Nvidia Saves The US Stock Market As It Approaches $2 Trillion Size: TBL Weekly #82
This all but confirms simulation theory, does it not?
Welcome to TBL Weekly #82—the free weekly newsletter that keeps you in the know across bitcoin, rates, risk, and macro. Grab a coffee, and let’s dive in.
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Good morning everybody & happy Saturday!
Nvidia (NVDA) exceeded analysts' expectations with its Q4 earnings, reporting revenue of $22.1 billion, a significant increase from the previous quarter's $6.1 billion revenue a year ago. In 2022, Nvidia recorded $27 billion in revenue the entire year. Nvidia’s growth reflects strong demand globally for accelerated computing and generative AI, according to Nvidia President and CEO Jensen Huang.
Following the report, Nvidia's shares surged over 15% in Thursday trading. With a stock price surge of over 200% in the past year, Nvidia has outperformed competitors AMD and Intel, solidifying its position as the leading AI chipmaker. It is now approaching $800 per share, and a market cap of $2 trillion—2x the size of bitcoin:
At a market cap of $1.97 trillion, Nvidia is now the 3rd largest stock in the S&P 500, behind Apple at $2.82 trillion and Microsoft at $3.05 trillion. After an eyewatering surge over the last 4 months has nearly doubled its stock price, Nvidia now makes up 4.4% of the size of the entire S&P 500 index:
Megacap tech names including Google, Microsoft, Apple, Amazon, Meta, Nvidia, and Tesla now make up a staggering 30% of the S&P 500. The US stock market has not been this tech-heavy since the dot-com bubble:
Bitcoin’s 4th halving is coming up. Cutting the block reward in half brings us ever closer to bitcoin’s asymptotic 21 million supply cap but also into a phase where unprofitable mining machines and mining operations are forced to log off of the network. This leads to capital reallocation to the most profitable miners and evolves the network’s (decentralized) security apparatus. Miners logging off for good does not lead to a sell-off. Why? When a decline in bitcoin’s price leads to miner unprofitability, it is a short-term hill to climb so miners sell their bitcoin to keep the lights on, further pushing bitcoin’s price down. When a miner shut-off is due to the halving and not the price being lower than capex, no bitcoin is sold because operations aren’t limping along, they are strategically shut down for good. See here, despite hash ribbons indicating a miner exodus where the network-wide hash rate declines temporarily, there is no coinciding price decline following each of the past 3 halvings:
And lastly for this morning, the 10 US-based spot bitcoin ETFs now total $37.6 billion in assets under management and have officially surpassed 740,000 bitcoin held. Combined, they are the largest bitcoin ownership cohort on the planet. This dynamic is one we expect to continue, and the consistent bid for spot bitcoin where one previously didn’t exist likely means a new era of price behavior. We are left wondering how selloffs will differ with US-based ETF buying a regular fixture:
Next Week
In the week ahead, the economic calendar picks up from a sleepy few sessions, featuring PCE on the 29th. CPI in January exceeded expectations, giving the market a general preparedness for warmer inflation statistics. The level that prints on Thursday should affect interest rates to the extent that PCE confirms or conflicts with the most recent CPI data.
Pausing the economic calendar to reflect on the yield curve and absolute level of interest rates, we believe that the selloff to start 2024 in Treasuries has seen the bulk of its move, and that 2-year yields near 4.75% should bring buyers back to the table who expect the path of least resistance to be a series of interest rate cuts in the back half of the year. If about 1% of cuts are realized, any 2s purchased north of 4.5% will end up as wise purchases. On 10s, the picture is much less clear, as the yield curve will in part be driven by just how much supply is brought to the market. We believe the Treasury is wary of affecting the curve, as evidenced by the persistent inversion—if 10s yield far less than money markets, it simply means there is not enough supply for a positively sloped yield curve, or that future growth expectations are still extremely muted. Either way, the inversion remains and deepened this week, meaning that instead of a series of imminent rate cuts, the market is back to putting a premium on long-dated Treasuries out of a flight to safety. If a lack of supply is the true reason, the Fed is in a better position to let its balance sheet continue its decline.
Case-Shiller home prices, durable goods, personal spending, and the very reliable ISM manufacturing all hit the wires this week as well. On ISM manufacturing, the stabilization and rebound of the past several months, including on prices paid, have been a strong signal—with this bounce, we have seen excellent equity performance and the ability for the Fed to push back rate cuts:
Treasuries have an important week of new supply and settlement. With large auctions in the front end of the curve a QT week as well in which the Fed’s balance sheet will shrink, we will have our eye on all the action. We expect that by the end of the week, new Treasury supply will have at least a marginal affect on rates and markets at large.
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Here are some quick links to all the TBL content you may have missed this week:
Tuesday
What articles are the most-read on the Bloomberg Terminal, the tool used by every major player in global finance? That is the question we’re asking today. The answer will take us into the minds of what has the market’s attention, both good and bad.
Check out—Extra! Extra! Read All About It!
Wednesday
In this episode, Nik is joined by Dan Roberts, CEO of IREN, a data center operator focused on bitcoin mining and generative AI computing. Dan discusses how his company approaches the race for low-cost renewable energy to power bitcoin mining and AI cloud computing services, including the decision between buying Bitmain miners or NVIDIA GPUs, how operating data centers gives IREN an advantage, and the strategy behind trying to find cheap renewable power.
Check out—Bitcoin Miners SUPERCHARGED With Generative AI
Thursday
I’m in learning mode. Yes, I’m writing a second book to be released this year that drives intense research, but building The Bitcoin Layer and teaching at USC have equal roles as well. Over the past few months, a handful of our own episodes have further intensified both my learning and research, evolving the investment framework one component at a time. I guess the more you learn, the more you realize how little you truly know.
On the other side of this process must come the confidence to convey a coherent message to you, our loyal subscribers, despite the epic confusion that comes after each thesis is incorporated. Today, I present a summary of my thoughts and the 10 most important charts I could structure for a holistic view of why the Fed will buy Treasuries and how it all proves bitcoin’s value. I’m excited to show you some brand new charts as well.
Check out—Fed is monetizing Treasury debt, bitcoin ready
Friday
In this episode, Nik explores the path to $100,000 bitcoin by explaining why the Fed will be forced to monetize debt. By presenting trends in the Fed's balance sheet, total Treasury debt, and debt in global banking systems, we conclude that the ability for central banks to create liabilities to purchase government bonds will lead to a wave of debt monetization in the future. Finally, we look at the chart of bitcoin to project historic trends four years into the future.
Check out—$100,000 Bitcoin As Fed Monetizes Debt
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That’s all for our markets recap—have a great weekend, everyone!
River is our Bitcoin exchange of choice.
Securely buy Bitcoin with zero fees on recurring orders, have peace of mind thanks to their 1:1 multisig cold storage custody, and withdraw at any time. Need help? They have US-based phone support for all clients.
Now introducing River Link 🔗allowing you to send Bitcoin over a text message that can be claimed to any wallet. Give a gift, pay a friend for dinner, or orange pill your friends, completely hassle-free.
Use River.com/TBL to get up to $100 when you sign up and buy Bitcoin.