However, in the first half of this year, the digital currency has been increasingly correlated to equities and other risk assets. Despite a slight rally in recent days, Bitcoin was down 36% year-to-date as of market close on Tuesday. Tech stocks such as Amazon, Netflix and Meta Platforms (formerly Facebook) are down about 32%, 68% and 40%, respectively, year-to-date.
Last Thursday, Bitcoin plummeted below US$26,000 for the first time since December 2020. More than US$200 billion was erased from the market that day alone.
Alex Tapscott, managing director of the digital asset group at Ninepoint Partners, which manages the Ninepoint Bitcoin ETF, has observed the increasing correlation this year between Bitcoin and tech stocks.
“That tells me a couple of things: one, it’s an asset class that’s more widely held. It’s held by a lot of institutions, it’s quoted in mainstream media. So it is beginning to trade like a more conventional financial asset,” he said. “But it’s also a little disappointing, because one of the big attributes of Bitcoin, historically, has been that it’s uncorrelated, which can improve measures of risk-adjusted returns when added to a portfolio.”
Tapscott said he thinks Bitcoin will regain that role of being an uncorrelated asset over the medium and longer term. “But it is clear that during times of financial stress, in all markets, that it does begin to converge on the performance of other kinds of assets.”
Greg Taylor, chief investment officer at Purpose Investments, said a certain type of investor could be contributing to Bitcoin’s turbulence.
“It feels like a lot of the investors that took on more risky positions — whether it’s in technology, or startups, or private assets — also hold Bitcoin. So those parts of the portfolio are being hit,” said Taylor, whose firm manages various Bitcoin and Ether ETFs.
“It could also be that they’re just selling anything to make margin requirements or to pay bills.”
According to April Canadian ETF flows data from National Bank, cryptoasset ETFs had the “worst monthly outflow” since their inception in February 2021, with CAD$338 million in outflows.
Despite last Thursday’s dramatic drop in Bitcoin, Taylor said there haven’t been a significant amount of outflows for any of Purpose’s crypto funds. In fact, he said one day last week, the company had its “biggest day of inflows” for its Bitcoin ETF in U.S. dollars.
“Given the space and the volatility that we know, there was probably a little bit of ‘buy the dip.’ People have been targeting Bitcoin to come back to $30,000. So when it hit that level, that’s where we saw some buying come in,” he said.
Amy Arnott, portfolio strategist at Morningstar, wrote an article in April about whether crypto is truly a portfolio diversifier.
Arnott noted Morningstar’s 2022 Diversification Landscape Report, where the firm examined how different asset classes performed and how correlations between them had changed in the past couple of years.
“We found that while cryptocurrency has an unusually low correlation with traditional asset classes, its volatility makes it tough to use in a diversified portfolio,” she wrote.
Arnott cited the CMBI Bitcoin Index’s 2021 performance, noting how it was up 104% in Q1, then dipped 40% in Q2, then gained 25.3% in Q3 before falling into the red in Q4 as high-risk assets sold off in December.
“These dramatic performance swings have continued in early 2022,” she wrote.
“Diversification value is one potential reason to add cryptocurrency to a portfolio, but investors should also consider other factors, such as their ability to hold on through crypto’s periodic downdrafts, which have been unusually swift and severe.”
Despite the recent crypto volatility, Tapscott said Bitcoin has been a good long-term diversifier and has “demonstrated an ability to improve risk-adjusted returns.” And the run-up until the last few months has been astounding, if volatile.
Tapscott cited data released last year by Charlie Bilello, founder and CEO of Compound Capital Advisors, which showed that from 2011 to 2021, Bitcoin was the best performing asset class over the 10-year period, with an annualized return of 230%.
Bitcoin was trading above US$60,000, near its peak, at the time of the study, and a lot of its gains came during the pandemic when tech stocks also soared. At the beginning of 2020, Bitcoin was trading at about US$7,300.
“We’re still believers that crypto is going to be something that’s going to be with us for a long time. It’s not a flash in the pan — there will be some utility that comes out of this,” Taylor said.
He compared crypto to the dot-com bubble in the late 1990s.
“There were a lot of companies that came out, and a lot that failed. But, at the end of the day, you’re still going to get the Amazons, the Facebooks, the Googles that come out of that,” he said. There’s still some “sorting out” of the crypto market’s winners, he said.
Tapscott and Taylor both acknowledged crypto’s volatility, which is why they’d recommend an allocation of 5% or less for the average investor.
