Bitcoin And Tesla: The ‘Two Poster Children Of Speculative Froth’

Via Kevin Muir of “The Macro Tourist” fame

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I am sure to madden a bunch of readers this morning, but here it goes nonetheless. For most of the spring and early summer, there were two poster children of speculative froth.

The first was Tesla. Egged higher by Elon Musk’s tweets poking fun at the skeptical short sellers, this stock was seemingly unstoppable. Rising from $240 in March, TSLA ticked at $387 in late June, squeezing the shorts by 61% in the space of one quarter.

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Have a look at the headlines from ToutTV during this period:

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The euphoria for Musk filled the financial news networks, and any naysayers were generally viewed as idiots who just didn’t get it.

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The second investing theme from earlier in the year that caught the public’s attention was bitcoin. In this case, the rally was even more dramatic.

Bitcoin tripled from March to June.

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I wrote an article in late May that did not embrace the new paradigm (My Great Bitcoin Bungle), and I can confirm, bitconians are not the most accepting bunch when it comes to alternative opinions. I was inundated with comments about how I was yet another finance guy unwilling to accept the new world reality.

Barrons’ even went so far to make bitcoin their cover story (and you know how I feel about Barrons’ cover stories).

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And nothing made me laugh more than the bitcoin zealot who sneaked into Fed Chair Janet Yellen’s Humphrey Hawkins’ testimony to hold up a “buy Bitcoin” sign.

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I have to give the kid credit – it was a great stunt. But it sums up the degree at which this theme has captured the enthusiasts’ imagination.

Although there were other stories that dragged the stock market higher during the past few months (NVDA and AMZN are good candidates), I consider TSLA and XBT (bitcoin) the two most prominent leaders. In my mind, these were the two names where speculation was running the most amok.

For the longest time, it seemed like regardless of what the stock market or other financial markets did, each day TSLA and XBT were sure to rally.

And this next statement is where I am going to get myself into some trouble. I don’t think this speculation was healthy. I don’t view either of these themes as particularly well thought out. Yeah, I know Musk is going to change the world, and we will all be paying for our TSLA Model 3’s in bitcoin. Don’t bother trying to convert me. I think both of these assets are legitimate technologies, but both are priced for an unrealistic reality.

Regardless of your views about TESLA’s priced in bitcoin, there can be no denying that the tone of the trading has changed for both of these recent market darlings.

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What I find interesting is that even though the S&P 500 is hitting new all time highs, both of these other two stories are hitting new six month lows.

If they can’t rally along with the rest of the market, what is that saying about their strength?

I listened to this terrific Felder Report Podcast the other day with Bill Fleckenstein and he had this great line about short selling. Fleck said he likes to shoot his short sell candidates in the back. He would rather wait for the turn, and then lean on the sell button, instead of fighting them on the way up.

I wonder if the kid with the Bitcoin sign was the top. And maybe Tesla’s model 3 production announcement will prove to be a buy-the-rumour-sell-the-news event. Could this be the perfect time to shoot both TSLA and XBT in back?

If you want to learn more about opportunities on the dark side of TSLA, then I highly suggest you follow Mark Spiegel on Twitter. Not only will he help you understand the absurdity of TSLA’s valuation, it is some of the funniest stuff on financial twitter.

As for bitcoin, I will leave you with an idea if you want to join the group of bitcoin skeptics.

Currently, the only stock exchange bitcoin listed product that I am aware of is Bitcoin Investment Trust sponsored by Grayscale Investments (GBTC). Due to the current lack of competing products, this closed end fund trades at a significant premium to Net Asset Value (NAV). Here is the history of the premium to NAV over the history of the fund:

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Although the premium was over 125% during the most recent bitcoin excitement, GBTC is still trading at an 80% premium to NAV.

Given the chances of a variety of new XBT ETFs being introduced in the coming months, I don’t think you even need to get a decline in bitcoin for a short position in GBTC to potentially be profitable. I can’t see this premium hanging in there for much longer.

Although some market pundits are looking at the TSLA and XBT weakness and extrapolating it onto an imminent general stock market crash, I view it in a slightly different light. I think it is merely a return to sanity. And I know that I will have just pissed off a bunch of TSLA and XBT disciples, but I suggest that you should welcome my negativity. It just gives you a chance to buy more at lower prices from stupid short sellers like me…

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2 thoughts on “Bitcoin And Tesla: The ‘Two Poster Children Of Speculative Froth’

  1. I think Bitcoin and Tesla are two great examples and likewise two big gambles on “First Movers”. While Cryptocurrency and Electric cars are the future there is probably too much certainty on which of each will be big parts of the future. If someone like Ford scoops Tesla’s market that share price is going to become downright absurd. Likewise there is certainly potential for BTC to not end up the ultimate choice for a global paypal/clearinghouse 2.0 system.

    The big difference will between the two is that while adoption is ultimately the driver of lasting value for both. The circumstances that drive adoption are very different. I would not be surprised to see another heatup of BTC in the next 12 months for another 3-10x growth given the amount of money sloshing around and how small the market cap is. I would be surprised to see it in Tesla given the car market is seeing retractions, it just doesn’t seem ripe even for speculation.

  2. If you read about the role of gold in the 1930s, you build one perspective on currency confidence. If you study the mechanics of Ripple today, you can connect the dots on free market transactions and mediun of exchange to see how pervasive block chain technologies can become.

    I think these things wouldn’t blow up if the world was working with pervasive free market capitalism. I think BitCoin strength ultimately correlates with financial repression, which can be quantified much the way your friend quantifies complacency. And I wouldn’t omit that a BitCoin put would make capital flight pretty friction free anywhere in the world, if it were a free unrepressed world. With a limit below 25 million, the value seems to scale with the future scale of its transactions. How many people have gold in a vault? What for? BitCoin is a conundrum in the sense that its price movement is best understood using a dispassionate analysis of all actual uses and perspectives, just like all relative prices, perhaps?

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