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The move indicates that cryptocurrencies are beginning to go mainstream in corporate America after years of skepticism. It’s one thing for Musk to identify himself as a “Bitcoin supporter.” Another thing is for Tesla, an S&P 500 company, to accept direct Bitcoin payments and make a sizeable investment.
“Tesla … has eliminated the risk of the acquisition of #bitcoin by public companies and has accelerated the digital transformation of corporate balance sheets,” tweeted MicroStrategy CEO Michael Saylor, a Bitcoin advocate. “Treasurers are now thinking about how to turn an unproductive asset into the best performing asset.”
Even before Musk’s move, there were signs that Bitcoin was gaining traction among those who had rejected cryptocurrencies due to its extreme volatility.
Grayscale Investments, the world’s largest digital currency asset manager, has said that an explosion of interest from institutional investors helped drive assets under management above $ 20 billion by the end of 2020. It was managing alone $ 2 billion at the beginning of last year.
In a recent interview, CEO Michael Sonnenshein told me that Grayscale is no longer just catching the interest of family offices and hedge funds. Donations and pension funds (mainly outside the United States) also seek to generate exposure to cryptocurrencies.
“It’s really about recognizing the benefits of owning Bitcoin,” Sonnenshein said. “There is certainly the angle of diversification.”
In an era when central banks are printing a seemingly endless stream of money, investors are drawn to the “verifiable scarcity” of Bitcoin, he noted. Bitcoin is designed so that the total number of coins to ever be issued is 21 million, reinforcing the case for those who see it as “digital gold.”
Not everyone is ready to take the leap. Deepak Puri, chief investment officer for the Americas at Deutsche Bank Wealth Management, told me that he is hearing “a lot more conversations from clients” about Bitcoin. But the wealth management team was not actively advocating for cryptocurrency investments at the end of January.
Look at this space – there is a lot of talk that the rapid rise in Bitcoin prices will lead to a painful correction. But Sonnenshein said that Grayscale’s clients are mostly making long-term plays and not overly concerned with short-term plays.
“When you see the days [with] Bitcoin dropping 10% … we are not responding to calls and emails from panicked investors, “he said.” We are seeing investors opportunistically using those price reductions to increase their positions. “
The Big Picture: Tesla isn’t the only Bitcoin bull in town these days. And if the trend continues, more people could join the frenzy in the coming weeks and months.
Hedge fund manager: US stocks are in a bubble
The V-shaped rally in the stock market is gaining momentum.
The S&P 500 is now 75% higher than its lowest point last March. The Nasdaq has more than doubled since its pandemic low. Shares of Tesla are up a staggering 1.095% in that span. And an army of merchants on Reddit were able to send GameStop to the moon, at least for a few days.
While there are good reasons for optimism about the economy and the pandemic, some fear the market euphoria is spiraling out of control, although it is impossible to calculate when the bubble could burst.
Yusko, the chief executive of Morgan Creek Capital Management, pointed to signs of extreme market speculation, such as the 1.625% gain for GameStop in January.
“Stock markets in general are in bubble territory. Look at the parabolic movements of various companies like Tesla,” he said.
Yusko also noted that Apple’s annual net income has barely budged in the last five years. But earnings per share, which drive stock prices, have risen sharply because the iPhone maker has aggressively bought back its shares.
“That’s just financial engineering,” he said.
Still, Yusko acknowledged that overheated markets can get very hot before finally cooling down.
“The challenge with extreme valuations is that they can last longer than you think,” he said.
Main Street banks are doing better than Wall Street companies
Those small finance companies get most of their money by taking deposits and issuing mortgages and small business loans, reports my colleague from CNN Business, Paul R. La Monica. That’s different from the big Wall Street banks, which do significant business in trading stocks and bonds and advising companies on mergers and public offerings.
The Latest: The SPDR S&P Regional Banking ETF is up nearly 16% year-to-date, compared to a 6% gain for SPDR’s broader ETF from the select financial sector. The latter has JPMorgan Chase, BlackRock, Goldman Sachs, Bank of America and Morgan Stanley as some of its main holdings.
The regional banking fund has companies with which more everyday consumers are likely to interact, such as First Republic, Regions Financial, M&T Bank and Huntington Bancshares.
“Regional banks are closer to Main Street,” said Donald Calcagni, chief investment officer at Mercer Advisors. “You could argue that they take more into account the pulse of the real economy than the ivory tower rates on Wall Street.”
Many of the major regional banks have benefited from the explosive demand for housing. The mortgage boom should continue as long as interest rates remain low. Rising stocks also communicate faith that consumers will soon be looking to get more car loans or spend more with credit cards.
“Most people think that on the other side of Covid, whenever it is, there will be a pent-up demand for growth,” said Richard Schaberg, director of the American financial institutions group at the Hogan Lovells law firm.
