The Eerie Stocks-and-Crypto Connection

  • The uncanny linkage between the performances of stocks and crypto
  • When will crypto break free of stocks’ grip? We have 1 billion answers
  • Rule of law? Arbitrary regulation hammer tanks NVDA 9% in a day
  • Costly energy prompts German industry to power down
  • A cover-up by CNBC?…California’s EV nightmare… a twist to the whipped-cream saga… and more!

Stocks have had a lousy run since last Friday. So has cryptocurrency. It is not a coincidence.

Bitcoin sits a hair below $20,000 as we write this morning, Ethereum near $1,560. Both are down big-time from last Friday — just like the stock market.

Earlier this year, we weren’t sure whether there was anything to the parallel action in stocks and crypto. But by now, it’s unmistakable. The Nasdaq peaked last November and so did Bitcoin. Stocks bottomed in June, only to start giving back their gains a couple of weeks ago. Ditto crypto.

The most plausible theory we’ve seen is that by now, crypto has attracted just enough attention from deep-pocketed institutional investors. They think and act as a herd, and they treat crypto as a “risk asset” along with stocks. When they get skittish and unload stocks, they unload crypto too.

If you’re someone who believes in the power of crypto to change the world for the better, this phenomenon is mighty depressing.

On one of our recent Wednesday conference calls, I asked our top crypto analyst Chris Campbell: “When does this change? When does crypto ‘decouple’ and start behaving again as a unique asset class?”

If you’re hoping the answer is, “As soon as the big Ethereum ‘merge’ takes place in mid-September,” we’re afraid you’ll be disappointed. In fact, Chris thinks ETH might stumble for a bit before regaining its footing.

His realistic answer: Crypto will decouple when it achieves wider adoption for real-world purposes, supplanting the channels of traditional finance.

“A lot of people say that crypto has solved no real problems yet. That it’s all about hope and speculation,” acknowledges Paradigm Press’ crypto evangelist James Altucher.

But James urges you to look more closely — as he enumerates nine real-world solutions…

  1. Cross-border payments. And there’s no better example than donations to Ukraine. During the first four months of the war, “over 120,000 donations involving crypto [were] made to Ukraine, totaling over $100 million”
  1. Smoothing the supply chain. Just a couple examples: “Walmart is using a technology called Hyperledger Fabric to track the supply chain. One company using the blockchain authentication system called VeChain is LVMH. VeChain chips are built into Givenchy bags so buyers know they are not fake”
  1. Tamper-proofing. “Groupe Renault is integrating VeChain into their cars so people know when they buy a car that the owner didn’t tamper with it in any way, like reducing the odometer mileage”
  1. Storage: “UC Berkeley is working with Filecoin to store the huge amounts of data created by its new neutrino detector. A regular storage facility would not be able to do the job. And Lockheed Martin is using Filecoin to build a decentralized storage network in space. Data that is required on space missions would not be fast enough if it were all stored on a centralized network on Earth”
  1. 3D graphics rendering: “The openings for Ant-Man and Captain Marvel were rendered using the $RNDR token. Rendering 3D graphics takes a lot of computational power. The Render network is a network of idle computers that ‘lend’ their GPU space cycles in exchange for Render tokens”
  1. Real estate: “Propy is a real estate crypto that simplifies all the legal work involved in a real estate transaction. It’s still in very early stages but a $60,000 apartment in Ukraine was sold using Propy and over $4 billion worth of virtual properties have been sold using Propy”
  1. Crop insurance: “Chainlink provides real-world weather data so that catastrophic weather events trigger instant payments to farmers affected by the weather. Many insurance companies in Africa currently use it”
  1. Flight insurance: “Fizzy, built on top of Ethereum, provided flight delay insurance. The blockchain was tied into global air flight databases. As soon as a flight delay was triggered, any insurance contract on the blockchain related to that flight triggered all the payments”
  1. Health care data: “Philips, a giant health care company, is using Gem Health, a blockchain co powered by Ethereum, to transmit patient data regardless of what data the platforms were built on. They will track all the permissions, usage, privacy, etc.”

James could go on, but you get the idea. Crypto already has a multitude of real-world uses.

So back to the question: When will crypto prices in U.S. dollars break away from the prices of stocks?

James figures the time will arrive when crypto achieves 1 billion users. As he explains it, the internet reached critical mass in 2005 when web usage crossed the 1 billion-user mark — and that marked “liftoff” for many internet-related companies.

Right now, crypto is only about a third of the way there. But James sees the trajectory accelerating dramatically going into 2023.

And when that happens, look out.

If you have a long-term mindset… if you’re willing to exercise some patience… there’s no better time than now to get your start in crypto. Buying after an 80% crash? That’s about as ideal an entry point as any.

And James has his eye on one crypto with the potential for 8,788% gains by 2025 — as he explains when you click and watch this brand-new presentation.

