ETF hopes power Bitcoin over $59,000

With the news Bitcoin exchange traded funds could be about to land in the US, BTC intensifies its upswing.

Bitcoin

Bitcoin bounces on positive SEC noise

Reports from Bloomberg indicate that the SEC would be in favour of approving at least some Bitcoin ETFs.

The SEC is reviewing 40 Bitcoin exchange traded funds right now. It is believed that the commission will approve at least some of these. That would make any new ETFs the first of their kind in the United States.

The news filled crypto traders with renewed confidence this morning, sending BTC prices soaring. Prices nudged the $60,000 mark with highs of $59,931 registered on Thursday. At the time of writing, BTC was trading for $59,395.

Bitcoin Futures passed $60,000 this morning before falling back to around $59,650. Both BTC and futures are up over 3% on the day.

If the SEC approves a Bitcoin ETF it will be the first of its kind in the US. Previously, commissions in places like Brazil, Canada, and Europe had given the green light to crypto exchange traded funds.

So, who is making the applications? Bloomberg mentioned ProShares and Invesco and two frontrunners who may see their applications approved next week.

Valkyrie, VanEck and Galaxy Digital Funds have all made ETF applications this year too.

The Bloomberg report said that ProShares and Invesco’s proposals are based on futures contracts. They were reportedly filed under mutual fund rules that SEC Chair Gary Gensler has said provide “significant investor protections”.

Gensler helped boost Bitcoin prices last week when it was reported that he said the SEC had no plans to launch a crypto ban. His comments came in the wake of a move by the People’s Bank of China that made digital token transactions illegal in China.

That said, Gensler had previously stated he believes that the crypto market could encourage price manipulation and expose millions of investors to significant risk.

However, this time Gensler and the SEC’s actions appear to have instilled high confidence in crypto traders.

Other tokens have been brought up by the Bitcoin surge. This is a regular occurrence. When Bitcoin is up, certain coins tend to perform well, and vice versa. Ethereum, for example, reached $3,855 after Bloomberg’s report was published.

Eight consecutive weeks of inflows for the crypto market

Data from digital asset managers CoinShare said cryptocurrency products attracted $226.2m in investments for the week ending October 8th. Fittingly, that marked the eighth consecutive week for inflows across the digital token sector.

Across that eight weeks, the total invested came to $638m. The overall figure for the year-to-date is $6.3bn.

Big business, but, with the global digital currency sector worth over $2 trillion, we knew that already.

No prizes for guessing which coin attracted the most attention. Yep, it was bitcoin. CoinShare says the world’s most popular token attracted $225m during the review period. Unlike other cryptocurrencies, Bitcoin has only had four consecutive weeks of sustained inbound investment.

Ethereum saw minor outflows totalling $14 million. While still the world’s second most valuable token by capex, ETH continues to lose ground to the Bitcoin behemoth. Altcoins such as Solana and Cardano posted inflows of $12.5 million and $3 million.

Litecoin, Ripple and Polkadot all posted outflows.

GameStop soars on ‘ecommerce hopes’, stock markets diverge as investors look to bonds

Morning Note

It’s a short squeeze. It’s dealer gamma exposure. No, it’s a fundamental deep value trade based on the company’s ability to be a disruptive force in gaming and deliver a compelling e-commerce offering that supports the long-term investment thesis, which is based on an increasingly progressive free cashflow model. You never actually thought GameStop rally was just froth? Roaring Kitty made a pretty stubborn defence of the fundamental thinking behind his long GME position when he talked to lawmakers on the financial services committee. Most Redditors would agree and maybe, just maybe, there is a fundamental basis for this stock’s 930% rally year-to-date. I’m sure some people genuinely do think it will be the Amazon of gaming.  However they are probably less worried about execution risk than they might be.

 

Shares surged over 41% to almost $195 yesterday, as it looks as though GameStop has taken the first big step towards to fulfilling its latent ecommerce potential. Whilst the ousting of the CFO Jim Bell last month indicated that something was afoot, an update from the company filled in some blanks and underlined that Chewy’s Ryan Cohen is taking charge of this ship.

 

GameStop has formed a “Strategic Planning and Capital Allocation Committee” which will focus on identifying actions that can “transform GameStop into a technology business and help create enduring value for stockholders”. The committee will be responsible for evaluating areas that include GameStop’s current operational objectives, capital structure and allocation priorities, digital capabilities, organizational footprint, and personnel. The Committee is comprised of Cohen, former Chewy CMO Alan Attal, Ryan Cohen, and Kurt Wolf, another activist GME investor. In addition, the board is appointing a Chief Technology Officer and two new executives to lead the company’s customer care and e-commerce fulfilment functions, respectively. There is also a plan to replace the ousted Bell at CFO. 

