it would begin accepting Bitcoin as a form of payment in the future. This is the kind of backing that can take Bitcoin through $50k.

Once again it highlights the power that Elon Musk has in shaping price action and moving markets. He’s now putting his money (shareholders’) where his mouth is. But given his recent comments – and adding #Bitcoin to his Twitter bio on January 29th – it also raises a real question about possible market manipulation. Musk’s tweeting record is chequered to say the least (‘funding secured’) and he has had his knuckles rapped by the SEC in the past. The filing simply says that the investment policy was updated in January 2021 and ‘thereafter’ the company invested an aggregate $1.5bn in Bitcoin. Timing would appear critical. Tesla also says it may acquire and hold other digital assets. The move will also raise questions for fund managers who may not want to invest in a company with this kind of risk on its balance sheet – we know Bitcoin is very volatile – this is normal FX risk x100. Tesla is now starting to take on big FX risk – this may not worry a lot of investors, but some conservative types might be concerned.

Rumours have clearly been doing the rounds that Musk was in Bitcoin. After the Twitter update on Jan 29th, I noted that the move was cheered by the Bitcoin bulls and it indicated support for the crypto in some form, but it was not clear at that stage if he and/or Tesla was buying in size. Now we know not only is Musk on side, but Tesla is backing on a corporate level – the strategy was approved by the Board and Audit Committee. This comes after moves by PayPal and Square, as well as MicroStrategy, which have pointed to rising corporate support for Bitcoin. Last year PayPal sparked a big rally in Bitcoin after it said it would allow users to buy, sell and hold cryptocurrencies on its platform. Before this, Square added $50m in Bitcoin – some 4,709 coins – to its balance sheet, whilst Microstrategy, a Nasdaq-listed business intelligence company, acquired 21,454 Bitcoins as part of its “capital allocation strategy”. Tesla’s move is the kind of big corporate support that bulls are latching on to. More corporate support = more mainstreaming.

Out of the woods? Corporate earnings point to recovery, Musk sends Dogecoin to the moon, Bank of England ahead

Morning Note
  • Corporate updates signal confidence
  • Elon Musk sends Dogecoin skywards after tweets
  • Bank of England expected to stand pat

Whilst there has been a lot of attention on the ‘memestocks’ mania over the last week, earnings season rumbles on quietly with companies, on average, reporting profits ahead of albeit rather low expectations. Today is a busy one for corporate updates in London, and there are signs executives are a little more confident about the future.

Unilever shares fell despite beating on sales for the fourth quarter. Underlying sales growth accelerated to 3.5% in Q4, driven largely by volume growth, with the full-year growth coming in at +1.9%. Of note, Unilever restored its 3-5% sales growth target which it had dispensed with last year because of the pandemic. Jope still thinks 2021 will be challenging but there is a sense that things are improving.

Shell shares ticked up as it raised the dividend despite its annual results showing the oil major suffered a big blow in 2020. Shell recorded a net loss attributable to shareholders of $4bn for the fourth quarter. Adjusted earnings for the quarter were +$393m, down 87% from 2.93bn last year. But…negative oil prices are behind us and these results are ancient history now that Brent is close to taking a $60 handle once more.

And BT raised its full-year guidance for free cash despite a big hit to revenues in the third quarter. The bottom of its free cash range was raised to £1.3bn from £1.2bn which is giving the shares a bit of a lift in early trade, whilst the numbers for Q3 themselves were not quite as bad as feared. Revenues fell 7%, with adjusted ebitda –5% and profits falling 17%. BT – rather like Vodafone – faces a problem as consumer roam less, requiring less data on their mobiles.

European equity markets traded broadly higher for a fourth day as the corporate earnings backdrop continued to offer support, whilst the Biden administration is pressing ahead with the $1.9tn stimulus package without Republican backing. Biden wants to act fast and does not want to spend his first 100 days in office horse trading with the GOP over relief plans. The price of this could be any hopes of bipartisanship in future. Yields continue to press higher as the White House edges towards dropping another 10% of GDP in stimulus into the mix – US 10s rose to 1.15%. Gold fell, and now tests its 200-day EMA at $1,820, as yields ticked up and the dollar is stronger.

Meanwhile, Dogecoin was sent skywards after Elon Musk this morning tweeted ‘Doge’, and in further tweets adding ‘Dogecoin is the people’s crypto’ and ‘No highs, no lows, only Doge’.

It plays into the whole narrative we have tracked these last two weeks as social media is used by various characters to ramp individual assets. Anything Musk tweets about shoots higher because he has such a strong following both on social media and as a businessman. People will literally invest in him and his ideas, and don’t care what the fundamentals are about what’s involved.

Bitcoin is higher again above $38k. Interestingly, GameStop shares rose gently yesterday, climbing 2.7% to $92.41 – the mania seems to have subsided for now. And as Michael Burry says, it’s unlikely there will be such a perfect setup as there was with GME again.

Any evidence of inflation won’t bother the Fed. Chicago Fed president Charles Evans made that pretty clear by saying: “It will be critical for monetary policymakers to look through temporary price increases and not even think about thinking about adjusting policy until the economic criteria we have laid out have been realized… I see us staying the course for a while.” This simply builds on the last comments from Powell re tapering and indicates the Fed is not about to worry the markets.

The Bank of England is expected to leave its benchmark rate on hold and maintain the size of its asset purchase programme. There is lots of ammo left in the box in terms of QE with only £10bn of the latest round used. The only thing the market will care about today is the likelihood of negative rates. The Bank will publish an update on its work with banks on their preparedness and operational requirements for dealing with negative rates. Whilst there are one or two super doves who think negative rates are a ‘good thing’, it’s clear Andrew Bailey prefers to keep them at the bottom of the toolkit – there but out of sight. My feeling is the MPC is keen to kick negative rates down the road until the economy recovers and they’re no longer a topic. The evidence from Europe is hardly encouraging. Focus will also land on the latest economic projections – downgrades for this year are expected because the lengthy lockdown at the start of the year, but the vaccine rollout should be encouraging.

In FX, the dollar is bid across the board with DXY holding its upside breach of the trendline. EURUSD trades under 1.20 for the first time in two months. GBPUUSD is back under 1.36, its weakest in more than two weeks. Watch for the bull trap.

the dollar is bid across the board

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