🍨 Daily Scoop: Everything Is Awesome

By Hoda Mehr Tue, Nov 26, 2019

• U.S. markets:  All three indices had a great start to the week. The Nasdaq led the charge with more than 1% gain. Scroll to the “Overall Market” section to learn more.
  
• Cryptocurrency: Do you remember that according to experts, Bitcoin’s price is supposed to reach $250K per coin? Well, as of Monday afternoon, the price is barely holding above $7,000. Scroll to the “Water Cooler” section to learn more.

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Everything is awesome.

What happened in the stock market?

On Monday, everyone seemed to be excited about the trade deal. The Nasdaq grew more than 1%, and the other two indices were not too far either.

So what happened?

Asian markets were all excited, and the U.S. markets followed suit. One reason behind the excitement was the intellectual property guidelines announcement by the Chinese government. Intellectual property theft has been one of the biggest concerns of American companies doing business in China. These new guidelines increase the penalty for violations of intellectual property laws in China. Investors are taking it as a sign that China is addressing Americans’ concerns. Maybe the trade negotiations are actually headed somewhere. Maybe things are not as bad as everybody assumed last week. Maybe everything is awesome. Sing along … everything is awesome …

Don’t bet against human vanity.

So, what happened?

Shares of InMode (Ticker: INMD) were up more than 14% on Monday. InMode offers a non-invasive, in-office, alternative approaches to aesthetic procedures such as facelift and acne treatment. Customers love it, as is evident by highly profitable and rapidly growing operations. So do investors, as is apparent from +200% gain in less than a quarter.

A wise man once told us, never bet against stocks that appeal to human vanity. He was talking about Align Technologies (Ticker: ALGN) at the time. However, such wisdom also applies to InMode.

The dilutive conversion notes are converting.

So, what happened?

Shares of Aurora Cannabis (Ticker: ACB) were down more than 8% on Monday. Yesterday, we discussed the emergence of light at the end of the cannabis industry tunnel. However, the light may take quite a long time to appear, and cannabis stocks continue to free-fall as they have been in the last few months.

On Monday, Aurora Cannabis, one of the largest cannabis stocks in the world, lost more than 8% of its value after the company announced it is allowing convertible noteholders with March maturity date to convert their notes to equity at 5% discount. This discounted, early-conversion price was lower than the company’s stock price on Friday and dragged the stock price down on Monday.

This may be the start of a trend in the industry. Most cannabis stocks have funded their growth by issuing large amounts of convertible notes. As the stock prices in the industry fall, it’s economical to convert the bonds to equity to take advantage of the widespread discount across the industry. We expect more of us conversion to happen in the coming days and weeks.

Bitcoin is halving.

Source: https://www.coinbase.com/price/bitcoin (1M performance)

Finally, there is an answer to our quest. Bitcoin is halving, and apparently, those few cryptocurrency investors that drive the market are selling now, to buy later, when the price reaches a much lower level after the halving. So, what the bleep is this halving?

Let’s take an example. It’s going to take a few paragraphs to explain this. Get ready, relax and read on:

Let’s assume Bitcoin is ice cream. And, you are an ice cream scooper, and you are an ice cream scooper. Instead of dollars, you get paid in ice cream. Also, there is a large bucket of ice cream that you have to reach in to scoop ice cream. Currently, the ice cream shop owner has told you that every time you reach into the big bucket, you can get a medium size scoop of ice cream for yourself. So far, so good?

Okay, now, the ice cream shop owner tells you that from May 2020, you have to give up your medium size scoop for a small size scoop. The new scoop is only half the size of the current one. In other words, he is halving your bounty ice cream.

If you replace ice cream with Bitcoin, the scooping process with bitcoin mining, and, the scoop size with the amount of Bitcoin miners get every time they solve one of those Bitcoin mining equations, then, everything should make sense.

Historically, every time Bitcoin (aka scoop size) halved, the price declined. It looks like traders are expecting that the cryptocurrency price will decline again when the halving happening in May 2020. Thus, they are selling now to buy cheaper then.

Questions? Reply to ask, and we will answer with another ice cream example.

About the Author

The authors of this Scoop are the editorial team at Stock Card, led by Hoda Mehr. Hoda Mehr is CEO and Co-founder of Stock Card and the host of Renegade Investors podcast. She runs a community of 40,000 stock market investors and manages Stock Card's successful flagship portfolio, Roll with Our CEO, on Stock Card Portfolio Store. Hoda is an Economist with an MBA from Concordia, John Molson School of Business. She applies behavioral economics, data journalism, and storytelling to all aspects of her work. Before starting Stock Card, Hoda worked as a strategy and insights lead at technology companies including Symantec, Aimia and Sony. Create a free account to do your stock market research easily and mistake-free: Stock Card Stock Card