Besides its breathtaking mountains, world-famous chocolate and wartime neutrality, Switzerland is perhaps best known for its commitment to financial privacy. Banking secrecy became law in 1934, making it a crime for Swiss banks to disclose accountholder information of any kind to third parties. Although such privacy laws have been impacted in recent years—mostly by U.S.-led global efforts to counter money laundering and tax evasion—Swiss banks still enjoy a reputation for being secure and discreet, and they continue to attract assets from all over the world. It’s appropriate, then, that the country should host the world’s most private conference on what’s potentially the most private asset class: cryptocurrencies. This week, hundreds of crypto investors, experts and enthusiasts from all
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Besides its breathtaking mountains, world-famous chocolate and wartime neutrality, Switzerland is perhaps best known for its commitment to financial privacy. Banking secrecy became law in 1934, making it a crime for Swiss banks to disclose accountholder information of any kind to third parties.
Although such privacy laws have been impacted in recent years—mostly by U.S.-led global efforts to counter money laundering and tax evasion—Swiss banks still enjoy a reputation for being secure and discreet, and they continue to attract assets from all over the world.
It’s appropriate, then, that the country should host the world’s most private conference on what’s potentially the most private asset class: cryptocurrencies. This week, hundreds of crypto investors, experts and enthusiasts from all around the globe descended on the legendary skiing resort town of St. Moritz to attend and learn at the Crypto Finance Conference.
The conference’s timing couldn’t have been more perfect. Bitcoin had its best start to the year since 2012, rising more than 22 percent in the first 15 days.
Among the biggest contributors to the rally, as I see it, is the hope that 2020 could finally see institutional investors move into the digital field en masse, prompted by growing client demand and more attractive ways to get exposure than direct ownership of coins. Earlier in the week, the Chicago Mercantile Exchange (CME) launched one such product, a bitcoin options contract, which reportedly had a successful first day of trading with a total of 55 contracts, worth 275 bitcoin, or the equivalent of $2.4 million.
Who Will Be First With a Bitcoin ETF?
Advisors, though, may be holding out for an exchange-traded fund (ETF) backed by cryptos such as bitcoin, if a recent survey is any indication. As much as 65 percent of respondents to a survey conducted by crypto indexer Bitwise and ETF Trends said that a crypto ETF was their preferred method of getting exposure, followed by a distant 16 percent preferring direct ownership and an even more distant 9 percent preferring a mutual fund.
At the moment, no such ETF is available because the Securities and Exchange Commission (SEC) has yet to approve one. Bitwise, in fact, withdrew its proposal for a bitcoin ETF this week, with Bitwise global head of research Matt Hougan telling The Block that the firm intends “to refile our application at an appropriate time.”
It’s no exaggeration to say that a bitcoin ETF is highly anticipated.
If you recall, I explored the feasibility of launching such a product a couple of years ago, ultimately deciding that the regulatory hurdles were too prohibitively high. Instead, we elected to bring to market the world’s first publicly traded crypto-mining firm, HIVE Blockchain Technologies. More than two years after its debut on the TSX Venture Exchange, investors continue to use it as a proxy for digital assets.
This week HIVE announced an incredible 20 percent increase in newly mined Ether coins compared to the last 15 days of December 2019. That’s thanks to the completion of the company’s Ethereum network upgrade dubbed the “Muir Glacier.” You can read more about the development by clicking here.
Winklevoss Twins: Time to Get On Board With Bitcoin
There was a number of notable presenters at the conference, including J. Christopher Giancarlo, former commissioner of the Commodity Futures Trading Commission (CFTC), who reminded the audience that innovation must come before regulation. And yet the European Union (EU) has it backwards, putting rules in place that hamper innovation before it even has a chance to begin.
The biggest rock stars in attendance by far were the Winklevoss twins, Cameron and Tyler, cofounders and president/CEO of crypto exchange Gemini. During their “fireside chat,” the two bitcoin perma-bulls urged conference-goers to start “building up bitcoin reserves” in anticipation of significantly higher prices.
In particular, they targeted gold investors, saying they “think bitcoin will disrupt gold.”
“Once the likes of Tesla’s Elon Musk or Amazon’s Jeff Bezos start mining gold on asteroids, which will happen within 25 years, gold’s value will change,” Tyler Winklevoss told the audience.
