Legal Cannabis Stock Rally & Crypto $5 Trillion
I laid out my biggest predictions for 2021 on Monday:
- My marijuana stock recommendation will hit $40/share (162% rise from today).
- Crypto $5 trillion in 2021 — including bitcoin $115K by August.
Now, Paul’s joining me to cover it all and hit on a couple of his own speculations. We even have some of your Twitter questions to answer.
There’s a huge divergence happening in the markets now.
One of our tracking techniques is kicking into high gear and creating a lot of new opportunities we’re adding to our “watchlist” stocks.
And we can’t have IanCast without talking Tesla. One new report actually made us laugh out loud!
Get all the details on what we’re recommending for you in 2021:
America 1.0 Investors Are Missing Out
There’s a definite pronounced disconnect between our stocks, America 2.0 stocks, Fourth Industrial Revolution stocks and what people call “the stock market.”
The big difference we have been talking about is America 2.0 stocks, which are much smaller companies. Obviously there are some exceptions, like Tesla.
Usually they are companies that are worth less than $15 billion to $20 billion, which in these days is not that much for a publicly traded company against titans like Apple and Microsoft, Facebook, Google, Berkshire Hathaway. Those are the ones that dominate the S&P 500 and all the big indices.
You can see the divergence there when you look at RSP, which is the equal-weighted S&P 500, versus SPY which is the traditional market-cap-weighted S&P 500. When an index is market-cap weighted, it means the bigger companies have more of a weight in the index.
They can affect the price of the index more than an equal weight where every company has the same dollar amount in the index. When you look at RSP, which is equal weighted, the smaller companies have a lot more influence in what happens in that index.
Recently we have seen RSP start to outperform SPY as those companies gain more momentum.
Just to give everyone background, SPY represents the cap-weighted version of the S&P 500. Cap weighted means the biggest companies get the biggest weights.
They are dominated by five companies: Apple, Amazon, Facebook, Google and Microsoft. They represent about 25% of the S&P 500. RSP, as you will see in this chart, is equal weighted. In other words, it doesn’t matter what your stock market capitalization is, you get the same amount.
In this chart you will see RSP is up about 77.5% since the March bottom from the crash. S&P 500 is at 66%. So it’s an 11% spread. We’ve also told people a better indication of what’s going on in this market is by looking at the Russell 2000 ETF which is up an amazing 91.5% since the March bottom.
It’s about 98% as of the current price Thursday morning. It’s been a huge difference, especially recently, between small-cap, mid-cap and mega-cap stocks. The Russell 2000 tracks a lot of small and mid-cap companies. It’s a good way to gauge how America 2.0 companies are doing.
The other ways we track the health of the market is by tracking the distance from the 52-week high and the number of new highs in general. The distance from the 52-week high was a little under 7% a couple days ago. Out of almost 300 stocks, the median was within 7% of a 52-week high, which is really great.
We don’t usually see all the stocks going up at once and that close to breaking into new 52-week highs.
That is quite different than what we have experienced in the previous four years where the S&P 50- cap weighted kept being propelled up by those five big stocks. What you are seeing is really a different way of what we were talking about. It’s the smaller stocks that are in that list you are looking at.
They are much smaller. They are mostly small and mid-cap companies.
I track the 52-week high list daily and I am seeing this dominated by a lot of different stocks from a lot of different sectors. The industrial sector is there in a big way. There are newer companies in the technology sector and in cloud. There’s a lot of stuff going on.
It goes to something we have been telling people about for some time. If you are invested in America 1.0, which is the S&P 500 dominated by Apple and Microsoft, you are missing out.
There are so many opportunities and more companies keep coming public. They are all revolutionary, amazing technology companies.
There’s also a lot of excitement in certain areas we have looked at. The battery space is seeing a lot of money flooding in. A little bit in the more hyped-up cloud areas as well. There’s no way that can be sustained for a long period of time because it’s these one-time, big gains.
There are countless technologies that are disrupting pretty much every kind of industry. We are seeing some gain more traction than others right now but over time it will level out.
