Week In Review: Bitcoin Hits $1 Trillion, will it go to $2 trillion?
Bitcoin Hits $55,000
Bitcoin to $1 trillion: Bitcoin hit an all time high this week, breaking above a key level of $55,000. The new all time high pushed the market capitalization rate of bitcoin above $1 trillion for the first time. The gains of the cryptocurrency have been fueled by Tesla’s recent purchase of $1.5 billion, disclosed in the company’s annual report.
Tesla makes more in crypto profit than selling cars: Estimates from Business Insider suggest that Tesla could have made a paper profit on its bitcoin holding north of $930 million. If these estimates are correct, this is more money than Tesla made in profit selling cars.
Crypto Accounting: However, these crypto gains will not show up on Tesla’s balance sheet or even income statement. According to GAAP rules, if a company like Tesla buys a crypto asset, it will be held on the balance sheet at cost, kind of like goodwill or other intangible assets. The crypto will then stay at this same value unless the value declines. If the value has declined there will be an impairment associated, which will be recorded on the income statement as a “non-cash” loss.
Elon Musk Says Bitcoin too high: Elon Musk tweeted today that he thinks Bitcoin and Ethereum are too high. The last time Elon Musk tweeted that something was too high was with his own company, Tesla. The price of Tesla went on a tear after the tweet skyrocketing over the remainder of the year.
Bitcoin Supporters Giving Themselves Laser Eyes: Yesterday on Twitter, hundreds of bitcoin proponents gave themselves laser eyes. Why? No one is really sure. Some speculate it is a way to raise awareness for bitcoin. Others say it is a way to get bitcoin to $100,000. Then there are others who just think it is internet meme culture. No matter the reason, if you were on Twitter yesterday it is likely you saw laser eyes.
Texas Deep Freeze
Natural Gas Prices Skyrocket: The Texas deep freeze caused the price of natural gas to explode from $3.46 to a higher of $377 or up 32,000% in only a few days. The extremely cold weather caused a double whammy. Not only were individual households cranking up their temperatures, but there were issues along the supply side, with gas generation plants shutting down and wind turbines freezing.
The short-term effects are still being speculated upon, but one thing is for sure, consumers are going to face a hefty energy bill this coming month - with some paying as much as $10,000 this month for energy. In addition, as hedge fund manger, Josh Young, pens:
So, with conservatively 15,000 BOEPD of gas at Henry Hub, just in the 4 days with available futures at $205.07/mcf, Sandridge could earn tens of millions of dollars in excess profits. The math is 15,000 BOEPD x 6 MCF/BOE x 4 days x $205.07 x 0.75 Net Revenue Interest, minus nominal gathering & processing fees. This equals over $55 million. Versus a current market cap of $190 million and $40+ million net cash from the sale of the North Park asset.
There is likely to be significant profits made on a natural gas trade for companies and investors.
Energy Capex at historical lows: So far for 2021, the energy sector has been the best performing sector. There are several reasons why the beaten down energy sector has been outperforming, but a key fundamental one. The demand for oil and gas could come back in the violent way from the pent-up demand of end users. With everyone staying at home for a year, when COVID-19 ends, there could be significant demand for black gold. In addition, the year of 2020 was a year where oil and gas companies stopped drilling and cut their capital expenditures. If there is a violent return of demand for oil and gas, the under investment in the sector will serve as a supply constraint, increasing prices.
Biden Bans Fracking on Federal Lands: The ban of fracking on Federal lands will continue to lead to an undersupply of oil and gas over the long-term some analysts believe. Estimates suggest that around 10% of United States supply is derived from Federal Lands. When the leases run up on these lands, there will be that much less supply, which would indicate prices might go higher.
Keith Gill Vs. The Suits
The best quote that came out of the Keith Gill “interrogation” was a quote from Roaring Kitty himself:
"The idea that I used social media to promote GameStop stock to unwitting investors and influence the market is preposterous. My posts did not cause the movement of billions of dollars into GameStop shares.” He also noted that some people lost money and "my heart goes out to them." "For me personally, yes, I do find GameStop an attractive investment at this point."
The Stonk Market is Wall Street’s leading financial satire site, think the onion mixed with WallStreetBets.
My personal favorite Stonk Market story is one they published on the pay gap seen in OnlyFans content creators:
Hyperinflation And The Emerging Bubble
Velocity of Money: Macroeconomists are speculating that there is inflation ahead for the broader U.S. Economy. As the Government has spent trillions to bail us out of the COVID-19 pandemic the end result will be a type of inflation. More money into the system equals higher prices. But why haven’t we seen it yet? Some speculate that the velocity of money is too low. As Investopedia writes:
The velocity of money is a measurement of the rate at which money is exchanged in an economy. It is the number of times that money moves from one entity to another. It also refers to how much a unit of currency is used in a given period of time. Simply put, it's the rate at which consumers and businesses in an economy collectively spend money.
Since the U.S. economy has been shut down for close to a year now, the velocity, or rate at which businesses and consumers spend money is at historical lows. When the economy starts cranking again, individuals and businesses will began to spend the money they have been hoarding, increasing the velocity of money, directly effecting the rate of inflation. But where is this money now? I believe it is in the stock market, which has seen a record influx of cash and historical highs almost everyday.
Bond Market Sell Off: Over the course of the week bond prices sold off and yields shot up. Sure, interest rates are still near all-time lows, but the selloff spells trouble for debt laden enterprises, namely big government.
Rising yields and falling bond prices suggest that investors are expecting inflation to kick in sometime in the near-term. If inflation kicks in faster than investors think it will, bond prices will fall and yields will skyrocket.
Yellen and her big stimulus package: Janet Yellen spoke on CNBC this week saying it is very important to have a second stimulus package:
"We think it's very important to have a big stimulus package [that] addresses the pain this has caused - 15M Americans behind on their rent, 24M adults and 12M children who don't have enough to eat, small businesses failing.”
Yellen later spoke how she is not worried about inflation at all but thinks the greatest risk is scarring people.
“Inflation has been very low for over a decade, and you know it’s a risk, but it’s a risk that the Federal Reserve and others have tools to address,” she said. “The greater risk is of scarring the people, having this pandemic take a permanent lifelong toll on their lives and livelihoods.”
Is Yellen implying a stimulus package is needed to get people back on track, and more importantly keep the United States Dollar stable? Could be. The recent influx of fiat currency into bitcoin will not go unnoticed by big governments across the world as people dump their fiat for a digital currency.
Later in the year there is likely to be a second stimulus package to boost the economic recovery. Items included on the second package include; additional infrastructure spending, a push for renewable energy investment, education, and higher taxes on the wealthy and corporations.
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