With all due respect to Tyler and his brother, I don’t happen to agree that bitcoin will replace gold anytime soon, as I’ve explained before. For one, unlike bitcoin, gold has a number of uses outside of its roles as investment, currency and a wealth preservation vehicle. Two, the yellow metal can be traded without electricity, internet or WiFi. This makes gold especially valuable in situations where power and telecommunications services are unexpectedly unavailable, such as during or after a natural disaster.
Some Relief in U.S.-China Trade Spat, But More Work Is Needed
On a final, unrelated note, you’re probably aware by now that, after more than 18 months since the start of the U.S.-China trade war, a meaningful agreement was finally reached between President Donald Trump and Chinese trade representatives. Although U.S.-imposed tariffs on China-imported goods still remain largely in place—presumably those will come off after a second round of negotiations—this is a positive step toward normalizing trade between the two superpowers.
The visual below, courtesy of Caixin Global, lays out exactly what China has agreed to. Over the next two years, the Asian country will be expected to purchase no less than $200 billion worth of U.S. goods and services, including $77.7 billion in manufactured goods and $32 billion in agriculture.
That’s a tall order, to be sure. In 2017, American exports to China were valued at $130 billion, the most ever, according to the Census Bureau. This leaves a $70 billion purchasing gap that China will need to fill somehow.
Washington and Beijing have also agreed to a “dispute settlement mechanism” to help resolve potential disputes during the implementation phase of the agreement.
Interestingly, the market didn’t respond too strongly on the news, gaining just under half a percent at its session high on Wednesday. This tells me that investors have already priced in the first phase, which, again, does not provide tariff relief. Perhaps not until the so-called Phase 2 of the trade deal is signed will we start see to see significant recovery in the U.S. manufacturing sector.
Curious to know which commodity was the top performer for 2019? Explore the recently updated Periodic Table of Commodity Returns by clicking here!
This week spot gold closed at $1,557.24, down $5.10 per ounce, or 0.33 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 0.29 percent. The S&P/TSX Venture Index came in up 0.37 percent. The U.S. Trade-Weighted Dollar rose 0.28 percent.
|Jan-15||PPI Final Demand YoY||1.3%||1.3%||1.1%|
|Jan-16||Germany CPI YoY||1.5%||1.5%||1.5%|
|Jan-16||Initial Jobless Claims||218k||204k||214k|
|Jan-16||China Retail Sales YoY||7.9%||8.0%||8.0%|
|Jan-17||CPI Core YoY||1.3%||1.3%||1.3%|
|Jan-21||Germany ZEW Survey Current Situation||-13.5||—||-19.9|
|Jan-21||Germany Survey Expectations||15.0||—||10.7|
|Jan-23||ECB Main Refinancing Rate||0.000%||—||0.000%|
|Jan-23||Initial Jobless Claims||214k||—||204k|
- The best performing metal this week was palladium, up 17.92 percent on tight supplies and strong demand. One-week lease rates for palladium rose for a seventh day to 32.56 percent. The majority of gold traders and analysts were bullish on gold in the weekly Bloomberg survey, as attention turns to the next stage of the U.S.-China trade deal. Turkey’s gold reserves rose $478 million from the previous week to total $27.9 billion as of January 10, according to data from the central bank. South African gold output rose for the first time in more than two years in November, according to Statistics South Africa. Output rose 5.2 percent from a year earlier, compared to a 1.4 percent contraction in October. Producers have been able to take advantage of higher gold prices.
- Palladium has surged to a whopping $2,500 an ounce and had its biggest one-day increase since 2008 on Friday. Bloomberg data shows that the metal jumped as much as 9.3 percent on Friday to $2,528.51. Palladium has added over 70 percent in the last 12 months, driven by a combination of tight supply and strong demand for use in autos to meet emission standards.
- BloombergNEF says that mines, especially those in remote locations with high energy costs, can now develop onsite renewable energy as a cost-effective way to reduce carbon emissions and electricity costs. According to BNEF, an off-grid copper mine in Western Australian could use onsite renewables to meet up to 40 percent of its electrical demand at a lower or equal cost to diesel generation. Renewable energy costs continue to fall, with solar down 11 percent and wind down 6 percent in the last year.
- The worst performing metal this week was silver, down 0.41 percent. Gold was under pressure early this week before the signing of phase one of the trade deal between the U.S. and China. “Investors who bought gold for the trade uncertainty will likely take profit,” said ABN Amro strategist Georgette Boele to Bloomberg. The SPDR Gold Shares saw more than $1 billion of outflows last week – the most since 2016. Russia’s gold buying spree has slowed. Russia purchased 149 tons of gold in the first 11 months of 2019, which is 44 percent less than the year before.