To the more traditional markets, where one of the big movers of the day compels us to rant…

The chipmaker Nvidia is down nearly 9% as we write. After the close yesterday, NVDA said it was under orders from the U.S. government to first obtain a license before exporting its A100 and H100 chips to China — chips made to speed machine learning tasks.

Asked by the media to explain the new requirements, the Commerce Department replied that it’s “not in a position to outline specific policy changes at this time.” But the agency did say it’s taking a “comprehensive approach” to “preventing China’s acquisition and use of U.S. technology in the context of its military-civil fusion program to fuel its military modernization efforts, conduct human rights abuses and enable other malign activities.”

Nvidia stands to lose about $400 million in quarterly sales — about 6.8% of its revenue forecast for the current quarter.

The great thing about being the government nowadays is you don’t have to explain anything, even when it has a material effect on the fortunes of a company whose market cap ranks in the top 10.

It’s the same mindset that was behind vaccine mandates. “Don’t ask why, shut up and comply.”

Remind us again why conducting commerce is so much better in America than it is in China and Russia because we supposedly have the rule of law?

Anyway, the stock market as a whole is also in the red today — for a fifth consecutive trading day.

The market took roughly a 5% tumble in the month of August — almost all of that registering since last Friday. As of this morning, the Dow is only 250 points away from slipping below 31,000. The S&P 500 is 12 points over 3,900. The Nasdaq is taking it worst, down 1.7% to 11,615.

Reminiscences

For the record, the S&P 500 is down nearly 18% year to date.

Alas, it’s another one of those nowhere-to-hide days: Bond prices are getting clobbered, pushing rates higher: The 10-year Treasury note is up to 3.27%, the highest since June 21.

Gold, meanwhile, is approaching the $1,680 danger zone that chart-watchers have been eyeing for what seems like months. At last check, the bid is down $23 to $1,688. Silver has plummeted below $18 to $17.57.

Crude sits at $87.47 — down nearly nine bucks in three days. The mainstream chalks it up to “renewed recession fears,” but the head of the world’s biggest oil hedge fund is calling BS…

Pierre

Yep. As we mentioned in July, there’s an increasing disconnect between the “paper price” of crude and the price of actual barrels for delivery.

The big economic number of the day came in better than expected: The August ISM Manufacturing Index registers 52.8, comfortably above the 50 dividing line between a growing factory sector and a shrinking one. That said, the number is the lowest since June 2020.

The industrial powerhouse of Europe is slowly powering down.

“German manufacturers are halting production in response to the surge in energy prices caused by Russia’s squeeze on gas supplies, a trend the government has described as ‘alarming,’” says the front page of today’s Financial Times.

Alarming and totally foreseeable. But Western politicians are determined to “stick it to Putin,” and if it means condemning their subjects to freezing in the dark this winter, so be it.

Germany’s economy minister Robert Habeck, a member of the Green Party, professes shock that declining natural gas use by German industry is not the result of greater efficiency, but “a structural rupture, one that is happening under enormous pressure.”

If you’re thinking, “Oh, that’s happening over there, it won’t affect me,” we urge you to reconsider. Expect a tsunami of defaults and bankruptcies that will absolutely wash ashore in the United States.

That’s the reason we convened an urgent Zoom call today featuring Paradigm’s macro maven Jim Rickards, Jim’s senior analyst Dan Amoss and our resident energy expert Byron King. Come back to The 5 tomorrow for the highlights — and a link to the replay of the event.

Meanwhile, closer to home, here’s one of those “how it started, how it’s going” things…

NPR

On the subject of retailers in New York state carding people for purchases of canned whipped cream, a reader writes…

“When our steadfast politicians are castigated for not doing anything useful to alleviate the opioid/fentanyl crisis they can at least say that they’re all over abusing nitrous oxide.

“And hey! Isn’t N2O one of those nasty gasses that inspired the greenies to interfere with agriculture in places like Sri Lanka and the Netherlands? What’s it doing in our Reddi-Wip?”

The 5: So now, allegedly, the whole thing was a giant misunderstanding.

The New York Times: “The law, which went into effect in November, prohibits the sale of the chargers used to dispense the sweet topping — not canned whipped cream itself — to people under 21.”

Barring the sale of canned whipped cream to under-21 buyers is not the intent of the law, says its sponsor, Sen. Joseph Addabbo Jr. (D-Queens). “What elected official would do that? It’s so silly.”

The Food Industry Alliance of New York State begs to differ: “There hasn’t been any guidance from the state on the true intent of the law,” says alliance president Mike Durant.

The upstate convenience store chain Stewart’s Shops — whose overcompliance with the law made the story go viral — stopped asking for ID for whipped cream purchases as of yesterday.

The mind boggles…

Best regards,

Dave Gonigam

 

 

 

Dave Gonigam
The 5 Min. Forecast

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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