Capital gains tax hike a sure way to repel the tech sector
Published Apr 18, 2024 • Last updated 23 minutes ago • 4 minute read
If there’s an uncomfortable economic lesson of the past few years, it’s this: The vibes matter.
As much as economists point to data, the reality in politics and policy is that public expectations and perceptions are important too. And from a business perspective, the vibes of the 2024 federal budget are rancid.
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The budget document’s title is “Fairness For Every Generation” and in practice, what that meant was a “soak the rich” tax hike on capital gains.
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You can see how this looked like good politics. In her budget speech, Finance Minister Chrystia Freeland said that only 0.13 per cent of Canadians with an average annual income of $1.4 million will pay higher taxes — hardly a sympathetic lot, at a time when many Canadians are struggling to pay for food and housing.
The problem is that the proposed capital gains tax hike won’t only soak a handful of rich Canadians as advertised. In its current design, it broadly punishes individuals and families of small business owners, tech entrepreneurs, dentists and countless others who have often spent decades trying to build their businesses for a potential once-in-a-lifetime capital gains event. Together, our analysis suggests that those people represent closer to 20 per cent of Canadians.
This tax proposal simply amounts to a systemic tapping on the brakes on the investment in a productive and prosperous future, being made by innovative, hardworking Canadians. And it does so at the very time Canada needs them to accelerate their investing.
But among the innovators and business leaders I talk to in the Canadian tech sector, this week’s budget was a chilling shock. There is a sincere and widespread belief that if something does not change, the budget will do widespread and irreparable damage to Canada’s tech sector.
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That’s why more than 1,000 CEOs have signed a public letter to Prime Minister Trudeau and Deputy Prime Minister Freeland at ProsperityForEveryGeneration.ca, calling on the government to stop this tax hike. Innovators understand what’s at stake.
Firstly, we are at a moment when capital is harder to access than at any time in the past generation. Higher interest rates and economic uncertainty mean that many high-growth companies with innovative products struggle to secure growth capital on favourable terms.
South of the border, we’re seeing strong growth, driven by significant government investment through strong industrial policy, alongside significant growth in bleeding-edge artificial intelligence applications. The U.S. is an exciting place to invest right now.
And capital is highly mobile. If Canada is seen as an unfriendly place to invest, due to high taxes, investors will simply take their money elsewhere, and propel the growth of promising tech companies in other countries.
What’s more, highly skilled talent is more mobile than ever before, and among innovative high-growth companies, stock options — subject to capital gains tax — are a key form of compensation.
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We’re not talking purely about CEOs and tech founders here either. The dedicated early players of a promising tech startup earn their stock options with sweat equity. Their dedication, taking a risk in the prime of their career, is often the key ingredient for the success of future innovation champions.
Innovators are intimately aware of these concerns, because this isn’t the first time the Liberal government has tried to tax stock options. Nearly a decade ago, they promised to hike taxes on stock options in their 2015 campaign platform, and it took years of public advocacy from tech leaders to help the government understand the potential unintended damage that a reckless tax hike could do on the ability to attract and retain talent.
All along the way, we were assured by the government that they knew what they were doing, and there was nothing to worry about. In truth, after many frank conversations, they changed course.
In the days and weeks ahead, I’m expecting to hear the same kind of thing again. Already we’ve heard from government officials pointing to the “Canadian Entrepreneurs’ Incentive” carve-out, which will soften the blow of higher capital gains tax rates overall. The details of this carve-out are not yet fully clear, and it’s possible that the government will tinker with the thresholds to help mitigate the damage of a tax hike on capital gains.
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But the reality is that without a significant change in messaging, the danger to Canada’s economy is real.
Capital gains are taxed at a different rate because they are taxes on investment. Every investment comes with risk; you are not guaranteed to make a profit. The tax code takes this into account.
If the vibes are off, and the global perception of Canada is that we’re not a place where the investment risk is worth it, because the federal government is just going to tax you to death, then we simply won’t see capital or talent flow to Canada.
Innovation and entrepreneurship are about hope. You fundamentally need to be an optimist to risk it all, and invest yourself in growing a business. Right now, Canada’s federal government is not sending a hopeful vibe. And the vibes matter.
Benjamin Bergen is president, Council of Canadian Innovators.
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‘If I try to put myself back into the shoes of me as a 21-year-old, all I can tell you is this: I was hungry,’ writes Gary Stevenson in his recently released memoir, The Trading Game, which tells the story of how the son of a Post Office worker briefly became the highest-paid trader working on Citi’s bond trading floor at London’s Canary Wharf. He sits down with host Claer Barrett to talk about what he learned about trading and how the wider economy works – and why he’s worried.
