Bitcoin – The Bull that refuses to back into its cage

Bitcoin is now trading above the ceiling predicted to be its cap – it is the bull that remains uncontrollably volatile but unashamedly confident.

bitcoin-2643159__340  In a previous post, I explored how Bitcoin worked and explained the functionality of the centralized ledger. This week I have a new question. Why do people have faith in a currency that has no tangible resource backing it? Traditional currencies use gold, what does Bitcoin have? Hope? I will supply two reasons I find particularly compelling that may explain sudden interest for Bitcoin, however bear in mind that there a multitude of factors, and there is no monocausal reason for the sudden growth of Bitcoin.

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Firstly, financial commentators have commented on the magnitude of growth Bitcoin would experience if it were to be backed by a finite resource like gold. Bitcoin is a currency that has no tangible resource dictating its value. Its value is based precisely in what people think it is worth (or will be worth). Currently, Bitcoin is not backed by gold, or any other finite resource, but what if it were?

Standpoint Research’s Ronnie Moas reported that there is $200 T tied to cash, stocks and bonds. He stated:

“I am not excited about putting my money into any of those – If 1% of that $200 trillion finds its way into crypto in the next 10 years, you will be looking at a 2 trillion-dollar valuation – 10 times what it is today”

A theme common with cryptocurrencies. People are investing on the whim that it “could be” massive.

Secondly, trading Bitcoin may become safer – and hence attract attention from more conservative hedge fund managers. The more investors, the more Bitcoin will grow. Last week, the world’s largest exchange operator by market value (CME Group) has announced it is readying plans to offer futures on Bitcoin.

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This will give momentum to cryptocurrencies’ move away from the fringes of finance. But more importantly, the Chicago–based trading venue said it intended to add Bitcoin to its stable of futures on interest rates, stock indices, commodities, and currencies by the end of the year.

If hedge fund managers can long and short different prices, they can hedge against volatility. Currently, Bitcoin does not allow this. If it were to, which the CME have suggested, then Bitcoin becomes more attractive to less risky investors – once again increasing the amount of investment, and the “normativity” of the currency.

These two points share something. Both signpost to us that Bitcoin is doing well because people think it will do even better in the future. The potentiality for the currency is very high. And, although now there is little tangibility to Bitcoin besides hope and (somewhat) empty prediction, it seems that in the near future Bitcoin could become a global phenomenon.

Does Apple’s New iPhone Launch Signpost A Slowing Of America’s Economy?

 

iphoneWith stock indexes reaching an all-time high, the big tech stocks – FANGs (Facebook (FB), Amazon (AMZN), Netflix (NFLX), Alphabet (GOOG), and Apple (AAPL)) – may have lost their mojo. The most recent setback to one of the major tech companies is Apple (AAPL). According to Barrons, their new iPhone and Apple Watch are not going to meet sales expectations.

The exact reasoning for APPL’s plummet in sales is relatively unclear, but we can gather something from recent international trade relations. Firstly, China has been investing less in the American economy year by year. This is not of direct fault of APPL, but of China’s decision to cut down on outsourcing and invest more in its own domestic products. The price of copper also took a hit earlier this month due to China’s moderating demands which shows it is not a tech-centred issue.

It has also been evident that the iPhone 8 has been subject to slander on all social media platforms. Every time the Facebook and Twitter community decide they do not like a product, it has a direct negative effect on the sales of that product. It symbolizes that their clients are not happy with their products. APPL have since admitted having poor sales. They have also publicly acknowledged problems with their watch.

Of course, just because one tech company is underperforming, we should not begin to worry about the future of the American Stock Market. However, when FANGs struggle, we cannot throw caution to the wind. These stocks represent a large portion of market capitalization, and it most definitely will be a concern for the S&P 500 and Nasdaq.

On the surface, the American market seems strong due to stock prices chugging higher, regardless of APPL’s recent decline. But analysts are persistently pointing toward a low reading of Chicago Board options Exchange Volatility Index (VIX). The VIX, commonly understood as the fear index, signposts to us the volatility of the market. If it is low, then there is little fear of for investors looking to invest. The index is currently high. This means, although stock prices are rising, the market at any second could be volatile. Risks that were once safe, become high-risk. It makes for an uncomfortable climate that investors tend to avoid.

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Apple’s sales to China have underperformed, but this should not necessarily spook investors. It means that other regions will have to outperform expectations. It is possible that demand is coming from elsewhere, and that due to the September hit on the Copper industry, Apple realized China would underperform regardless, and thus changed their target location. In other words, lower sales to China is not directly related to the outcome of the market. We could see a resurgence of APPL shares shortly, when the iPhone is released.

According to Michael Khan, APPL and FANGs decline does not spell the end for the American market. It seems that in the current financial climate, the failings of APPL’s most recent product is being supported by other facets of the market. The market could remain stable, bearing in mind its normal fluctuations. Unless there is some major political shift in congress, or a major international confrontation – everything should level itself out.

(Please note: James O’Leary does not currently hold a position in: Amazon, Alphabet, Netflix, or Twitter; and Henry James International does not currently own a position in:. Amazon, Alphabet, Netflix, or Twitter)

(Please note: James O’Leary currently holds a position in Apple and Facebook; and Henry James International currently owns a position in Apple and Facebook ).

Digital Developments – The Wearable Technology Market

Developments in the digital era have meant that it is easier than ever before to take your work with you. Phones now serve not only for making calls but also as devices for sending emails, keeping up-to-date with world news, and keeping track of to-do lists and calendar engagements. One digital sector that has seen growing interest recently is that of wearable technology. Wearable tech has been around in one form or another for centuries, but a boom in popularity began in the 2000s when companies began developing devices that took keeping fit on the go to a whole new level. Since then the wearable technology sector has taken off, with the number of wearable tech devices being shipped increasing from 29 million units in 2015 to 33.9 million units in 2016, growth of 16.9% year-on-year.

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Having launched their first product in 2008, a fitness tracker wristband, Fitbit initially experienced high levels of commercial success. However, recent figures show that the company may now be in a period of declining consumer interest. Shipments in the 4th quarter of 2016 were down 22.7% compared to the same period of 2015, with numbers dropping from 8.4 million units to 6.5 million. In terms of market-wide success, in the first quarter of 2017 Fitbit accounted for 13.2% of all wearable technologies shipped, in comparison to the 24.7% of the market that it made up a year ago. It is thought that the drop in Fitbit products may be due to a reducing demand for fitness bands and the company’s slow entry into the market for smartwatches. However, CEO of the company, James Park, believes that as the market for wearable technology develops, new opportunities for renewed growth of Fitbit will present themselves.

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As Fitbit sales decrease, the way has cleared for other big-name tech companies to take a larger portion of the market. With the launch of the new Apple Watch series 2 in September 2016, Apple has seen an increase in sales from 4.1 million to 4.6 million, a growth of 13%. The company has overtaken Fitbit as number one in the wearables market in the first quarter of this year. Close behind Apple, Chinese technology company Xiaomi has also overtaken Fitbit to second place in the market. Indeed the company has been the fastest growing in the industry, experiencing a year-on-year increase of 96.2% in sales, from 2.6 million to 5.2 million from 2015 to 2016. Much of this growth was due to shipments of their tracker, Mi Band Plus.

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While Fitbit may be experiencing a period of declining interest, the wearable technology market as a whole is bigger than ever, and with new products constantly being developed and introduced it is likely that interest in this sector will continue to grow.

(Please note: James O’Leary does not currently hold a position in Fitbit, Apple, or Xiaomi. Henry James International does not currently own a position in Firbit, Apple, or Xiaomi for any client portfolios)