 

Divergence: In the broader market, European stock markets and the Dow Jones rallied though tech weighed on the S&P 500 as the sell-off in growth and momentum continued. The DAX in Frankfurt rallied over 3% to mark a new record high, whilst the Dow Jones climbed 300pts to a record high 31,800. The Nasdaq composite declined 2.4% and the NDX 100 was off almost 3%. Tesla declined another 6% almost to $563, whilst Apple fell over 4% to $116. A record high for the Dow just as the Nasdaq enters correction territory: We’ve not see such a divergence between the industrials and growth in a long time. The S&P 500 is caught somewhere in the middle, though the weighting of the tech names (the 5 FAANGs were worth about a quarter of the market until recently).

 

It’s a buying opportunity? ARK’s Cathie Wood played down the problems at her flagship ETF, saying she is even more confident in her highest-conviction trades such as Tesla and that the selloff is simply a buying opportunity. At these moments she looks to “concentrate” portfolios to the “highest conviction names”, so this means selling more liquid stocks (eg Apple) which are participating in innovation but are not ‘pure play’ innnovators. The fact that the bull market is broadening out is a good thing, she says, and this is certainly true. But it doesn’t mean Tesla should be worth what it was valued at. She also suggested that the 60:40 stocks to bonds portfolio could one day be 60:20:20 stocks:bonds:cryptos … 

 

Clearly, everyone is looking at the bond market right now, but some are not convinced that yields are only going one way. David Tepper, the founder of Appaloosa Management, told CNBC that the move in rates may be just about over. He pointed to a flip in Japanese investors, who he thinks are likely to become net buyers of US Treasuries (after years as net sellers) following the rise in yields – the 10-year has risen from 1.09% at the end of Jan to north of 1.6%. This, he says, will cap the rise in yields. Whilst yields pared back yesterday, stocks weren’t really listening. Ten-year and 30-year bond auctions this week will be crucial tests of demand – it was a weak sale of 7-year debt last month that sent reverberations around the market. Today we have an auction of $58bn in three-year paper but it is the 10-year and 30-year offerings that will be the big test. Investors will be angsty about how these auctions go off – a repeat of the Feb 25th 7-year auction would undoubtedly create another broader sell-off in rates and lead to yet more instability in equity markets. A key unanswered question remains about whether the Federal Reserve extends looser capital requirements – the supplementary reserve requirements (SLR). Last April the Fed let banks exclude Treasuries and cash from their calculations – but this means banks are sitting on a tonne of US government bonds that would need to liquidate if the looser SLR rules are not extended. This could create further trouble in the bond market if all this were to hit the market at once. 
 
Is WFH dead? Zoom, the poster child of the work from home trade that drove much of the 2020 rally up until the November vaccine bounce, declined almost 8%. It’s now worth around half what it was at the peak in October. It was reported after the closing bell that CEO Eric Yuan has transferred about 40% of his stake in the company – valued at around $6bn- to two unspecified recipients. Another work from home name – DocuSign – declined fell over 5%, meaning it is down around a third from its recent all-time high. There are two things at work here – first is the reopening and expectations people won’t be so reliant on WFH as last year. Second, these were some of the most richly rated of the growth names and therefore most likely to be pulled down by a rise in rates.  

 

Domino’s posted strong final results as it enjoyed pandemic related stay-at-home demand. Strong appetite in the UK & Ireland saw system sales up 11.4% to £1.35bn. Underlying profit before tax of rose £2.4m to £101.2m, but this was limited by Covid-related safety costs  and other efforts to placate franchisees. The free cash improvement (+73% to £99m) was another mark in its favour. Nordic disposals have helped – it never really got a handle on the Norwegian and Swedish markets. It’s also looking to offload its Swiss and Icelandic businesses. Trading this year has started strongly with “exceptional trading” over the New Year period as the company notched its busiest ever week. The question is whether Domino’s has the momentum now to deliver its goal boosting sales growth as consumers prepare to get out and about much more? Shares rose 10% as the company also announced it was returning £88m to shareholders via a 9.1p dividend and £45m in share buybacks.

 

Shares in ITV dropped over 6% in early trade as the company reported a 16% decline in total external revenues, led by a 25% drop in Studios and 11% decline in Advertising, despite VOD being +17%. That left adjusted earnings before nasties down 21% at £573m which was not as bad as expected and was driven by the strong end to Q4 and tight cost control delivering £116m of overhead savings, of which £21m are permanent. Now the focus is on beefing up Studios earnings by working closer with streaming platforms on delivering content – anything that dilutes the importance of traditional ad revenues should be a positive, albeit consumer brand spending on media this year ought to be markedly better than last year. Indeed, whilst Q1 has been challenging management think April ad revenues are expected to be up between 60% and 75% on last year. 

