Markets & Metals Navigator: Bitcoin and Copper Sizzle

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:

  1. Chinese stockpiling
  2. Leveraged play on the global stimulus driven recovery
  3. Structural demand tailwinds for electric vehicles.

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.

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!

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.

 

 

 

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Sierra Metals is a market awareness client of Capital 10X.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.
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