Bitcoin’s Epic Rise
It was a muddling along week for nearly all assets classes except for Bitcoin, the digital currency rose 16% for the week breaking through $18K.
The key difference between the current rally in Bitcoin versus the 2017 run is the absence of broad popular interest. Looking at the Google search trends history Bitcoin is currently showing a quarter of the search interest relative to 2017.
Bitcoin – Google Trends Search History Interest Over Time
Cole Walton of Kanos Management highlighted this powerful graph looking at the “halvings” of Bitcoin and the subsequent rallies in the Bitcoin price.
Roughly every 4 years the reward granted to Bitcoin miners for adding a block to the blockchain is cut in half. The Bitcoin halving was designed by Satoshi Nakamoto to keep Bitcoin’s inflation in check.
In May 2020, the number of bitcoins entering circulation every 10 minutes dropped by half, to 6.25 from 12.5.
From the graph below we can see how powerful the halving catalysts have been historically. From the halving in November 2012, Bitcoin rallied +9,212%; and from the halving in July 2016 Bitcoin rallied +2,910%.
We believe the teas leaves are aligned for the continuation of this strong rally in the Bitcoin price, COVID-19 has presented one of the most attractive backdrops for digital gold (and real gold for that matter!).
The Catch-Up Trade: Precious Metals Disconnected from Bitcoin
Since August gold has drifted lower from its high of $2,063/oz to the current price of $1,871/oz – down 10%. During that same period Bitcoin has risen +55%.
We believe this current period of disconnect between gold and Bitcoin presents an opportunity for precious metals investors. Specifically we believe gold & silver miners will be the catch-up trade to Bitcoin.
Copper in the Sweet Spot
Since the March low copper has been a stellar performer in the commodity universe, rallying over 55%.
2020 Year-to-Date: Copper
Capital 10X has been bullish copper this year for 3 key reasons:
- Chinese stockpiling
- Leveraged play on the global stimulus driven recovery
- Structural demand tailwinds for electric vehicles.
Capital 10X has been BULLISH #copper in 2020 for 3 key reasons:
1. Chinese stockpiling 🇨🇳
2. Leveraged play on a stimulus driven recovery 🖨
3. Structural demand tailwinds: EVs 🔌 🚗Full note (Oct 28th): https://t.co/VbUor0BEbqpic.twitter.com/Es6W1mNSSu
— Capital 10X (@capital10x) November 20, 2020
Sierra Metals at the Top of the Class
Since the end of March 2020 Sierra Metals (NYSE:SMTS, TSX:SMT) has been one of the best performing copper mining companies, up over 308%; outperforming it’s copper peer group (Global X Copper Miners ETF) by 186%.
Sierra Metals continues to trade at a deep discount versus its copper mining peers. Sierra trades at 5.7x 2020 Price-to-Cash-Flow, a 35% discount to Lundin Mining (TSX:LUN) and a 50% discount to Freeport McMoran (NYSE:FCX).
Inflation – It’s in the Air
Lynn Alden highlighted a great chart last week that showed health care and child care inflation dramatically outpacing the official measures of broad inflation in America.
On the commodity front, Lawrence McDonald compared the performance of key commodities relative to the S&P 500 – a clear indicator of latent inflation in the economy.
2020
Lumber 47%
Silver 36%
Soybeans 28%
OJ 27%
Gold 22%
Palladium 21%
Natural Gas 21%
Copper 17%
Sugar 13%
Corn 11%
S&P 500 10%via @BearTrapsReport #CobraEffect
— Lawrence McDonald (@Convertbond) November 21, 2020
Capital 10X views hard commodities as one of the best hedges against the inflationary risk caused by unprecedented global fiscal and monetary stimulus.
We believe commodity mining stocks offer the best leverage, our preferred basket includes: gold, silver, copper, lithium, vanadium and cobalt.
Green Tech Doesn’t Work without Green Metals
CEO of Social Capital Chamath Palihapitiya is a big proponent of the green economy and electric vehicles, however last week he admitted a major bottleneck for EV production growth is access to rare earth metals.
We continue to believe that green metals are one of the most attractive risk/reward trades in the green economy. In October began our Green Metals in Focus series with vanadium, our next installment will focus on lithium – stay tuned!
Whether or not GM’s strategy will work is secondary to what I care about which is further demand for EVs. The byproduct will create even more demand for rare earth metals.
I co-own the largest rare earth supply outside of China. $MPhttps://t.co/IcOx68R5Qh
— Chamath Palihapitiya (@chamath) November 20, 2020
U.S. Cannabis Bellwether Stocks Report Q3 2020
The big 4 U.S. cannabis producers reported Q3 2020 earnings last week: Curaleaf (CSX:CURA), Trulieve (CSX:TRUL), Cresco Labs (CSX:CL) and Green Thumb Industries (CSX:GTII).
These 4 companies have generated significant revenue growth in the last four quarters, growing on average 118% year-over-year.
This rapid growth isn’t coming at the expense of profits either, with EBITDA margins strong and growing as the company’s scale.
Even though the market has started to wake up to these company’s potential, their cheap trading multiples and stock market leading growth make us very bullish on the future of the U.S. Cannabis industry.
Sierra Metals is a market awareness client of Capital 10X.