There’s also companies in energy that are going to do really well. We’ve seen flattening out from some of the cloud companies, but that is going to be reignited at some point too. I don’t think we’re near the top for any of these segments.
The reason we bring this up is because people write in and ask about Snowflake, Palantir, Quantumscape. We are aware of all these moves. However, it’s impossible for us to recommend a stock that has just gone up in a straight line by 200% or 300%. It’s impossible for us to recommend into that.
Generally speaking, in our experience, there is a cycle. There is up and down movements. We want to buy into what we call bid-up scenarios where we have some amount of predictability in terms of how the stock is going to rise because people are building positions and we can see that.
These big moves that happen very fast are exciting and fun, but those are generally going to peter out because that amount of money going into a stock all at once is unsustainable. We are aware of these stocks seeing these big moves but some of those are trades.
In our services we are looking for a slightly longer term. Cloud is still exploding in growth, batteries are just getting going. Nonetheless, there’s going to be up-and-down volatility in this. Sometimes excitement is high and then it backs off a little bit.
It then gives you opportunity to get in and also align yourself. We get the best gains when the business and the stock are approximately aligned.
3D Printing Demand and Rebound
There are other technologies that are still not seeing huge amounts of demand and still have a long way to go up. Marijuana, 3D printing and things like that were not long ago making 52-week lows and have since rebounded. That’s another kind of parabolic move, but it’s a good sign.
They are still way lower valued than they were before. There’s definitely upside there.
We have a question on 3D printing that came in when I asked on Twitter. It comes from Ray.
“While I agree 3D printing is the future, I can’t see how next year will be the year it will run up. I know the market looks forward but how are suppliers gaining enough installs? I work with many CNC shops but they are only on prototypes.”
My answer to that is that if you look at any big technology, company or industry — Tesla is a great example — they still make a smidge of the number of cars relative to the world, but they have a greater market cap than all the other carmakers combined. Many people would say that’s a bubble.
However, to us, it makes sense. The market is looking with great confidence three or as many as five years forward. They are saying the other car companies are going to get wiped out.
3D printing is still a young industry. The cost of these machines is falling and the cost of materials is falling. There’s going to be way more opportunities. We are at a tipping point where 3D printing is going to go from modeling and prototyping to actual manufacturing of consumer goods.
This is one big difference between regular investors. They want the facts to be right in front of them and be 100% certain. Generally, investors who are investing with big money are looking forward by a lot and are willing to take the risk they are wrong. This is a big difference.
We are BOP — bullish, optimistic, positive — on 3D printing.
Cannabis Sales Continue to Rise into 2021
This chart from New Frontier Data shows that in 2020, cannabis sales between medical and recreational is going to hit $20.1 billion. That compares to $13.2 billion in 2019.
The same chart has them projecting $41.5 billion in 2025. The red line that represents the illegal sales of cannabis, which is just now beginning to decline. If that were to take a bigger tumble faster, these numbers would be higher.
The third thing to discuss is the fact that a lot of this is driven by only two or three states — California, Colorado, Florida and Michigan.
Obviously the black market is not going to go anywhere anytime soon, but I think we can give it a little more credit than dropping a couple billion in the next five years.
With the rapid development we are seeing now of marijuana not only being legalized in more states, every day companies are opening dispensaries in new areas. It’s becoming more widely available.
Five years is a lot of time to keep growing and keep taking market share. The ceiling in the next five years is way higher than they want to say.
Based on those projections, it’s 21.5% annual compounded growth. That’s an extraordinary amount of growth. We are already starting from a big base. This is going to be a large industry.
The same piece of research that this chart was in, they also laid out that after the election 234 million Americans are going to live in a state that either currently has or is soon going to have legal access to medical or recreational cannabis.
The market is continuing to grow. We don’t even have it legal everywhere yet. After that, there’s still going to be 100 million people who don’t have access in their state.
The cannabis stocks seem to be taking notice of that. Finally, after a two year slow painful crash it’s starting to rebound. These stocks have nowhere to go but up over the next few years at least.
They are now beginning to appear in the 52-week high list in increasing numbers.
Canopy and Aphria made 52-week highs, which is pretty incredible considering where they were recently.
