JPMorgan To Tokenize US Treasury and Include It in Its Crypto Strategy

Key Insights:

  • JPMorgan aims to leverage the yield-generating potential of mainstream assets.
  • This way, non-crypto assets will find use in the Bank’s DeFi plans.
  • Through institutional DeFi, the bank will impose KYC strictures on crypto’s permissionless lending pools.

The Decentralized Finance (DeFi) space is finding use in the mainstream bank market as well, with JPMorgan planning to leverage DeFi protocols to generate more profit out of non-crypto assets.

JPMorgan’s Institutional DeFi

Firstly discussing their Crypto Strategy during the CoinDesk Consensus 2022, the Head of Onyx Digital Assets at JPMorgan, Tyrone Lobban, stated that the bank has institutional-grade DeFi Plans, which include trillions of dollars worth of tokenized assets it will be making use of.

Iterating the same, Tyrone said,

“Over time, we think tokenizing US Treasurys or money market fund shares, for example, means these could all potentially be used as collateral in DeFi pools. The overall goal is to bring these trillions of dollars of assets into DeFi, so that we can use these new mechanisms for trading, borrowing [and] lending, but with the scale of institutional assets.”

In addition to this, the bank will also include tokenized versions of investment management corporation BlackRock’s money market fund shares.

These are basically mutual funds invested in cash and highly liquid short-term debt instruments.

JPMorgan and Crypto

In the past, too, the bank has commented on the future of Crypto, DeFi, and web3 and where it could end up.

As reported by FXEmpire, a few months ago, JPMorgan had predicted that the Metaverse could become a $1 trillion market based on the growth of its individual components, including the price of a parcel of virtual land, strategic partners as well as NFTs.

The same month the bank also stated that the day Bitcoin’s market cap sits at the level of Gold’s market cap, the value of one Bitcoin would be equal to $150k.

Although since then, the king coin has seen more crashes than rallies, so for the next few months, a reach of $150k is out of the question.

The Monetary Authority of Singapore (MAS) to Explore Asset Tokenization

Key Insights:

  • Today, the Monetary Authority of Singapore (MAS) announced the launch of Project Guardian, a collaboration with financial institutions to explore asset tokenization.
  • The Republic of Singapore is one of the more friendly crypto jurisdictions, with the MAS in favor of supporting innovation.
  • Financial institutions involved in the project include JPMorgan Chase and Singapore’s DBS Bank.

Singapore and the Monetary Authority of Singapore (MAS) were back in the news today. A busy 2022 has seen competition amongst key jurisdictions heat up for the coveted spot of being ‘the world’s crypto hub.’

Several jurisdictions have imposed restrictions that limit the expansion of the digital asset space. Others, however, have taken a more innovative stance.

The key, however, remains to find the right balance between appropriate regulatory oversight and embracing innovation.

Singapore and the Monetary Authority of Singapore (MAS) have demonstrated support for innovation. Singapore’s central bank has also ensured the necessary level of oversight across the digital asset space.

Monetary Authority of Singapore Announces Launch of Project Guardian

On Tuesday, the Monetary Authority of Singapore (MAS) announced the launch of Project Guardian.

The MAS will collaborate with the financial industry to look into the value-add and the economic potential of asset tokenization.

Deputy Prime Minister and Coordinating Minister for Economic policies, Mr. Heng Swee Keat, officially launched Project Guardian at the Asia Tech x Singapore Summit on Tuesday morning.

According to the announcement,

“Project Guardian will test the feasibility of applications in asset tokenization and DeFi while managing risks to financial stability and integrity. MAS aims to develop and pilot use cases in four main areas.”

The main areas are,

  • Open, interoperable networks.
  • Trust anchors.
  • Asset tokenization.
  • Institutional grade DeFi protocols.

The announcement went on to say,

“The first industry pilot under Project Guardian will explore potential DeFi applications in wholesale funding markets. The pilot, led by DBS Bank Ltd., JP Morgan, and Marketnode, involves the creation of a permissioned liquidity pool comprising tokenized bonds and deposits. The pilot aims to carry out secured borrowing and lending on a public blockchain-based network through execution of smart contracts.”

MAS Chief FinTech Officer Sopnendu Mohanty said,

“MAS is closely monitoring innovations and growth in the digital asset ecosystem and working through the potential opportunities and risks that come with new technologies – to consumers, investors, and the financial system at large.”

