Will Commodities Ride the “Blue Wave” Higher in 2021?

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

What a way to kick off the new year.

If you happened to watch the storming of the Capitol unfold live on TV on Wednesday, you might have mistaken it for a movie adaptation of a Tom Clancy novel. Not since the Burning of Washington in 1814 have antagonistic forces succeeded in breaching the Capitol walls and causing damage.

I believe that may be one of the most alarming things about what happened. I’m hardly the first to question how the rioters were able to get inside the building so easily. It’s being reported that lawmakers are planning a “minute-by-minute” investigation into law enforcement failures during the attempted coup that resulted in five deaths, including an officer with the Capitol Police.

Despite the turmoil, stocks have incredibly continued to trade up. Today the S&P 500 opened at a new record high as disappointing jobs numbers sparked hopes of additional fiscal stimulus.

Such spending seems even more likely now that the Democrats have managed to gain control of both chambers of Congress, following Georgia’s special Senate election.

To be fair, the Senate is split right down the middle 50-50, but the Democrats can also count on Vice President-elect Kamala Harris’ vote in the event of a tie. (Today, though, Joe Manchin, the conservative Democratic senator from West Virginia, said he will “absolutely not” support $2,000 relief checks, which puts the legislation at risk if no Republican lawmaker can be persuaded to get on board.)

I’m not sure if this constitutes the “blue wave” we kept hearing about in the months leading up to the November election, but it provides the Democrats with just enough political capital to realize at least some of the policies on their wish list, including green renewable energy. President-elect Joe Biden has an ambitious deadline of 2035 for decarbonizing the U.S. power grid.

If nothing else, this should be positive for gold, given the potential for greater government spending and, therefore, inflation. 

Remember: Government policy is a precursor to change. We liked renewable energy stocks well before the election, and I believe investors would be missing an opportunity if they overlooked them now that the sector may get support from the new Congress and administration.

Silver Was the Top Performing Commodity in 2020. Will Copper Be Next?

That brings me to the main topic: commodities. As I told you in yesterday’s Frank Talk, we’ve updated our perennial popular Periodic Table of Commodities. You can visit the interactive table and download your own pdf by clicking here.

Precious metals did well overall. Silver stood as the top performing commodity, up nearly 48%, its best year since 2010, when it rose over 80%. The white metal benefited not only from haven demand, fueled by unprecedented money-printing, but industrial demand as well. Among other applications, silver is a crucial component of photovoltaic (PV) cells, which are found in solar panels.

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Copper prices were up in 2020 for very much the same reason. The world’s transition to renewable energy and electric vehicles is driving global demand for the highly conductible metal.

Up 26% for the year, copper is poised to be a top performer in 2021 as well. China has historically been the world’s largest importer of the metal, but now that its economy has largely recovered from the pandemic, the country has been buying it at a record clip. According to research firm Wood Mackenzie, 2021 is expected to be a record-breaker for renewable auctions in Europe.  

Copper and other industrial metals should also get support from the strengthening manufacturing sector in the U.S. The ISM Manufacturing PMI registered 60.7 last month, marking its highest level since September 2018. December was also the eighth straight month that the gauge of manufacturing activity held above 50.0. All six of the biggest manufacturing industries expanded, including fabricated metal products.

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Our favorite copper stock remains Ivanhoe Mines. The company is in the process of building three mine development projects in Southern Africa. Among them is the world-class Kamoa-Kakula high-grade copper project, which is only six months away from scheduled initial production, according to a company presentation from last month.

Traditional Energy Under Pressure… A Buying Opportunity?

Energy was the worst performing S&P 500 sector of the year by far. The S&P 500 Energy Index ended the year down more than 37%, followed by the Real Estate Index, down 5%.

The S&P Goldman Sachs Commodity Index (GSCI) couldn’t quite recover its 2020 pandemic losses by the end of the year, falling some 6%. If you take energy out, though, the index of commodities ended up more than 16%. 

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It’s still early, I think, but we could see a strong buying opportunity in oil and gas stocks. This would require the vaccine to become available to a greater share of the population, allowing for businesses to remain open and travel to return to normal. To speed up the process, Biden said today that he would release nearly all of the stockpiled vaccine doses upon taking office instead of rolling them out in stages.