- The Treasury Department monthly budget released on Monday shows that the U.S. budget deficit widened to $356.6 billion in the first three months of fiscal 2020 and is on pace to exceed $1 trillion by year-end. A deficit of that amount would be the highest since the financial crisis when the government boosted spending.
- According to Bloomberg data, shareholder activists launched 518 new campaigns in 2019, up slightly from 512 campaigns in 2018. Vinson & Elkins, known for its energy-related work, said “2019 was the busiest year our shareholder activism defense practice has ever had.” Endeavour Mining Corp announced that it has closed merger talks with fellow Africa-focused gold miner Centamin Plc this week after it didn’t receive enough information in the due diligence process to make a formal offer.
- Bridgewater Associates’ Greg Jenson told the Financial Times this week that gold could spike 30 percent as central banks allow inflation and political fears mount. “There is so much boiling conflict, that gold being part of a portfolio makes sense to us,” Jensen said. This would mean a gold rally to more than $2,000 an ounce. Peak gold could be more distant in the future than originally thought due to increased exploration spending. 2019 saw a flurry of gold M&A activity and a return to levels last seen during the 2011 boom. There was around $26.5 billion worth of completed deals last year.
- Palladium might continue to see its price boom. Joni Teves at UBS said in a note this week that the price forecast was raised to an average of $2,200 in 2020, up from $1,875. HSBC is also bullish, raising its near-term palladium price forecast by over 30 percent.
- According to five fund managers interviewed by Bloomberg, gold’s price increase, “combined with capital discipline among the larger miners, is generating a bonanza of free cash flow while mergers could spark share gains among smaller players.” Catalysts for more gains include a weaker dollar, lower-for-longer interest rates and the U.S. presidential election. RBC Global Asset Management’s Chris Beer said “I have covered the gold sector for more than 20 years and I have never seen this kind of cash flow generation.” Roxgold released strong exploration and drilling results this week and RBC Capital Markets commented that it expects to see a positive reaction from the company’s shares. Red Cloud Research released a note this week saying that it has initiated coverage of Group Ten Metals, which holds the second biggest land package in the prolific Stillwater Igneous Complex of southern Montana. “Group Ten is our favorite PGM explorer in the public domain and we expect big things from this currently small company.”
- Alastair Pinder at HSBC released a note this week warning that equity markets have been showing signs of exuberance and that global equity markets “may have moved too much, too soon.” Stifel also released a report this week commenting about the risks of unlimited free money. Morgan Stanley said in a note on Monday that the top five publicly-traded American companies now make up a record 18 percent share of the S&P 500 – higher than the tech bubble. Oaktree Capital Group LLC Co-Chairman Howard Marks said in an interview on Bloomberg TV this week that the odds are against investors now. “We’re in the longest bull market, the longest expansion in history, profits are not rising, stock prices are, and it’s what we call a liquidity-driven rally.”
- Several top U.S. automakers are reducing production and cutting jobs in a warning sign of a slowdown in the auto industry. Bloomberg reports that Fiat Chrysler is sending workers home at four factories, Ford has two factories operating on fewer shifts and General Motors might dial back output just after enduring its long strike. American consumers are finding new cars less affordable as the average sticker price approaches $35,000. A greater volume of car purchases last year went to rental companies and other fleet purchasers, rather than individual consumers.
- According to Bank of America Global Research analysis of income migration data, in 2018, low- and lower-tax states gained $32 billion more in adjusted gross income than higher tax states. This is evidence that President Trump’s SALT cap has fueled a wealth exodus from high-tax states. Bloomberg reports that states like Florida and Texas, with no income tax, are seeing more people move there while New York, California, Connecticut and New Jersey, which had the highest average SALT deductions, lost nearly 455,000 people in the last 12 month measurement period, according to U.S. Census data.
- The major market indices finished up this week. The Dow Jones Industrial Average gained 1.82 percent. The S&P 500 Stock Index rose 1.97 percent, while the Nasdaq Composite climbed 2.29 percent. The Russell 2000 small capitalization index gained 2.53 percent this week.
- The Hang Seng Composite gained 1.81 percent this week; while Taiwan was up 0.55 percent and the KOSPI rose 2.00 percent.
- The 10-year Treasury bond yield remained essentially flat this week.
Read the remainder of the article at http://www.usfunds.com/investor-library/investor-alert/bitcoin-has-its-best-start-to-a-year-since-2012-as-market-banks-on-institutional-investors/
January 17, 2020
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors