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We’re on the Cusp of Mass Crypto Acceptance

Summary:
It’s happening. The acceptance of digital currencies as a form of payment expanded greatly this week, foreshadowing the increasingly important role cryptos such as Bitcoin and Ether will play in our lives going forward. Both Visa and PayPal announced they will begin allowing the use of cryptocurrencies to settle transactions. This comes a week after Tesla said it will now accept Bitcoin as a method of payment, and a month after Mastercard signaled it would start supporting cryptos sometime this year. PayPal’s Checkout with Crypto, made available to select U.S. users yesterday, gives consumers the ability to purchase goods and services at as many as 29 million merchants using Bitcoin, Bitcoin Cash, Ether or Litecoin. What’s more, there’s no additional transaction fee. Founded in 1998 by

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We’re on the Cusp of Mass Crypto Acceptance

It’s happening.

The acceptance of digital currencies as a form of payment expanded greatly this week, foreshadowing the increasingly important role cryptos such as Bitcoin and Ether will play in our lives going forward.

Both Visa and PayPal announced they will begin allowing the use of cryptocurrencies to settle transactions. This comes a week after Tesla said it will now accept Bitcoin as a method of payment, and a month after Mastercard signaled it would start supporting cryptos sometime this year.

PayPal’s Checkout with Crypto, made available to select U.S. users yesterday, gives consumers the ability to purchase goods and services at as many as 29 million merchants using Bitcoin, Bitcoin Cash, Ether or Litecoin.

What’s more, there’s no additional transaction fee.

Founded in 1998 by Peter Thiel and Elon Musk, among others, PayPal has become a trusted household name. 2020 was a record year for the online payment service as people were stuck at home and companies digitized their operations. Total payment volume was a massive $277 billion, a 39% increase from the previous year, while the platform added 16 million new accounts, for a total of 377 million registered accounts.

Very soon, every one of these users will be able to use popular digital currencies to buy nearly everything, from a cup of coffee to a new car. This represents a huge leap forward for the still-emerging technology.

We’re on the Cusp of Mass Crypto Acceptance

Visa announced this week that it became the first payment processing company to settle a transaction with USD Coin (USDC), an open-source stablecoin backed by the U.S. dollar. According to the coin’s website, USDC “is issued by regulated financial institutions, backed by fully reserved assets” and “redeemable on a 1:1 basis for U.S. dollars.” As of March 28, there were 11.3 billion USDC in circulation.

Not only will Visa users be able to make purchases with USDC, but Visa said it would also one day support new central bank digital currencies (CBDC) as they become available. According to the company, some 80% of central banks are strongly considering or in the process of launching its own national digital currency.

Mastercard is reportedly doing the same, announcing in February that it’s engaging with “several major central banks around the world” as they develop CBDCs. At the moment there’s no word on when Mastercard customers can expect to start paying with cryptos, or even which cryptos will be supported, but it seems likely we’ll hear something soon now that Visa has taken the first step.

Tesla Now Accepting Bitcoin

We’re on the Cusp of Mass Crypto Acceptance

Those of you in the market for a Tesla may have noticed that you can already select Bitcoin at checkout, only a week after Elon Musk tweeted the news.

Currently the sixth largest U.S. company by market cap, having surpassed Visa and Berkshire Hathaway, Tesla has been ramping up its accumulation of Bitcoin.

If you recall, the company disclosed that it bought $1.5 billion worth of the digital currency as part of a corporate policy that allows the electric vehicle (EV) maker to invest in alternative reserve assets, including not just cryptocurrencies but also gold bullion and gold ETFs.

Musk often tweets about cryptos to his nearly 50 million Twitter followers, which can trigger incredible price swings. Dogecoin surged more than 1,000%, from $0.007 to $0.080, in as little as 12 days in January and February after the Tesla “Technoking” tweeted about it.

Someone recently developed a bot, in fact, that automatically buys Bitcoin whenever Musk mentions it in a tweet. This reminds me of the Trump & Dump Bot, which used artificial intelligence (AI) to identify publicly traded companies whenever they appeared in one of the former president’s tweets. The bot then shorted the stock and donated the proceeds to charity. Trump’s Twitter account was permanently suspended on January 8.   

Gold Off to Its Worst Start in Almost 40 Years. Buy the Dip?

The price of Bitcoin has more than doubled so far this year and today came close to cracking the $60,000 resistance level. Ether, meanwhile, is up 150% since the start of the year.