This week the U.K. locked down its economy for the third time since the pandemic began, due to the emergence of a new, more contagious variant of the virus. The mutated strain has been found in the U.S., including in California, Colorado, Florida, New York and Texas.

Bitcoin at $40,000

Bitcoin continues to hit new record highs. This week it smashed through $40,000, doubling its value in as little as 23 trading days. That was enough to push the combined market cap of the cryptocurrency universe above $1 trillion for the first time, according to CoinMarketCap data.

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As I said recently, this rally is different from the one in late 2017. This time it’s being driven by high-net worth individuals and institutional investors—hedge funds, pension funds, endowments and more. The same drivers of higher gold prices—money-printing, expectations of stronger inflation—also appear to be supporting Bitcoin.

Early this week, JPMorgan said that Bitcoin could climb to $146,000 over the long term if investors started trading it like digital gold.

Don’t forget about the Periodic Table of Commodity Returns 2020! Download a copy of your own by clicking here. 

Gold Market

This week spot gold closed the week at $1,849.01, down $49.35 per ounce, or 2.60%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 2.18%. The S&P/TSX Venture Index came in up 2.44%. The U.S. Trade-Weighted Dollar rose 0.15%.

Strengths

• The best performing precious metal for the week was platinum, down just 0.27%. Gold surged above $1,900 an ounce on the first day of trading in 2021, building on its 2020 advanced due to lower U.S. real yields and a weaker dollar. The precious metal rose to a 2-month high even as stocks are at all-time highs. Investors concerned about inflation are looking to assets that could health protect their wealth.
• Platinum rose on Tuesday to reach its highest price in more than four years as fears mount about rising virus cases in top producing South Africa. Potential supply disruptions such as a flight ban out of the country also pushed palladium to a 10-month intraday high.
• Inflows into gold-backed ETFs could be recovering after 11 straight days of positive flows as of Thursday. This marks the longest run of gains since late August after the end of 2020 was marked with big outflows. Gold ETF assets climbed to 3,341.1 metric tons on Wednesday, the highest since November, according to Bloomberg data.

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Weaknesses

• The worst performing precious metal for the week was silver, down 3.71%, typically being the most volatile precious metal. Gold’s early week rally faded on Wednesday, falling 2.2% for the day, as U.S. Treasury yields broke above 1% for the first time since March, reports Bloomberg. Bullion fell back below $1,900 an ounce on Friday.
• India’s gold imports in 2020 fell to the lowest since 2009 of just 275.5 tons as higher prices along with coronavirus disruptions kept buyers away. However, imports in December rose 18% from a year earlier to 55.4 tons, reports Bloomberg.
• South African authorities arrested three suspected smugglers after discovering 162 pounds of gold bars worth $4.5 million in their hand luggage at the airport in Johannesburg, reports Bloomberg. Investigations are underway to determine the origin of the bars and the legitimacy of certification papers, as well as the destination of the gold.

Opportunities

• Bloomberg Intelligence’s Mike McGlone says gold will be the asset to beat in 2021. McGlone predicts bullion will outperform stocks and views the 2020 rally as sustainable. "Our bias is that the greater potential for quantitative easing (QE) and debt-to-GDP levels to keep rising should keep metals prices — notably gold and silver — going up," McGlone said.
• Agnico Eagle Mines acquired TMAC Resources in an all-cash offer. The deal is a premium of 26% to the offer price Shandong Gold previously bid and a 66% premium to TMAC’s 20-day volume-weighted average price on January 4. TMAC’s takeover by Shandong was rejected by Canada two weeks ago. Jason Neal, TMAC President and CEO, said “Agnico Eagle is one of the strongest gold producers internationally, a Canadian champion and has been operating in Nunavut for more than a decade with a great track record with communities, employees and the environment."
• Mike Novogratz, billionaire and Galaxy Investment Partners CEO said on Bloomberg TV this week he believes both bitcoin and gold are going higher, with gold “easily” going up 30% in 2021. Many view bitcoin’s surge as a headwind to gold by taking away its demand. The popular crypto topped $40,000 this week. Novogratz believes both assets could rise due to fears of fiat currency debasement.

