How Will the Bitcoin Boom (Or a Bitcoin Bust) Impact Stocks?
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| By Mike Larson |
Last Thursday, bitcoin mania shifted into overdrive. The cryptocurrency breached the $16,000 level for the first time ever. That happened just a few hours after it blew through $15,000 and 14,000, and only a day after it knifed through $13,000 and $12,000.
We’re now talking about a rally of more than 40% … in only a week. That’s more than double the 19.6% return the SPDR S&P 500 ETF (SPY, Rated “B”) has generated for all of 2017!
I shared some thoughts about the Bitcoin Boom and how it was sending the year’s best-performing ETF through the roof on Friday. But today, I wanted to tackle a different question: How will that Bitcoin Boom (or if it happens, a future Bitcoin Bust) impact stocks?
Well, like I said Friday, I experienced both the dot-com boom/bust and the housing boom/bust first hand. I worked at a financial research company that fully embraced the Internet and shifted to a dot-com model in the late 1990s and early 2000s. Its shares went public right at the tail end of the frenzy, then collapsed along with the Nasdaq. The tech-heavy index ultimately lost 80% of its value.
Then as a born-and-raised resident of Palm Beach County, Florida — one of the hottest real estate markets on the planet — I lived through the housing boom and bust. I saw the lines of investors wrapped around the block at local projects … watched home values soar so fast that local developers were updating their model prices sheets once a month, then once a week … and witnessed multiple local apartment complexes go condo to cash in.
Then I saw “for sale” and “for rent” signs multiply like kudzu, and prices collapse to mid-1990s and even 1980s (!) levels in some cases. The Savings and Loan that once held my checking account and a home loan, Washington Mutual, ultimately failed. With $307 billion in assets as of its September 2008 collapse, it was the nation’s largest-ever failure. The government was forced to help engineer a takeover transaction with JPMorgan Chase (JPM, Rated “B+”).
But as near as I can tell, the Bitcoin Boom (or bubble, or mania, or whatever you choose to label it) is nowhere near as far-reaching as either the tech bubble or the housing bubble. My friends, family, and colleagues aren’t crowing about how much money they’re making on bitcoin, like they did about tech stocks in the late 1990s or real estate in the early-to-mid-2000s.
The financial media has only recently begun carpet-bomb-style coverage of the bitcoin bonanza, while the mainstream press still isn’t paying much attention. And even as “Grandma” may be gambling away some money on bitcoin, we’re still not talking about a major market force.
Consider: Even now, after its meteoric rise, the red-hot Bitcoin Investment Trust (GBTC, Rated “B+”) still has assets of just $1.7 billion. That compares with $255.2 billion for the SPY. The total capitalization of the U.S. stock market is much more gargantuan – about $29.1 trillion, per Bloomberg.
That doesn’t mean some stocks aren’t getting a huge boost from bitcoin … and are therefore exposed to a potential bust. Several articles have identified makers of advanced semiconductors as tangential bitcoin plays.
Among those frequently cited are Nvidia Corp. (NVDA, Rated “B+”), Advanced Micro Devices (AMD, Rated “D”), Micron Technology (MU, Rated “C+”), and Intel (INTC, Rated “B”). That’s because so-called “bitcoin miners” need to use their high-tech, high-powered chips, graphics cards, and related software to do their work, something that increases demand (and sales) of that tech gear.
But we’re still talking about stocks with a combined market cap of only $376 billion or so. Even if their profits were 100% reliant on bitcoin (they aren’t) and their shares all went to zero (they won’t), we’re still talking about just 1.3% of the U.S. market.
So yes, if the Bitcoin Boom turns to a Bitcoin Bust, some of the most highly leveraged investors will get vaporized. There will be some collateral selling in the market as forced margin calls or negative sentiment from bitcoin bust victims filters through equities.
But this is in no way, shape, or form as wide-ranging or potentially damaging a bust as what happened with dot-coms or housing. I know because I was there and I lived through them. Heck, in the case of housing, I forecast almost every twist and turn of the crisis – helping investors save a boatload of money in the process. It’s all there in the archives, including articles like this, this, this, and this.
So, my advice remains the same …
- Keep your “serious” money in other investments besides bitcoin.
- Use corrections to scoop up the stocks, ETFs, and sector plays I’ve highlighted here in my emails.
- Then look for even more investment ideas early next year at the MoneyShow Orlando. I’m going to share some of my favorite 2018 recommendations at the event, which runs from February 8-11 at the Omni Orlando Resort at ChampionsGate.
I will also answer as many questions as you can send my way. Plus, registration is free! Just go to this MoneyShow link to secure your place. Or call 1-800-970-4355 and tell the MoneyShow team you’re attending on my invitation.
Until next time,
Mike