Not every inflation hedge has been a winner, though. Gold is having its worst start to the year since 1982, losing close to 12% for the three-month period, even as concerns over inflation are intensifying.

We’re on the Cusp of Mass Crypto Acceptance

Since touching its all-time high of around $2,070 per ounce at the beginning of last August, gold has been under pressure from steadily rising bond yields. The yield on the 10-year Treasury traded at nearly 1.75% on Wednesday, the highest since January 2020, as investors dumped bonds in favor of risk assets. Bond yields rise as prices fall. The U.S. Dollar Index, meanwhile, rose above 93 this week, which also dampened the yellow metal’s appeal.

We’re on the Cusp of Mass Crypto Acceptance

I think it’s important to point out that gold’s investment case right now remains as strong as ever, and investors would be wise to consider using this price dip as a buying opportunity. Money-printing remains at a record clip, and the debt continues to be piled on. On Wednesday, President Joe Biden outlined his $2 trillion package to rebuild U.S. infrastructure, a plan that will reportedly be paid for over time with tax hikes on corporations and wealthy Americans. This legislation, if passed, would follow the $1.9 trillion coronavirus relief package, signed into law last month.  

No Inflation? Home Prices Surge the Most in 15 Years

More economic data was released this week suggesting that inflation is running a lot hotter than what the Bureau of Labor Statistics (BLS) is reporting. Home prices in the U.S. rose 11.2% year-over-year in January, marking the fastest rate since February 2006. The median price for a new single-family home in the U.S. increased to $336,000 in 2020, up from $321,500 a year earlier, according to Census Bureau data.

We’re on the Cusp of Mass Crypto Acceptance

At issue is rising commodity prices, particularly lumber, which has stalled construction of new homes. According to the National Association of Home Builders (NAHB), soaring lumber costs have added more than $24,000 to the price of a new home.

As a result, only a little over 1 million new and existing homes were available for sale in the U.S. in February, the lowest level ever in data going back to 1982, the National Association of Realtors (NAR) says.

Homeownership has historically been one of the key ways Americans build wealth. But with prices on the rise, buying a home may be out of reach for many families.

The good news is that Americans appear to be getting back to work. In March, private-sector employment increased by 517,000, the most since September. The industry with the biggest share of new jobs was leisure and hospitality, which might not seem positive at first glance since such positions tend to be low-paying, but I see it as a further positive sign that the economy is opening back up.

To learn more about inflation, check out this Frank Talk post.

 

Gold Market

This week spot gold closed the week at $1,729.31, down $3.21 per ounce, or 0.19%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 2.38%. The S&P/TSX Venture Index came in up 1.86%. The U.S. Trade-Weighted Dollar rose 0.14%.

Date Event Survey Actual Prior
Mar-30 Germany CPI YoY 1.7% 1.7% 1.3%
Mar-30 Conf. Board Consumer Confidence 96.9 109.7 90.4
Mar-31 Eurozone CPI Core YoY 1.1% 0.9% 1.1%
Mar-31 ADP Employment Change 550k 517k 176k
Mar-31 Caixin China PMI Mfg 51.4 50.6 50.9
Apr-1 Initial Jobless Claims 675k 719k 658k
Apr-1 ISM Manufacturing 61.5 64.7 60.8
Apr-2 Change in Nonfarm Payrolls 650k 379k
Apr-5 Durable Goods Orders -1.1% -1.1%
Apr-8 Initial Jobless Claims 719k
Apr-9 PPI Final Demand YoY 3.8% 2.8%

Strengths

  • The best performing precious metal for the holiday-shortened week was platinum, up 2.08%. The metal is expected to remain in deficit for 2021 as South African supplies will remain at risk of electricity disruptions and the growing use of fuel cells creates a new market where diesel fueled engines decline in the future.
  • Gold rebounded from a nine-month low on Friday as investors weighed the impact of President Biden’s $2.25 trillion stimulus plan that would be paid for by a corporate tax increase. “The tax increase implications taking a bit of pressure off yields makes sense, and so it’s net positive for gold, at the margin short-term,” said Marcus Garvey, head of metals and bulk and commodity strategy at Macquarie Group Ltd.
  • Gold held onto its gain this weekend even as the U.S. manufacturing sector saw a significant rise in sentiment in March. ISM said its manufacturing index hit 64.7 last month, up from 60.8 in February.