Threats

•  The U.S. reported 4,000 COVID-related deaths on Thursday – the most in a single day. The country also reported 274,703 new cases the same day as labs catch up on processing test results and the post-Christmas surge is realized. The pandemic shows no signs of slowing even as vaccines roll out globally. The U.K. imposed a strict lockdown after Prime Minister Boris Johnson announced 1 in 50 Britons have the virus.
• Despite the political turmoil that rolled into the capital mid-week, the broader equity markets still remained rather buoyant while gold sagged. Perhaps some volatility premium for gold has been lowered for the future with the expected departure of President Trump. However, with the recent mass hack of government/ business computer networks across America, and laptop computers missing from the White House, this week it’s difficult to grasp the scale of the data breach and what are the consequences in the future.
• The price of bitcoin topped $40,000 for the first time this week. Many investors believe bitcoin is taking investors away from gold as a hedge against risk in portfolios. JPMorgan says the popular crypto could surge to $146,000 in the long term. Bullion fell back below $1,900 an ounce this week after rising above.

Index Summary

• The major market indices finished up this week. The Dow Jones Industrial Average gained 1.61%. The S&P 500 Stock Index rose 1.83%, while the Nasdaq Composite climbed 2.43%. The Russell 2000 small capitalization index gained 5.91% this week.
• The Hang Seng Composite gained 3.05% this week; while Taiwan was up 4.96% and the KOSPI rose 9.70%.
• The 10-year Treasury bond yield rose 20 basis points to1.118%.

Domestic Economy and Equities

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Strengths

• American manufacturers grew in December at the fastest pace since the coronavirus pandemic erupted last spring. The Institute for Supply Management said its manufacturing index rose to 60.7 in December from 57.5 in the prior month, marking the highest level in almost two and a half years.
• Federal Reserve Vice Chair Richard Clarida said he doesn’t expect the central bank to begin tapering its asset purchases this year despite an expected strengthening of the economy as the pandemic fades, writes Bloomberg. “My economic outlook is consistent with us keeping the current pace of purchases throughout the remainder of the year,” he said Friday during a virtual discussion hosted by the Council on Foreign Relations.
• L Brands was the best performing S&P 500 stock for the year, increasing 25.71%. The parent company of retailers Victoria’s Secret and Bath & Body Works reported that its same-store sales during the holiday period grew 5%, compared with a 3% drop one year ago.

Weaknesses

• Job creation came to a halt in December, reports CNBC, as restrictions brought on by surging COVID-19 cases hammered virus-sensitive industries, particularly bars and restaurants, which lost nearly half a million positions.
• The U.S. set a new daily record for COVID-19 deaths on January 6, reporting the loss of 3,963 lives. Thus far, the rollout of vaccine doses from Pfizer and Moderna has been underwhelming. The U.S. set a goal of vaccinating 20 million people in December 2020, but by January 7 the US Centers for Disease Control and Prevention (CDC) reported that only 5.3 million first doses had been injected.
• Alexandria Real Estate Equities was the worst performing S&P 500 stock for the year, decreasing 6.91%. The stock fell after the company announced a capital raise offering of 5 million shares, diluting existing shareholders.

Opportunities

• Markets remain focused on any signals about a new relief package. Media reports already suggest that president-elect Biden is considering a new ‘one-two stimulus punch’ to juice up the economy, first by providing $1,400 payments to help suffering Americans and then by unleashing a massive $3 trillion infrastructure package.
• Micron Technology Inc. rallied on Friday, reports TheStreet, touching a 20-year high, after the semiconductor company reported first-quarter results that beat expectations. Micron’s comments about the market for DRAM memory chips were seen as particularly positive, as they pointed to a bottom in the market.
• Union Pacific Corp. gained after the railroad said it anticipates beating Wall Street’s expectations for a key performance gauge. The adjusted operating ratio, an efficiency measure in which a lower number is better, is expected to be 55.6% in the fourth quarter, Union Pacific said in a filing Friday that provided some preliminary results. That’s more than two percentage points better than analyst estimates.

Threats

• The new era of huge U.S. deficits argues for the downtrend in the dollar to continue. The U.S. is running huge deficits and will likely experience higher inflation than most other nations – both negatives for the dollar.
• TreeHouse Foods was cut to neutral from overweight at JPMorgan, which said “the benefits of eating at home have not been substantial for the company.” Shares fell as much as 9.3%, the biggest intraday drop since March.
• Lam Research was downgraded to hold from buy at Needham, which wrote that the valuation “appears full on expectations that may be too aggressive.” Additionally, the firm expects the semiconductor industry to shift away from NAND chips, to which Lam has outsized exposure.  