Mohanty went on to say,

“Through practical experimentation with the financial industry and the broader ecosystem, we seek to sharpen our understanding in this rapidly transforming digital asset ecosystem. The learnings from Project Guardian will serve to inform policy markets on the regulatory guardrails that are needed to harness the benefits of DeFi while mitigating its risks.”

JPMorgan and DBS Bank Are no Strangers to Asset Tokenization

JPMorgan launched Onyx in 2020. Onyx is a “multi-asset blockchain network and platform that enables the exchange of value for different types of digital assets.”

Singapore bank DBS offers a range of digital asset services, including crypto trading that supports the trading of bitcoin (BTC) and other major cryptos. DBS also offers institutional-grade digital custody services.

The collaboration with the MAS demonstrates the relationship between established institutions and regulators and how it can benefit the digital asset space.

Japanese Investment Bank Nomura To Launch Bitcoin, Crypto Subsidiary

Key Insights:

  • Reportedly, Nomura is set to launch a crypto arm to offer institutional clients BTC and other digital asset services.
  • The wholly-owned unit will have a staff of a hundred by next year.
  • Nomura executed started trading crypto derivatives last week.

Japan’s largest investment bank Nomura has announced the launch of a new extension focused on cryptocurrencies, decentralized finance (DeFi), and non-fungible tokens (NFTs).

Targeting Institutional Clients

Nomura Holdings, Inc is a Japanese financial holding company and a principal member of the Nomura Group. According to a report from the Financial Times, Nomura is launching a new subsidiary focused on institutional client services for bitcoin and other cryptocurrencies.

Reportedly, Nomura plans to have around 100 people working for the subsidiary by the end of 2022. While the current executives will be primarily responsible for running the company, sources close to the firm have revealed that there are plans for extensive outside hiring.

Just last week, the Japanese investment bank began trading cryptocurrency derivative contracts. This strategic move placed the bank on track with competitors such as Goldman Sachs (GS) and JPMorgan (JPM), giving clients a way to access the cryptocurrency market.

Nomura’s current Chief Digital Officer for its wholesale business, Jez Mohideen, will head the new project. That said, for now, it is reported that fifteen current staff members will be transferred to Nomura’s yet-unnamed crypto company.

Crypto Firms Increase Offerings Despite the BTC Fall

After launching over-the-counter cryptocurrency derivatives with bitcoin (BTC) non-deliverable forwards and non-deliverable options for clients in Asia out of Singapore, the bank has yet again accelerated crypto growth.

Seemingly, despite the recent market volatility and loss in market cap, Nomura has continued to make advancements in the space. The firm also recently announced its first bitcoin futures and options trades on the Chicago-based exchange CME.

Reportedly, the trades were made via Cumberland, the crypto arm of trading firm DRW.

Apart from Nomura, Goldman Sachs and JPMorgan are among other top players that have also been developing their crypto-asset offerings lately.

Best Bank Stocks To Buy In May

Key Insights

  • Many bank stocks are trading near yearly lows. 
  • Meanwhile, analyst estimates for some bank stocks are moving higher. 
  • As a result, bank stocks like JPMorgan and Bank of America are trading at attractive valuation levels. 

Bank stocks have mostly moved together with S&P 500 in recent weeks, so they are trading near yearly lows. Worries about inflation and the potential slowdown of the economy are the key bearish catalysts for the stocks in this market segment. At the same time, earnings estimates for some banks have moved higher in recent weeks, so analysts are not as skeptical as traders.

JPMorgan Chase

JPMorgan stock has recently touched yearly lows near $117.50 and is currently trying to rebound. Analysts expect that JPMorgan will report earnings of $11.03 per share in 2022 and $12.56 per share in 2023, so the stock is trading at less than 10 forward P/E.

Importantly, analyst estimates have been moving higher in recent weeks, while the stock has been moving lower. As a result, the stock is down by more than 20% since the start of this year, which may attract speculative traders who are willing to bet that the major pullback is over.

Bank of America

Bank of America is also trading at less than 10 forward P/E, which is not surprising as the stock has just rebounded from its yearly lows.

As in JPMorgan’s case, the market has completely ignored rising analyst estimates, and Bank of America stock has been under pressure together with the broader market.