Weaknesses

  • The worst performing precious metal for the week was silver, drifting down 0.36% on little price moving news. Gold extended declines on Thursday as the U.S. vaccine rollout and plans for more stimulus boosted both bond yields and the dollar. The yellow metal fell below $1,700 an ounce. Bullion had its first quarterly drop in more than two years and is having its worst start to the year since 1982, down 11%.

We’re on the Cusp of Mass Crypto Acceptance

  • Due to a weakening market, Russia’s GV Gold is putting its IPO on hold. The Blackrock-backed miner had hoped for a $1.5 billion valuation.
  • Norilsk Nickel, the world’s largest producer of palladium and refined nickel, said it will resume full production of metals after stopping water inflows at a key mine. Bloomberg notes palladium prices fell as much as 4.4% after the announcement, while platinum dropped 1.8%.

Opportunities

  • The Public Investment Corp, which manages South African government worker pensions, said it has invested more than $7.4 billion in mining companies including Sibanye Stillwater, Anglo American Platinum and Impala Platinum Holdings, reports Bloomberg. Portfolio manager Mdu Bhulose said the platinum miner bet has brought “great” returns over the last three years. “The supply and demand dynamics are quite solid, and they are talking to a tightening market which should be supportive of prices.”
  • Calibre Mining updated its mineral reserves and mineral resources at its mining complexes in Nicaragua, reports Kitco News. The miner said its mineral reserves were up 202% to 864,000 ounces of gold since year-end 2019 and after 2020 depletion. Andean Precious Metals, a silver producer focused on Bolivia, began trading on the Toronto Venture Exchange. The miner produced 5.9 million ounces of silver last year with all-in-sustaining costs of $15 per ounce.
  • Aberdeen Standard Investments is optimistic that gold can still rise to $2,000 an ounce, despite recent headwinds of a stronger dollar and rising bond yields. Steve Dunn, head of exchange-traded products, told Kitco News in a phone interview that the fundamental stories for gold are still in place. Dunn said that their base-case scenario is for gold to trade between $1,900 and $2,000 an ounce by the end of the year.

Threats

  • Bloomberg Intelligence senior commodity strategist Mike McGlone says the gold bull market has stalled. “The gold bull market has clearly stalled, and we believe it’s transitioning toward a long-slog, range-bound market …Unless the higher price discovery process in Bitcoin reverses, the crypto represents a top gold headwind.” Bullion could remain stuck in the trading range of $1,600 to $1,900 an ounce as the metal has lost support of ETF inflows and as investors focus more on Bitcoin and cryptocurrencies.
  • South African labor group National Union of Mineworkers is demanding a 15% to 20% salary increase. Workers are asking for a minimum of 15,000 rand a month and want to address wage disparity and housing allowances, reports Bloomberg.
  • Evolution Mining said it will focus exclusively on operations in Australia and Canada as the growth of China’s influence and resource nationalism makes it increasingly difficult to develop projects in emerging countries, reports Bloomberg. CEO Jake Klein said, “they have cheap access to capital, and they have a government that has a strategic capacity to influence the national government because they’re lending at a sovereign level.” Klein said it will be more difficult for miners to get into Africa, citing Resolute Mining’s recent termination of a mining lease in Ghana.

 

Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 0.24%. The S&P 500 Stock Index rose 1.14%, while the Nasdaq Composite climbed 2.60%. The Russell 2000 small capitalization index gained 1.46% this week.
  • The Hang Seng Composite gained 2.80% this week; while Taiwan was up 1.63% and the KOSPI rose 1.53%.
  • The 10-year Treasury bond yield fell 1 basis point to 1.673%.

Blockchain and Digital Currencies

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Filecoin, rising 159.07%.
  • Bitcoin had its best first quarter since 2013, buoyed by the rising inflation expectations. Rising more than 100% since the start of the year, Bitcoin hit the all-time high of approximately $61,000 mid-March and has stayed above $50,000 since. Ethereum also had a good start to the year, gaining more than 150% and hitting all-time high of more than $2,000. The chart below shows the performance of these top two cryptocurrencies against the S&P 500 Index.