Energy and Natural Resources Market

Strengths

• The best performing commodity for the week was nickel, up 7.94% amid hope for a bigger stimulus package and parallel climb in lithium prices for batteries. All metals advanced on the first trading day of 2021 on the London Metal Exchange. Copper had its biggest weekly gain since July, up 4.90% for the week, as the vaccine distribution builds hope for a global economic recovery. The red metal closed above $8,000 a ton for the first time since 2013. Nickel hit the highest level in more than a year as many base metals shook off the Wednesday turmoil at the U.S. Capitol and looked ahead to Joe Biden taking office in the next weeks.
• Spot LNG in Asia nearly hit $28 on Friday – about $7 higher than Thursday’s record for the regional benchmark. Bloomberg notes temperatures in China have dropped to the lowest this century, prompting desperate demand for the heating fuel. The Japan-Korea Market, Asia’s LNG benchmark, jumped 3.6% on Thursday, the highest since readings began in 2009.
• Crude oil hit a 10-month high above $50 a barrel after Saudi Arabia announced a deep output cut of 1 million barrels a day in February and March. Saudi Arabia’s surprise move drove prices up 4.9% on Tuesday, reports Bloomberg. However, the drop in production could be a sign that the country expects oil demand to remain subdued.

Weaknesses

• The worst performing commodity for the week was uranium, as proxied by Uranium Participation Corp., down 1.57 percent on little news. OPEC+ producers are overshooting quotas and could keep pumping more despite low demand. Iraq, the group’s second largest exporter, boosted production by 4% in December. Russia hopes to increase production but faces pressure from other nations who are cautious about weak demand. A flood of oil to the market could hurt crude’s recent rally.
• Hunan Brunp Recycling Technology, China’s largest battery manufacturer, suffered an explosion at a recycling affiliate that killed one person and injured six others. The incident urged a focus on safety issues in battery use and recycling, which is still a developing industry.
• Ship owners are facing looming deadlines to use less-polluting fuels, but are unsure of which technology to switch to, causing a 50% slump in orders for new vessels. Bloomberg notes ammonia, hydrogen, biofuels and electrification are some of the options for new, greener fuels, but most are in trial stages and won’t be scalable for at least ton years. Commercial ships have an average life span of 20 years and new ships need to have a stable and secure fuel supply. Orders for new ships dropped nearly 10% in 2019 and then more than 50% in 2020 to the lowest in at least two decades, IHS Markit data show.

Opportunities

• Plug Power climbed 35% on Thursday and double digits on Friday after the SK Group said it was investing $1.5 billion in the U.S. fuel-cell maker to boost the use of hydrogen as an alternative energy source in Asia, reports Bloomberg. Plug and SK said in a statement they are formatting a joint venture to provide hydrogen fuel-cell systems, fueling stations and electrolyzes in South Korea and elsewhere.
• The oil market is gearing up for a $9 billion index buying spree for five days starting Friday during rebalancing. Crude fell 20% in 2020, meaning oil index investments have been far below targets for months, setting up a buying spree. Bloomberg notes as many as $9 billion oil contracts could be purchased with prices at a steal. The world’s two biggest commodities indexes – the S&P GSCI Index and the Bloomberg Commodities Index – could see big moves along with funds that track it.
• The price-to-earnings ratio of the S&P Global Clean Energy Index has soared to 59 and isn’t far from that of the NYSE FANG+ Index. Bloomberg’s Cameron Crise argues there’s still room for clean energy stocks to run as they are still 40% below its oil-boom peak, as seen in the chart below. Energy stocks boomed in 2020, especially after Joe Biden’s win created hopes of increased infrastructure and green spending. Crise points out that the Wednesday trading session marked the second-largest daily outperformance of the Russell 200 versus the Nasdaq in history, despite the troubling riots in Washington D.C.