At this point, it looks that the market is ready for a weak second quarter in the U.S. economy, while analysts do not believe that this would be the case. If analysts are right, JPMorgan stock would be able to gain sustainable upside momentum in the upcoming months.

For a look at all of today’s economic events, check out our economic calendar.

Rivian Is Down By 15%, Here Is Why

Key Insights

  • CNBC reported that Ford decided to sell 8 million Rivian shares. 
  • The report also indicated that another investor was willing to sell 13 million – 15 million shares. 
  • Rivian’s market capitalization exceeds $20 billion despite the huge pullback from all-time highs. 

Rivian Stock Falls As Ford Is Selling 8 Million Shares

Shares of Rivian gained strong downside momentum after a CNBC report indicated that Ford  would sell 8 million Rivian shares. The shares would be sold through Goldman Sachs. In addition, the report indicated that an unknown seller would be selling 13 million – 15 million Rivian shares through JPMorgan.

Ford owns 102 million shares of Rivian, so the automaker decided to sell about 8% of its current stake in the EV company. Rivian stock had a great debut in late 2021 and touched highs near the $180 level but lost momentum and has been declining for months.

Not surprisingly, traders rushed to sell Rivian stock after the CNBC report was released. The general bearish market sentiment added to pressure, and the stock moved below the $25 level.

What’s Next For Rivian Stock?

The current market environment is bearish for stocks like Rivian. The company is not expected to become profitable anytime soon, while the market is focused on finding safe-haven plays in the rising interest rate environment. In addition, analyst estimates for Rivian have been declining in recent months.

Ford’s decision will certainly serve as a major red flag for many investors, and the stock could remain under strong pressure in the upcoming trading sessions. The CNBC report indicated that Ford was not the only company that was willing to sell shares, which will increase traders’ concerns.

It should be noted that Rivian is valued at more than $22 billion even after the huge pullback. The company has not reached mass production levels, and it remains to be seen whether the market is willing to support such enterprises in the current environment. While the pullback from $180 to $25 may look like a great opportunity to buy Rivian stock, traders must stay cautious as Rivian remains a richly valued company.

For a look at all of today’s economic events, check out our economic calendar.

JPMorgan’s Jamie Dimon Praises Crypto But Billionaire Buffett Wants None

Key Insights:

  • Dimon suggested that crypto transactions are far more efficient than banks.
  • Many leading Wall Street banks now offer crypto investments to their clients.
  • Billionaire Warren Buffet said he wouldn’t buy all the Bitcoin in the world for $25.

The JPMorgan (JPM) CEO has spoken out about cryptocurrencies stating that he is still not fond of them but defended investors’ rights to invest in them.

The comments came in an interview with an Omaha-metro area news channel on Friday, during which he still warned investors to be “very, very careful how much money you put into it.”

Dimon, who said that Bitcoin was worthless last year, went on to praise some of the benefits that cryptocurrencies can have over traditional banks:

“Not all of it’s bad, but if you said to me, ‘I want to send $200 to a friend in a foreign country,’ that could take you four weeks and cost you $40. You could do it through a digital currency, and it’ll take you seconds,”

Banking Adoption

The crypto skeptic added that, in his opinion, crypto would see broader adoption in the coming years, which includes banks.

“I think it will be adopted over time by lots of players out there, including banks,”

JPMorgan has its own digital currency called JPM Coin, which enables banks to move tokenized dollars and facilitate cross-border payments. However, the token has never really taken off and cannot compete with the $190 billion stablecoin market.

In August last year, the bank quietly started offering its wealth management clients access to six cryptocurrency investment funds. Goldman Sachs is also venturing deeper into crypto by offering its first-ever Bitcoin-backed loan last week, and Morgan Stanley also offers crypto investments for its private equity clients.

JPMorgan Chase reported a 42% fall in first-quarter earnings last month.

No Bitcoin For Buffet

Nanogenarian billionaire Warren Buffett is still vehemently anti-crypto. The legendary investor doubled down on his rhetoric at Saturday’s Berkshire Hathaway Annual Shareholder meeting.

Buffet said that Bitcoin was not a productive asset and it doesn’t produce anything tangible before adding that “it’s got a magic to it and people have attached magic to lots of things.”