Find Gary @garyseconomics on YouTube, X, Facebook, Instagram and TikTok. Read Gary Stevenson’s recent FT Magazine profile by Miles Ellingham.
For more tips on how to organise your money, sign up to Claer’s email series ‘Sort Your Financial Life Out With Claer Barrett’ at FT.com/moneycourse.
If you would like to be a guest on a future episode of Money Clinic, email us at money@ft.com or send Claer a DM on social media — she’s @ClaerB on X, Instagram and TikTok.
Want more?
Check out Claer’s column, The hunt for good value UK stocks.
Listen to more episodes, such as Investment Masterclass: An insider’s view of the City of London, Investment masterclass: what’s one of the world’s leading investors buying?, and more.
Presented by Claer Barrett. Produced by Tamara Kormornick. Our executive producer is Manuela Saragosa. Sound design by Breen Turner, with original music from Metaphor Music. Cheryl Brumley is the FT’s global head of audio.
How much a stock’s price changes over time is important for most investors, since price performance can both impact your investment portfolio and help you compare investment results across sectors and industries.
The fear of missing out, or FOMO, also plays a factor in investing, especially with particular tech giants, as well as popular consumer-facing stocks.
What if you’d invested in Micron (MU) ten years ago? It may not have been easy to hold on to MU for all that time, but if you did, how much would your investment be worth today?
Micron’s Business In-Depth
With that in mind, let’s take a look at Micron’s main business drivers.
Idaho-based Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions.
Through global brands, namely Micron, Crucial and Ballistix, Micron manufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory (DRAM), NAND flash memory, NOR Flash, 3D XPoint memory and other technologies. Its solutions are used in leading-edge computing, consumer, networking and mobile products.
A major portion of the revenues is derived from DRAM sales. The company’s mission is to be the most efficient and innovative global provider of semiconductor memory solutions.
Micron reported revenues of $15.54 billion in fiscal 2023. The company has four reportable segments:
Compute and Networking Business Unit (CNBU): The unit comprises of DRAM and NOR Flash products that are sold to the computer, networking, graphics, and cloud server markets, and NAND Flash products which are sold into the networking market. CNBU delivered revenues of $5.71 billion (37% of total revenues) in fiscal 2023.
Mobile Business Unit (MBU): The unit comprises Micron’s discrete DRAM, discrete NAND and managed NAND (including eMMC and universal flash storage (UFS) solutions) products that are sold to smartphone and other mobile-device markets. MBU generated revenues of $3.63 billion (23%) in fiscal 2023.
Storage Business Unit (SBU): The unit accounts for solid state drives (SSDs) and component-level solutions sold into enterprise and cloud, client and consumer storage markets as well as other discrete storage products sold in component and wafer forms to the removable storage markets. SBU’s revenues grossed $2.55 billion (16%) in fiscal 2023.
Embedded Business Unit (EBU): The unit includes Micron’s discrete DRAM, discrete NAND, managed NAND and NOR products, which are sold to the automotive, industrial and consumer markets. EBU’s revenues logged $3.64 billion (24%) in fiscal 2023.
The company struggles with intense competition from Intel, Samsung Electronics, SK Hynix, Toshiba Memory and Western Digital Corporation.
Bottom Line
While anyone can invest, building a lucrative investment portfolio takes research, patience, and a little bit of risk. If you had invested in Micron ten years ago, you’re probably feeling pretty good about your investment today.
According to our calculations, a $1000 investment made in April 2014 would be worth $5,416.81, or a gain of 441.68%, as of April 17, 2024, and this return excludes dividends but includes price increases.
The S&P 500 rose 171.24% and the price of gold increased 76.28% over the same time frame in comparison.
Looking ahead, analysts are expecting more upside for MU.
Micron’s better-than-expected second-quarter performance reflects gains from improved market conditions, strong sales executions and double-digit growth across multiple business units. The positive impact of inventory improvement in the data center, as well as stabilization in other markets, such as automotive, industrial and others, have also contributed to its results. It anticipates the pricing of Dynamic Random Access Memory (DRAM) and NAND chips will keep increasing next year, hence improving its revenues. The pricing benefits will primarily be driven by rising AI server causing a scarcity in the availability of cutting-edge DRAM and NAND supply. The 5G adoption in the Internet of Things devices and wireless infrastructure is likely to spur demand for memory and storage.
Over the past four weeks, shares have rallied 29.54%, and there have been 7 higher earnings estimate revisions in the past two months for fiscal 2024 compared to none lower. The consensus estimate has moved up as well.
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