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Threats

• According to a report by insurer Munich Re, 2020 was the second-warmest year on record and cost the world $210 billion in losses from natural disasters. U.S. damages totaled at least $95 billion, with $67 billion in insured losses, from a record number of tropical storms and hurricanes and wildfires. Globally, 60% of 2020’s losses weren’t insured. The growing Asian economies saw the least number of insured losses, reports Bloomberg.
• A judge rejected a request by environmentalist to block the auction of oil drilling rights in the Arctic National Wildlife Refuge – a win for the Trump administration rushing to issue oil leases before Joe Biden’s inauguration on January 20. Bloomberg notes it is unclear who might bid for the Arctic land given the current economic situation and producers slashing spending.
• Oil and gas companies, including Exxon Mobile, BP and Chevron, filed two new climate-related petitions with the U.S. Supreme Court to rule on decisions that allowed state and local governments to pursue litigation against the companies in state court. Bloomberg reports the petitions are related to rulings saying that fossil fuel producers should pay damages for the impacts of global warming, driven by fossil fuel use. This continues to ongoing saga of determining who should pay for environmental damage due to oil and other fossil fuel use.

Airline Sector

Strengths

• The best performing airline stock for the week was Hanjin Kal Corp, up 3.65%.
• Amazon announced it is buying seven used Boeing 767-300 planes to expand its fast-growing air cargo operations. Bloomberg notes this is the first time Amazon has outright purchased jets versus leasing. “Our goal is to continue delivering for customers across the U.S. in the way that they expect from Amazon, and purchasing our own aircraft is a natural next step toward that goal,” Sarah Rhoads, the vice president who runs Amazon’s air fleet, said in a statement.
• Airbus shares rose on the first day of trading in 2021 after announcing 560 aircraft deliveries in 2020. The number of deliveries is well below 863 the prior year, but ahead of expectations given the pandemic disruptions. The plane maker was up as much as 3.1% on Monday after falling 31% last year, notes Bloomberg.

Weaknesses

• The worst performing airline stock for the week was Wizz Air Holdings, down 6.84%.
• The U.K. kicked off 2021 with a new lockdown, sending carriers into a frenzy to shrink schedules. Prime Minister Boris Johnson said 1 in 50 Britons have COVID-19 due to a fast-spreading virus strain. EasyJet, British Airways, Ryanair and Wizz Air were among the carriers scrambling to adjust schedules to a vast reduction in already low demand. EasyJet reduced its schedule for the next week by one-third and Ryanair cut by two-thirds.
• Boeing will pay more than $2.5 billion to the U.S. government in a settlement agreed with the Justice Department. The agreement will resolve a criminal charge that Boeing conspired to defraud the Federal Aviation Administration (FAA). The plane maker’s 737 MAX aircraft was grounded due to two fatal crashes and investigations uncovered Boeing knew of certain issues with the jets. Although the jet is now approved and back in skies, Boeing still faces economic challenges.

Opportunities

• Australia’s Qantas Airways is taking bookings for international flights from July 1 in what many see as an optimistic view on the global travel recovery. Qantas currently only offers overseas routes to New Zealand. The carrier pushed up tickets for London forward from October. CEO Alan Joyce made headlines last month for saying that a vaccine is necessary for quarantine-free travel to resume between the U.S. and U.K.  “Recently we have aligned the selling of our international services to reflect our expectation that international travel will begin to restart from July 2021,” Qantas said in a statement.
• Singapore Changi Airport, often voted the world’s best airport, is reinventing itself for the post-COVID era of travel as aviation accounts for around 3% of the country’s GDP. Singapore has pledged nearly $1 billion in stimulus so far and predicts 5% GDP growth in 2021 after a contraction of 5.8%. The nation announced a unique business travel program where international travelers can fly in without quarantine by staying at a newly built hotel with numerous COVID tests. The airport is also boosting its already strong entertainment features (there’s a go-kart racetrack in terminal 4) such as glamping for families, canopy park tours and seasonal dining menus.
• Carriers are getting creative to start off 2021 with incentives to lure travelers. Ryanair said it’s offering fares for as low as $12.33 and China Eastern Airlines has an unlimited flights option for a single price. Virgin Galactic’s inaugural commercial suborbital flight is set for the second quarter and tickets go for as much as $250,000.

Threats

• More than 1.3 million people flew in the U.S. on January 3 – the most since mid-March – but airlines are still poised for a long winter ahead. The boost in travel around Thanksgiving and Christmas likely means a post-holiday surge in COVID cases, which would in turn lower travel in the weeks and months to come. January and February are historically slow months for air travel, creating a double whammy of a headwind for carriers.