We have to acknowledge we got the timing of this wrong. We have sat through a horrific decline, but we never thought to sell the cannabis stocks because the potential growth never changed and the facts never changed. It was still a massive growth industry.
The demand for it was always there. We can see where they are going to take market cap from — beer, spirits, wine, tobacco.
It’s just a matter of time. That is now unfolding right now in the stock market in a big way. This chart really lays that out. Cannabis is something we have never spent a lot of time on. That trade is now becoming clear. Most people are probably long gone out of it and now have the bitter taste of potentially having taken losses in it.
I want to make this point. It’s unique to us and Cathie Wood and others that when you believe in a sector and you believe in a business you think has actual growth prospects, we stay in it. We don’t’ believe in trailing stop losses. We understand those folks do it that way.
There is the benefit of the fact that even if you are in a loss position in a high-growth industry you can make that back. Later on, you go back and look at where you were and it was irrelevant because the growth was so great.
Now it’s 100% certain that they are good investments because they have already made the gains. But the real way to make money in the market is to go with the trends that you are seeing all across different sectors and technologies. You have to be willing to put your money in during an initial, what some people might call, a bubble.
People have been saying that about Tesla for a long time. But if you can see the growth there and you think it has a chance to develop its potentially, like Tesla with cars, batteries and the whole utility sector, that’s when you want to get in. You don’t want to wait until it’s given all those gains.
Don’t look backward. You want to look forward.
And to do that you do have to tolerate some amount of volatility. The way to tolerate it is to build a portfolio. We have the Rules of the Game. They help you endure through these moments because the biggest reason why people never make money is because they sold out and never bought back in.
A lot of people do the same with crypto. Bitcoin had several 80% crashes and people gave up.
2021 Crypto and DeFi Predictions
The following chart shows you Ethereum versus Bitcoin annual transaction volume. It says Ethereum is now the dominant settlement layer in crypto.
It is now on pace to settle more than $1 trillion in 2020. In 2016 people would have said you’d be lucky if it transacted $100. Now it’s at $1 trillion. That tells you the growth rate in crypto is exponential.
It’s bigger than anybody realizes and bigger than anyone thought it could be just a couple years ago. $1 trillion is pretty crazy for something that’s only been around for a few years. You have to recognize this is something that’s actually going somewhere.
Bitcoin and Ethereum are going to be two parts of finance 2.0 and decentralized finance, meaning money transactions all over the world. Just like the internet revolutionized communication, blockchain through Bitcoin, Ethereum and some others is revolutionizing money.
We haven’t given up because Bitcoin is incredibly volatile. It was at nearly $20,000 just 10 days ago. Then yesterday it trickled back down to under $18,000. That happens on a regular basis.
Odds are we are probably going to be wrong for Bitcoin $50,000 in 2020. Nonetheless, we are incredibly BOP on Bitcoin.
My prediction is that crypto as an asset class will hit $5 trillion in value next year. Right now it’s sitting around $600 billion. So it’s almost a 10x move from here. As everyone knows, we think Bitcoin will be $115,000 by August. Obviously that will be a big part of that $5 trillion.
That will put Bitcoin at $2 trillion or maybe a little higher than that. We have seen other kinds of sectors — or whatever you want to call them — pop up in crypto. There’s DeFi and then there’s stable coins, which are putting your dollars into digital form on the blockchain.
Stable coins are to play a big part of this too. I predict there will be $1 trillion in stable coins on the blockchain next year. Ethereum, I have described it as being the Android of crypto. You can put apps on it and transfer money through those apps.
People use the USD Coin, which is a stable coin. It’s always worth $1 and is backed by dollars. I think a lot of people will be putting that on Ethereum to hold their money there where they can earn way higher interest and do way more things with it. I think stable coins are going to be a big part of that.
Ethereum itself and the growth there is also going to be a big part of it. We’ve already seen $15 billion go into DeFi apps where you can loan money, borrow money and trade cryptos without any financial intermediary. So instead of logging into TDAmeritrade to trade stocks, you would go on Ethereum to trade cryptos.
