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Mar 11, 2024
Bitcoin is up huge
Bitcoin ended the week at over $62k, with a market cap above $1.2 trillion. The asset experienced one of its biggest months ever, rising around 45% in February. While the Bitcoin ETFs initially seemed like a “buy the rumor, sell the news” event, net inflows to the ETFs were larger than anticipated. Per BitMEX research, total net flows into Bitcoin ETFs from 1/11/24 – 2/29/24 was $7.4bn. Bitcoin surpassed $64k on 2/28, but long term Bitcoin investors used that opportunity to take some profits as shown by Santiment’s Age Consumed metric (calculated by multiplying the number of recently-traded coins by the number of days since they had last moved). The increase in the below metric on 2/29 shows an uptick in long held coins changing hands as the price dropped from $64k to below $61k.
The above may have simply been a healthy pullback on a week where the price was going parabolic.
Two major questions that arise from Bitcoin’s massive week and month are 1) will this continue, and 2) how will this affect altcoins? As for the first question, Bitcoin still has plenty of room for further adoption by traditional finance. While the ETF gives many more investors the ability to buy this scarce asset, many major money managers are not yet in a position where they can actually actively sell and recommend Bitcoin to clients. For example, Bank of America’s Merrill Lynch and Wells Fargo are offering the Bitcoin ETF to their wealth clients, but only to clients who specifically ask for it. When/if financial advisors from these institutions can actually start selling and recommending this asset, a whole new wave of demand from traditional finance could hit the Bitcoin market. Also, Bitcoin is projected to go through a halving event on 4/19/24 (this occurs roughly every 4 years and causes Bitcoin mining rewards to be cut in half, reducing Bitcoin’s rate of inflation), and these events have lead to price rallies in the past, although maybe this time the anticipated rally has already been priced in with the dramatic recent price action.
As for the second question, (will the Bitcoin rally lead to an “altcoin season”?), K33 Research looked at previous Bitcoin rallies and said, “Judging by history, altcoins will start outperforming about the time we are now.”
However, it’s worth noting that Bitcoin ETF investors are not seeing other crypto currencies trading on whatever brokerage platform they bought Bitcoin on. While some of them may go down the altcoin rabbit hole, it could take some time. That being said, there is no Ethereum ETF as of this writing and Ethereum has already risen by ~50% YTD. Much of the altcoin universe runs on Ethereum, so it could be viewed as an entry point into that market for newbies.
Japanese equities finally break the record set in 1989
The cheap yen and foreign investment have helped fuel a massive bull run in Japanese equities, and the Nikkei finally surpassed its record level of 38,915.8 that was last reached in 1989. The Japanese semiconductor sector led the charge. The Nikkei 225 has a high concentration of semiconductor stocks, which benefited from the rapid rise of NVDA. Per Daiju Aoki of UBS SuMi Trust Wealth Management, “Those looking for the next Magnificent Seven that drove the high-tech market are more likely to take notice [of Japan].” Japanese chips are no longer on the cutting edge, but their chipmaking equipment and materials are still among the best in the world.
The below from Bloomberg indicates that the Nikkei isn’t particularly expensive when compared to the S&P 500.
Speculation around generative AI is fueling Japan’s bull market, but the real Japanese economy is not looking as rosy as it did in 1989. Data published on 2/15 showed that Germany officially passed Japan to become the 3rd largest economy in the world. However, if generative AI becomes as big as anticipated, the Japanese economy may actually keep up with its booming stock market. Japan is offering subsidies to entice major foreign chip makers to invest in Japan, and it has already booked some major wins. Per Nikkei Asia:
NVDA continues to rip higher
When we last discussed options trading on 2/12/24, NVDA was trading at around $722. Just approximately three weeks later (3/1/24), NVDA is now trading at $823, up 14%. Short-term call options would have continued to yield positive results. A call option at an $800 strike price expiring 3/8/24 was trading at $23.80 on 2/23/24 and increased to $30.69 as of 3/1/24, resulting in a 29% return in just one week. As we previously mentioned, options trading is extremely risky and could result in rapid loss of premiums, so traders must only put in what they are willing to completely lose.
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