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• The U.S. reported 4,000 COVID-related deaths on Thursday – the most in a single day. The country also reported 274,703 new cases the same day as labs catch up on processing test results and the post-Christmas surge is realized. Cases are skyrocketting globally and could further push back a travel recovery.
• U.S. Transportation Secretary Elaine Chao resigned from her position on Wednesday after supporters of President Donald Trump stormed the U.S. Capitol. Bloomberg notes over her tenure Chao moved to loosen auto gas mileage standards and reduce consumer protections for airline passengers. The resignation shortly before the new administration is ushered in could cause some turbulence for the transportation sector.

Emerging Markets

Strengths

• The best performing country in emerging Europe for the week was Hungary, gaining 5.6%. The best performing country in Asia this week was South Korea, gaining 9.7%.
• The Polish zloty was the best performing currency in emerging Europe this week, gaining 1.4%. The Chinese renminbi (yuan) was the best performing currency in Asia this week, gaining 80 basis points.
• Flows to emerging market equities have surged, supported by the outcome of the U.S. presidential election and a weaker dollar. Valuations of EM equities are very attractive on a historical basis and relative to developed market equities.

Weaknesses

• The worst relative performing country in emerging Europe for the week was Romania, gaining 3.5%. The worst relative performing country in Asia this week was Malaysia, gaining 40 basis points.
• The Russian ruble was the worst performing currency in emerging Europe this week, losing 15 basis points. The South Korean won was the worst performing currency in Asia this week, losing 73 basis points.
• Mutated COVID-19 strains are spreading across the globe. The new strain found in the United Kingdom seems be more contagious. The country imposed a third coronavirus lockdown, shutting down schools and ordering the public to stay home until at least February 15 as new COVID cases are growing rapidly. The South African variant has been reported in four other countries as of January 4 and the U.K. strain has been found in 31 nations.

Opportunities

• Emerging Market equites are moving higher as investors look past dramatic political actions in Washington and bet on more fiscal stimulus and less uncertainty under a Democratic-controlled U.S. Congress and White House. Barclay Plc strategist Emmanuel Cau says Biden’s victory could continue to help sentiment toward Europe. Citi cut U.S. stocks to neutral and expects better gains in emerging markets this year, recommending overweighting developing economies.

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• Poland became the first country in 2021 to draft a national hydrogen strategy. The country aims to build two gigawatts of electrolyzes (the devices that producer hydrogen by splitting the water) by 2030. Poland will most likely utilize financial support from the EU and could become a hydrogen leader.
• Chinese property management stocks gained sharply this week after China issued guidelines encouraging such firms to expand the scope of their businesses to provide elderly care, day care and other services. Sector members should include culture, healthcare, real estate and housekeeping services in their scope of business to satisfy the diverse needs of residents, said Ministry of Housing and Urban-Development.

Threats

• Shares of Chinese ADRs have been volatile this week as the U.S. announced that it will go ahead with its plan to delist three Chinese telecommunication companies from the Nasdaq exchange. Moreover, this week rumors came out that U.S. officials are considering prohibiting Americans from investing in the two most valuable Chinese technology giants: Alibaba and Tencent. The list of Chinese stocks with trading restrictions for U.S. investors may be expanding again.
• The new administration in the U.S. could renew sanction talks on Russia. It may be an easier task this year to approve the new set of sanctions on the country as Congress and the White House will be controlled by the Democrats. The ruble lost 16 percent against the dollar last year and its weakness may continue in 2021.
• China again began reporting rapidly growing COVID-19 cases. On January 7, China recorded its highest single-day rise in cases since late July, as 63 new cases were reported. Shijiazhuang, the capital and largest city in Hebei province, entered a full lockdown. Local authorities have launched mass testing and banned gatherings.

Blockchain and Digital Currencies

Strengths

• Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was KIMCHI, rising 1,843%.
• Bitcoin rose over $30,000 this weekend, followed by a correction over 13% in 24 hours following. Then, on Tuesday, the popular digital currency bounced right back above $31,000, then skyrocketed to $41,000 by Friday, reports CoinDesk. Year-to-date gains now stand over 40%.