 

Oil prices are proving to be very volatile. After Brent rallied to $71 yesterday it’s now trading with a $68 handle this morning. Clearly a spot of panic after the attacks on the Saudi facilities was overdone, but I stick to the view that the market is tight and will become increasingly tighter now that OPEC is rolling over cuts into April.  

Elsewhere, Bitcoin trades above $54k, its highest since around Feb 23rd, whilst gold continues to test the 61.8% retracement support at $1,690. Yesterday’s swing high at $1,714 is the first hurdle, thence $1,724.

Gold continues to test the 61.8% retracement support at $1,690.

What is the BUZZ ETF?

Investments

The investment world is buzzing about today’s release of the new BUZZ ETF – a fund that might be a potential gamechanger in the way exchange traded funds are put together. 

The BUZZ ETF 

BUZZ is the ticker for the VanEck Social Sentiment ETF, a new fund debuting on the NYSE today. BUZZ will invest in 75 stocks that are receiving the most positive sentiment on the internet, cleverly using artificial intelligence to crawl the web for mentions and praise for the companies within. All companies listed in the ETF must have a market cap of at least $5bn. 

How does the AI work? The BUZZ Algorithm scans 15 million social media posts a month to measure which stocks have high positive investor sentiment across online social networks. Basically, it’s a social sentiment tracker. 

The impetus for basing funds around online popularity comes in the wake of the GameStop short squeeze and general rise of so-called meme stocks driven by social media chatter across the past couple of months. 

Meme stocks, like GameStop, AMC, and now Rocket Companies, have all been given massive attention thanks to online investor communities like the now infamous /r/Wallstreetbets turning their gaze and pushing stocks as potential investments. 

What is included in the BUZZ ETF? 

While it may have been birthed out of the meme stock craze, BUZZ will not contain such stocks. The $5bn minimum market cap precludes them from entry. Instead, the fund is full of many stocks that are already established multinationals. 

Stocks held in BUZZ include: 

  • Tesla 
  • Draft Kings 
  • Virgin Galactic 
  • Advanced Micro Devices 
  • Apple 
  • Ford 
  • Novavax 
  • Facebook 
  • Amazon 
  • Plug Power 
  • Twitter 

90% of the 75 companies in the ETF are split across five sectors: tech, consumer discretionary, communication services, health care, and industrials. 

Is there anything controversial about BUZZ? 

The involvement of Dave Portnoy, sports & pop culture website Barstool Sports owner and something of a figure head for millennial investors, owns a significant chunk of Buzz Holdings, the company behind the ETF.  

Portnoy has over 2.3 million Twitter followers, coming from the world of sports betting. When sports closed during the global lockdown in 2020. During that time, he turned his attention to day trading, and has been sharing his wins with his Twitter followers and YouTube subscribers daily. 

Because of his large social media network, and the fact ETF scans social posts for positive stock sentiment on its constituents, there is a possibility that if Portnoy talks up a stock, and such sentiment gets shared and talked about amongst his followers, than that stock would rise. It’s a similar principle to how places like /r/Wallstreetbets can send stocks to the moon through the power of social media. 

This may cause regulatory headaches and could also result in younger, inexperienced investors losing money. 

Portnoy said the algorithm was built five years ago. In 2020, the Buzz index outperformed the S&P 500 by 40%, he said. 

ETFs that seek to try something different are nothing new. Cathie Wood’s ARK ETFs, for example, are all about future technologies and innovation, based on what tech could disrupt everyday life from healthcare to transport and everything in between. 

What’s different about BUZZ though is its AI algorithm. While this tech has been tried before, notably in 2016 with the failed Sprott Buzz Social Media Insights ETF (ticker BUZ), the market was not responsive. 

But with meme stocks and social media appealing to a new generation of investors, maybe BUZZ could make its own market buzz once it goes live. 

BUZZ is due to go live on the New York Stock Exchange on March 4th 2021. Open your account to start trading or investing in the ETF has soon as it goes live. 

 

Buzzy ETF set for launch as Rocket Companies blasts off, Budget Day looms for UK markets

Morning Note

If you thought the meme stock craze was going away, think again. VanEck Associates will this week launch a new exchange traded fund (ETF) that seeks to track the performance of the top 75 most buzzy companies on the internet. The VanEck Vectors Social Sentiment ETF (BUZZ) will track the BUZZ NextGen AI US Sentiment Leaders Index. This index consists of the most-favourably talked about stocks online, whether on blogs, social media or Reddit. The companies must have a market cap of at least $5bn.

 

Dave Portnoy, the meme stock pumper in chief who has attracted a huge following on Twitter, announced the launch yesterday by tweet. Portnoy is a part owner of the business (Buzz Holdings Inc) which licenses the index to VanEck.  