The fees go to the other people around the world who put their cryptos on the exchange. That’s just a few aspects of Ethereum and the first real developments we’ve seen used in the real world. Between Bitcoin, Ethereum and stable coins, $5 trillion is well within reach.
An article from CoinDesk states that one of the world’s oldest banks is issuing a euro stable coin on Stellar, which is a blockchain crypto. It’s Germany’s Bankhaus von der Heydt.
Bitcoin’s market cap, assuming all the coins are still around which many people say as many as four million are gone, is $333 billion.
The entire crypto market is only worth $533 billion in a world where Apple stock by itself is worth $2 trillion and so is Microsoft. Then there are a number of a trillion-dollar stocks and all the world’s equities are something like $75 trillion. Gold by itself as a metal is $9 trillion. In other words, crypto is so small at this point in time.
If you take out Bitcoin the rest of it is only worth $200 billion, with all this amazing technology and ability. To have a whole financial ecosystem that doesn’t involve banks is pretty amazing. From $200 billion, first of all, a lot of people never thought it could reach this point.
At this point it’s inevitable where all this is going. At $200 billion it’s a steal to buy into it.
I want to mention two predictions from our terrific colleagues Patrick Goodrich and Tamara Barkhanoy. Patrick talked about at least one company in the Dow buying into Bitcoin as cash reserves. That was one of his predictions. Tamara talked about the potential for smart contracts.
Maybe as much as 70% of mortgages going through smart contracts by the end of next year. That would be an incredible transition and the volume in Ethereum would explode. It would be in the trillions and trillions. So exciting times for crypto.
Paul’s prediction was that Bitcoin is going to go to $250,000 in the next one to three years. That’s based on the demand and supply dynamics, a number of models that suggest that relative to The Halving. It does seem the demand side is coming out.
Which Country Will Adopt Crypto First?
Paul also made another prediction about crypto – he believes a sovereign nation is going to adopt Bitcoin as their official currency.
A lot of people are still skeptical of Bitcoin being used at that level, but we have seen a lot of countries talk about having some kind of Bitcoin standard or Bitcoin standard in general. That’s not going away. It’s going to continue to go there. We could 100% see a country use Bitcoin as a backing for a stable coin or some kind of other currency they would use in circulation.
America is one of the few countries in the world that has a good, stable currency. It’s likely that some country somewhere is going to look to crypto next year.
Paul told the story about when his father eventually had a little bit of money he didn’t know what to do. You could never save your money in Indian rupees because it is always on a track to zero, either on a five-year basis or a 10-year basis.
The government always inflates the value away. People in India in his dad’s time would only be able to invest in gold or land because there was some level of scarcity to it. Bitcoin is scarcity that can be calculated, it’s finite, it’s trackable. It’s very attractive as an asset in that way.
The vast majority of currencies are junk. They are on their way to zero all the time. The people of the world have had no alternative. Bitcoin is universal. If you have a phone, you can buy it. You have been tracking the international adoption and acceptance of Bitcoin.
Tens of millions of dollars every week are being transacted, not just on the internet, but person to person. People meet and transact Bitcoin. It’s incredible what we are seeing on the global level even where there’s not widespread internet access.
People are desperate to get out of these terrible currencies to get into something more stable, easier to buy, easier to transact with and easier to hold on to. We’ve seen when people have gold a number of times around the world governments have taken it away.
And Bitcoin has advantages over gold. Gold is somewhat finite, but its supply increases by 2% to 3%. I believe gold is going to lose a significant amount of its premium as a result of people storing it. That scarcity will go away and I believe that money is going to go into Bitcoin.
You can’t carry enough gold in your hand. It’s also a security risk to carry it. Bitcoin can be carried on your phone. It can be carried on a piece of paper. You could have your keys on a piece of paper. There’s many different advantages of Bitcoin over gold.
Cuba is essentially experiencing a collapsed economy and Bitcoin has become the defacto currency.
They are already looking to Bitcoin and it’s just the beginning.
You could argue that with Venezuela as well, which is another economy in collapse and chaos. The defacto currency there is Bitcoin.
We had one question come in on crypto. This came from Jim.