He said that he would not want all the BTC in the world for $25 because the 91-year-old sees no value in it:

“Now, if you told me you own all of the bitcoin in the world and you offered it to me for $25 I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything,”

Some industry analysts saw the irony:

US Labor Department Raises Concern Over Fidelity Crypto Investment Product

Key Insights:

  • Fidelity Investments announced plans to enable Bitcoin investment with 401(K) plans in the US.
  • News of the option to include Bitcoin in its 401(K) accounts has raised concerns.
  • Last week, Fidelity Investments launched Web3-focused ETFs targeting younger clients.

It has been a busy final week of the month for the financial industry and the crypto market.

This week, US investment bank Goldman Sachs announced it was exploring the tokenization of financial securities. Last month, Goldman carried out its first over-the-counter (OTC) trade with Galaxy Digital.

On Thursday, Wall Street’s crypto first-mover Goldman offered its first Bitcoin (BTC) backed loan facility on Thursday.

Also taking strides into the crypto world is Fidelity Investments. Fidelity’s latest move, however, has caught the eye of the US Labor Department.

US Labor Department Raises Concerns over Fidelity’s 401(K) Plans

On Thursday, the Wall Street Journal reported concerns among Labor Department officials about Fidelity Investment’s plan to allow investors to put Bitcoin (BTC) in their 401(K) accounts.

According to the report, acting assistant secretary of the Employee Benefits Security Administration, Ali Khawar, said,

“We have grave concerns with what Fidelity has done.”

Khawar reportedly also discussed the hype around Bitcoin and the broader crypto market and the speculative nature of cryptocurrency investments.

The US Labor Department responded to news of Fidelity’s plans to widen the crypto net.

This week, Fidelity Investments announced plans to offer digital asset investment as part of US retirement plans.

According to the report, MicroStrategy has already signed up for the offering. It remains to be seen whether the Labor Department will scupper Fidelity’s goal to offer crypto to a wider investment audience.

Fidelity Investments Goes All in on Crypto and Web3

Last week, Fidelity Investments launched two web3 ETFs to target a younger customer base.

Fidelity Investments launched the Fidelity Crypto Industry and Digital Payments ETF (FDIG) and the Fidelity Metaverse ETF (FMET).

Both ETFs have a net expense ratio of just 0.39 and provide investors an easy opportunity to gain exposure to cryptos and web3. The latest offering followed some bullish projections on the metaverse.

US banking giants Citi and JPMorgan have drawn headlines with bullish projections for the metaverse.

In March, Citi projected a $13 trillion metaverse by 2030, with JPMorgan projecting a $1 trillion in metaverse-related yearly revenues.

Goldman Sachs Approves First Bitcoin-Backed Loan Facility

Key Insights:

  • This week, Goldman Sachs issued its first Bitcoin (BTC) backed loan.
  • The collateralized facility includes 24-hours risk management
  • Goldman Sachs continues to push the envelope as it explores the tokenization of financial instruments.

Goldman Sachs is taking big strides in becoming a leading bank in the digital asset space. In May 2021, the US investment bank rebooted its cryptocurrency desk in response to improving crypto market conditions.

Goldman first established a crypto desk in 2018.

This week, Goldman took another big step into the digital asset world.

Goldman Sachs Issues Bitcoin-Backed Cash Loan

On Thursday, news hit the wires of Goldman Sachs offering its first Bitcoin (BTC) backed loan facility.

According to the report, the borrower pledged Bitcoin as collateral in a cash loan.

As a first-mover on Wall Street, the bank reportedly found the deal interesting due to its structure and need for 24-hour risk management.

The latest link between digital assets and fiat follows last month’s first over-the-counter (OTC) crypto trade with Galaxy Digital. According to the CNBC report, Goldman was “the first major US bank to trade crypto over the counter.”

This week, there was also news of Goldman Sachs exploring the tokenization of financial instruments.

While Goldman Sachs may be a first-mover among the banking fraternity, crypto-linked financial products are becoming more commonplace.

Crypto-Linked Financial Products Are More Mainstream than Ever

It is a busy year for cryptos and financial institutions.

This week, DeFi protocol Portal partnered with HighCircleX (HCX) to tokenize pre-initial public offering (IPO) company stocks. The partnership addresses the issue of illiquidity by tokenizing pre-IPO stocks. HCX marketplace then supports the trading of the tokenized assets.

In April, crypto firm XBTO offered Bitcoin collateralized mortgages in Miami. The product allows Bitcoin holders to avoid capital gains tax and benefit from any upward trend in Bitcoin value.