 

So how are these 75 stocks selected? The marketing bumf makes big claims about Artificial Intelligence and advanced learning models. It claims that the ETF will comprise the 75 large cap US stocks that show “the most positive investor sentiment according to our analytics models”. Pretty standard, but it continues: These stocks are selected and scored using “artificial intelligence”, including “machine learning” and “natural language processing algorithms, applied to millions of data points aggregated from social media, news, and blogs”. Wow, this sounds super clever, with AI it’s bound to work, right? 

 

Well perhaps, but also perhaps not. In the index guidelines document, under paragraph 1.6: Decision-Making Bodies, the owners say that “a committee composed of staff from Buzz Indexes Inc. is responsible for decisions regarding the composition of the BUZZ NextGen AI US Sentiment Leaders Index as well as any amendments to the rules”. So, there are clever AI algos at work, that I have no doubt, but the ETF doesn’t auto-rebalance based on that machine learning, it simply gives Portnoy and co some data to consider (or ignore, as they see fit) when deciding which of their meme stocks they want to pump add to their ETF. The Committee will also decide about the future composition of the index “if any Extraordinary Events should occur and the implementation of any necessary adjustments”.  Looks like it could be a very lumpy mixed bag of stocks with no correlation to each other except Reddit mentions. But as we have seen, on a short-term basis Reddit mentions is delivery alpha.

 

Case in point: Shares in online mortgage firm Rocket Companies (RKT) surged 71%  after it came in for the Reddit /r/wallstreetbets treatment. It seems heavy short interest (about 45% of the float) in the stock was exposed, driving a jump at the open and the dam burst once heavy open interest in $30 call options were triggered, fuelling another dealer gamma squeeze like we have seen with GameStop. Some traders had spotted some unusual options activity the day before coupled with a lot of comments on /r/wallstreetbets on RKT. Perhaps a scanner for this sort of thing is not a bad idea (our Sentiment tools suite has been doing this for years). It’s indicative of the fact this socially-driven trading is here to stay and will result in frequent unexplainable (on a fundamental/news basis) jumps in certain stocks.

 

Back to normality and it’s Budget Day here in the UK. No Glenfarclas for Rishi Sunak, only Coca-Cola imported from Mexico; at least according to a rather awkward conversation he had with a couple of school pupils that has been turned into a viral TikTok hit. A lot has been pre-announced (leaked), but we still expect the rabbit out of the hat moment – perhaps not immediate tax hikes, perhaps direct stimulus cheques for all (this works better than furlough) but that would be too much to ask. Sunak will display a total lack of imagination, Eat Out to Help Out mark II, for instance, more furlough and measures to stoke house prices, or the housing market, whatever way you look at it. Housebuilders are higher again today – if there is no extension of the stamp duty holiday they would pull back. Overall I think the market will like it as it will amount to more stimulus today, and despite the recent jump in yields I don’t feel the bond vigilantes are anything like strong enough to really take on gilts today.

 

Stocks moved higher in early trade, with the FTSE 100 testing 6,700, the Feb 25th high, and European markets also churning higher towards the top of recent ranges. The DAX struck a record high Frankfurt, boosted by recent comments from ECB members who have sought to push back against the rise in bond yields. Executive Board member Panetta yesterday voiced the ECB is having none of it: “The steepening in the nominal GDP-weighted yield curve we have been seeing is unwelcome and must be resisted. We should not hesitate to increase the volume of purchases and to spend the entire PEPP envelope or more if needed.” 

 

US stocks closed weaker on Tuesday as the tussle between bulls and bears continued following Monday’s jump. The S&P 500 is trapped in a range between 3,800 and 3,900 – a close above or below these levels will be important for the future direction of the market. Futures trade higher this morning. 

 

Whilst the Fed has tried stay relaxed about the recent jump in bond yields – which has stabilised this week – it’s clear they are far from ignoring the situation. Fed governor Lael Brainard said the recent surge had ‘caught her eye’. “I am paying close attention to market developments,” she said, adding that “some of those moves last week and the speed of the moves caught me “. Ms. Brainard said she would be concerned about any “disorderly conditions or persistent tightening” in financial conditions. 

 

OPEC and allies are faced with the usual tough decision on how to maintain the balancing act of too much supply vs too many output cuts. Yesterday there was no recommendation from the technical panel, but this is normal. OPEC is fairly bullish on demand and sees oil stocks dropping by about 4000m barrels in 2021. Crude prices are testing the mid-Feb lows ahead of the meeting; perhaps indicating some short-term fears that Russia will push for an even greater boost to production in the wake of prices stabilising. I’d expect the 23-nation OPEC+ group to agree to reduce 7m bpd of cuts by another 500,000 bpd from April and that Saudi Arabia will confirm the additional 1m which it removed from the market will return in April. Steep backwardation in the futures markets signals healthy deficit for producers to fill. 

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