“If crypto forking is meant to create a better version, could the fork be considered a threat to the base crypto value if developers or investors use the fork crypto instead?”
We’ve seen a number of forks in Bitcoin. Bitcoin Cash is the biggest one. Bitcoin XT is another one that came from Bitcoin Cash. Those are just a couple that have become successful out of the dozens that have come from Bitcoin. It hasn’t really affected bitcoin’s value.
I don’t think Bitcoin will be used as a typical means of exchange. I think that will be more like stable coins or something in Ethereum. There is always ongoing work in crypto to make payments better and faster without using forks. So I don’t think that will be something to worry about at this point.
Bitcoin Cash did go through a somewhat controversial fork recently and Bitcoin cash’s price did decline. However, our view is that we are still in the early stages of crypto and there will be some growing pains and difficulties.
However, there’s been no real disaster in crypto yet that many people were wishing for or theorized would happen.
Litecoin is another Bitcoin fork, so some forks can stay successful. Bitcoin Cash and Litecoin are still in the top six or seven cryptos based on total market cap. They are not really taking away from Bitcoin in any way.
How Will the Market React to Tesla in the S&P 500?
This question came in on Tesla, and is from Digon.
“Can the S&P 500 related funds buy Tesla before December 21, or do they have to buy in one shot on the 21st?”
Tesla is being added to the S&P 500 all in one shot on the 21st, but the ETFs aren’t going to be buying billions and billions of the stock on that one day. They have been buying in over the past couple of weeks.
As an answer to your question, no, they are not going to be buying all in on the 21st itself. It’s a gradual process. Then Tesla itself will be added all in one shot on the 21st.
Tesla has issued about $5 billion worth of stock which will go to investment bankers who will feed it to the ETF market makers to put it in there.
There is a mechanism in the market to make sure these kinds of things aren’t completely disruptive to the workings of the market. However, in terms of its entry in the S&P 500, it is on the 21st. In terms of its impact, generally speaking in our experience the impact is priced in prior to the event.
People who think magically on the 21st Tesla is going to soar by 50% or 70%, we would tell you that is very unlikely. Generally speaking, markets work on the mechanism of any piece of news, by the time it happens, is discounted. It’s called “buy the rumor, sell the news.” We would expect that to be the case.
Tesla, which is now trading around $650, got a $90 price target. This is from JP Morgan. I think I might have to use my calculator to figure out what that decline is.
Does the analyst have access to the internet? Can he check the price? Do you think this was done from a cave someplace?
It was $80 before, so at least he’s coming around finally.
Even Elon is suspicious of the market’s ability to understand the future. He is constantly saying, “Our stock price is too high.” However, when you go back and look at all the transformative companies of our time — Amazon, Google, Netflix — the market saw what people today acknowledge well ahead of people seeing it.
You could argue, too, that Tesla has the same long-term trend as Amazon, Netflix or Google, but it did it all in two bursts. In between, it was flat for years. Whereas Amazon, Apple and Google are straight slopes up, Tesla for whatever reason did it in two year-long periods.
It’s amazing the way the market is able to see that. Elon is funny with it too.
One Last 2021 Prediction
It’s not as in depth, but it’s related to cannabis and I forgot to say it at that point. I said the ETFMG Alternative Harvest ETF (NYSEArca: MJ) was going to double this year. I was totally wrong, although I believe it’s almost flat.
Even though it was looking really bad this year it has come back. Next year I believe MJ will hit $40 a share for all the reasons we mentioned earlier: The quick transition we are seeing in the market with cannabis stocks and the widespread legalization within the U.S. market.
Don’t forget to check your email tomorrow for a special Saturday Bold Profits Daily from Patrick Goodrich.
He’s going to tell you about his 2021 predictions on IPOs, Dow 100K and bitcoin.
Editor, Rapid Profit Trader
Editor’s Note: Paul here! Ian and I told you about a divergence happening in the markets right now. That divergence is our America 2.0 — Fourth Industrial Revolution — stocks breaking away from the pack. This new era is going to be incredible for you, Main Street investors. I’ve found what I believe to be the No. 1 stock for America 2.0. Click here for the full story and see how to unlock it now.