We’re on the Cusp of Mass Crypto Acceptance

  • BlackRock, the biggest asset manager in the world, has started trading Bitcoin futures, according to a regulatory filing published this week. The company held $6.5 million in CME Bitcoin futures contracts and those contracts had appreciated $360,457 on reporting day. However, the holdings represent only 0.03% of BlackRock’s massive Global Allocation Fund, and the gains represent just 0.0014%. Additionally, BlackRock had given two of its funds the approval to trade Bitcoin futures in January.  

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was BTMX, down 21.15%.
  • Bank of Korea Governor Lee Ju-yeol believes that central bank digital currencies (CBDCs) will erode the demand for existing cryptocurrencies like Bitcoin. He added that Bitcoin and other crypto assets have high price volatility and that limits to how well they can function as a means of payment or as a store of value. Bank of Korea is planning to pilot its CBDC later this year, along with China, Russia, Turkey, and Jamaica. In South Korea’s pilot, the bank is testing the CBDC for fund transfers, payments, issuance, distribution, and redemption.
  • Canada is seeing a dramatic growth in Bitcoin adoption, but the rate of cryptocurrency fraud is also increasing at a rapid pace. Between 2017 to 2020, digital currency-related fraud in Canada rose by about 400%. These frauds have happened in the form of extortion scams or attracting victims with fake schemes promising high abnormal returns. From January to August 2020, Canadians lost over $8.7 million in crypto-asset frauds and in the first week of March 2021, Vancouver residents lost more than $2 million through scams.

Opportunities

  • The Chicago Mercantile Exchange (CME) is launching smaller-sized Bitcoin future contracts in May in a bid to expand the number of people who can bet on the future price of the leading cryptocurrency. CME said that the new contracts, sized at one-tenth of one Bitcoin, will be available for trading starting May 3 and will be settled in cash. These new futures contracts come as a result of widespread demand from a broad array of CME clients, according to the company’s press release. The micro futures will offer the same features and benefits as CME’s standard Bitcoin futures, which were launched in 2017. 
  • Goldman Sachs is reportedly close to offering crypto to its private wealth management clients and has appointed a new global head, Mary Rich, to manage the segments. Rich said that the bank is planning on offering a full spectrum of investments in Bitcoin and other digital assets, whether that is through the physical Bitcoin, derivatives, or traditional investment vehicles. This news comes a few weeks after Goldman Sachs relaunched its cryptocurrency trading desk after three years, with plans to support Bitcoin futures trading.
  • Visa reported that it had processed a cryptocurrency payment directly on the Ethereum blockchain as part of a new service it plans to introduce to its partners this year. According to the press release, Crypto.com, Visa’s crypto debit card partner, sent a USDC stablecoin transaction on Ethereum to an account at Anchorage custody under Visa’s name. Before this functionality, Crypto.com had to sell cryptocurrencies to cover its obligations to Visa in cash. Visa also said that it plans on fleshing out its crypto-native services by supporting reconciliation and currency conversion for stablecoins and creating settlement reports with blockchain wallet addresses to verify transactions.

Threats

  • After Indian lawmakers proposed a potential ban on all “private” cryptocurrencies, crypto exchanges in the country are planning to present the government and central bank with their vision of a productive regulatory regime. The exchanges have compiled a package of detailed documents, explaining the current state of the crypto industry in India and possible ways to regulate it. Currently, India has more than 10 million crypto users, over half-a-million day-traders and more than 3,000 people employed in the crypto industry.
  • Bolster, a deep learning-powered fraud prevention platform, reported the five areas of scams or frauds that are booming along with the NFT bubble. These include replica NFT stores, fake NFT stores, counterfeit or fraud NFTs, fake airdrops and NFT giveaways, and social media scams. In March, Bolster found that the number of suspicious-looking domain registrations with names of NFT stores like ‘rarible’, ‘opensea’, and ‘audius’ have increased nearly 300%. The company expects the scams to keep increasing as more people participate in the current NFT craze and is advising people to be wary of these scams.
  • Boris Schlossberg, Managing Director of FX strategy at BK Asset Management, said that CME Group’s announcement of introducing micro-Bitcoin futures could be a sign that the market is at the top. He added that an asset, like Bitcoin, which has a volatility of 20% per week can not act as a currency at this point and that transactions occurring in Bitcoin are going to remain infinitesimally small relative to regular currency. Additionally, he is predicting that crypto-assets might be close to an intermediate-term top and that a correction is certainly due at this point.

Read the remainder of the article at https://www.usfunds.com/investor-library/investor-alert/were-on-the-cusp-of-mass-crypto-acceptance/

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

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