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• According to Mike Novogratz, CEO of Galaxy Digital, many young people bought bitcoin following the last round of federal stimulus checks, and he believes they will do so again. Talking to CNBC’s Squawk Box, he commented: “A lot of that [stimulus] will find it’s way into the markets. Certainly, when it comes into young people’s hands, they’re going right to their Robinhood accounts.”

Weaknesses

• Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Basiscoin Cash down 99%.
• The Financial Conduct Authority’s ban on the sale of cryptocurrency derivatives and exchange-traded notes that was passed in October, went into effect this week, reports CoinDesk. The regulator considers the products to be ill-suited for retail consumers, but the regulation is being criticized by some in the crypto sector, the article continues. They argue the ban is a “setback and that retail investors should have access to the same opportunities as institutions.”
• The Financial Crime Enforcement Network wants crypto exchanges to collect a lot more data about individuals transferring more than $3,000 in cryptos to private wallets, writes CoinDesk. Industry heavyweights, however, aren’t having it. They want to delay the rule until a new presidential administration takes over. As of press time, CoinDesk writes, well over 65,000 comments had been submitted pushing back against the proposed rule.

Opportunities

• As reported by Bloomberg, JPMorgan is calling a long-term bitcoin price target of over $146,000, saying it will grow in popularity as an alternative to gold. “A crowding out of gold as an ‘alternative’ currency implies big upside for bitcoin over the long term,” wrote strategist Nikolas Panigirtzoglou in a note this week. The analysts did note, however, that bitcoin’s price volatility needs to drop for institutions to make large allocations.
• CoinDesk, cryptocurrency media and events platform, announced this week that it purchased TradeBlock, the world’s leading crypto index provider. “We will be crypto investors’ go-to destination for unified media, events, research, pricing and data,” CoinDesk CEO Kevin Worth said.
• Amid a frenzied and volatile rally in bitcoin to yet another record, the total market value of cryptocurrencies surpassed $1 trillion for the first time on Thursday, writes Bloomberg. Data from tracker CoinGecko shows that cryptocurrencies hit the milestone after a fivefold climb in market value in the past year.

Threats

• Digital asset manager Grayscale Investments is removing XRP from its large-cap crypto fund, reports CoinDesk. This move comes a few weeks after Bitwise also liquidated $9.3 million in XRP from its crypto index fund and the U.S. Securities and Exchange Commission filed a suit against Ripple, alleging it has conducted an unregistered sale of securities with its XRP token, the article continues.
• Kenya’s planned Digital Service Tax (DST) came into effect at the start of the year as part of the country’s revamped Finance Act focusing on the digital services market, reports CoinTelegraph, among other sectors. Crypto transactions now attract a 1.5% levy. Some are skeptical of the tax, but Reginald Alango, a Kenya country representative at Bitzlato, shared his thoughts on the potential impact: “With regards to it having a negative impact on crypto adoption in Kenya, I do not believe so as there are so many factors that are driving the rapid growth of crypto in East Africa and the youth are on the forefront pushing this.”
• Utah federal judge Kimball reversed his own dismissal of a class-action lawsuit against Overstock, reports CoinTelegraph, that alleges it manipulated the market by issuing a security token “Digital Dividend” last year. The judge’s reversal grants the plaintiff’s request from October to file an amended consolidated complaint. The judge admitted he made a “mistake” by having overlooked a footnote in the plaintiff’s opposition to the motions to dismiss that requested permission to file an amended complaint should the case be rejected.

Leaders and Laggards

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Alibaba Group Holding Ltd.
Tencent Holdings Ltd.
Plug Power Inc
Amazon.com Inc
Wizz Air Holdings Plc
CHINA EAST AIR

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index. The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months. The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges. The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period. The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500. The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500. The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500. The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500. The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500. The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. S&P GSCI Index serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange. The index currently comprises 24 commodities from all commodity sectors – energy products, industrial metals, agricultural products, livestock products and precious metals. The Bloomberg Commodity Total Return index is composed of futures contracts andreflects the returns on a fully collateralized investment in the BCOM. The S&P Global Clean Energy Index provides liquid and tradable exposure to 30 companies from around the world that are involved in clean energy related businesses. The index comprises a diversified mix of clean energy production and clean energy equipment & technology companies. NYSE FANG+™ is an index that provides exposure to 10 of today’s highly-traded tech giants.