According to Thursday’s Bloomberg report, the co-president of Galaxy Digital Holdings Damien Vanderwilt recently said,

“Lending to companies that provide virtual currencies as collateral is the next step.”

With US banking giants Goldman Sachs, JPMorgan, and Citi also bullish about NFTs and metaverse, we expect more bank-linked digital and virtual news to hit the crypto wires in the months ahead.

Bitcoin Price Action

At the time of writing, Bitcoin was down by 0.10% to $39,715.

BTCUSD 290422 Daily
Bitcoin continues to struggle, with resistance at $40,000 now key.

Technical Indicators

Bitcoin will need to avoid the day’s $39,678 pivot to target the First Major Resistance Level at $40,461. Bitcoin would need broader market support to a return to $40,000.

In the event of an extended rally, Bitcoin could test the Second Major Resistance Level at $41,173 and resistance at $41,500. The Third Major Resistance Level sits at $42,668.

A fall through the pivot would bring the First Major Support Level at $38,968 into play. Barring another extended sell-off, Bitcoin should avoid sub-$38,000. The Second Major Support Level at $38,186 should limit the downside.

BTCUSD 290422 Hourly
A fall through the pivot would bring support levels into play.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal. Bitcoin sits on the 50-day EMA, currently at $39,759. This morning, we saw the 50-day EMA narrow to the 100-day EMA, delivering support. The 100-day EMA pulled back from the 200-day EMA, BTC negative.

A move through the 100-day EMA at $40,420 would support a run at $42,000.

BTCUSD 290422 4-Hourly
A move through the 100-day EMA is needed to shift sentment.

Nike and RTFKT Go to the Metaverse with CryptoKicks Sneakers

Key Insights:

  • Nike and RTFKT launch CryptoKicks sneakers collection for the Metaverse.
  • In December, Nike bought NFT Sneaker shop RTFKT to drive its web3 goals.
  • Nike went Metaverse in 2021 with ‘NIKELAND’, where players can dress their avatars in Nike products.

As the year progresses, activity in the metaverse continues to gather momentum, with mainstream players identifying web3 as the future.

Metaverse-related trademark filings have been rampant, with Web3 offering endless growth opportunities.

When U.S banking giants JPMorgan and Citi get bullish it is hard to ignore.

In February, JPMorgan put its money where its mouth is, buying land in Decentraland (MANA). JPMorgan projected the Metaverse to deliver over $1 trillion in Metaverse-related yearly revenues.

Last month, Citi delivered a more bullish outlook, projecting a $13 trillion Metaverse by 2030.

NIKE and RTFKT Hit the Metaverse Running with CryptoKicks

Overnight, RTFKT Studios hit Twitter to share a video of the new RTFKT x Nike Dunk Genesis CryptoKicks.

RTFKT tweeted,

“RTFKT, together with Nike CryptoKicks, introduce the future of Sneakers, powered by Skin Vial tech.”

RTFKT and Nike CryptoKicks launch with EVO X, a collection that allows users to change their look with Skin Vials. Skink Vials are collectibles that users can swap.

Collectors can view the Ethereum (ETH) based Skin Vials and RTFKT X Nike Dunk Genesis CryptoKicks Sneakers on OpenSea.

According to OpenSea,

“When equipped with RTFKT Skin Vial NFT, the look of the RTFKT X Nike Dunk Genesis CryptoKicks changes according to the traits of the vial.”

At the time of writing, there were 878 owners with a floor price of 2.79 ETH.

Nike Becomes a Web3 Trailblazer with the Latest Launch

Leading apparel and sports brand Nike is no stranger to web3. In November, Nike went Metaverse with the launch of ‘NIKELAND’, Nike’s Metaverse home on Roblox Corp.

Nike announced the launch of NIKELAND in November, saying,

“Buildings and fields inside NIKELAND are inspired by Nike’s real-life headquarters and hold detailed arenas for the Roblox community to test their skills competing in various mini-games.”

Players can also dress their avatars in Nike products and play games, including Tag, Dodgeball, and The Floor is Lava.

Soon after the launch, Nike purchased NFT sneaker creator RTFKT. Nike purchased RTFKT to support its metaverse goals following the launch of NIKELAND.

There are no other details relating to the CryptoKicks launch, but the RTFKT X Nike Dunk Genesis CryptoKicks could make their way to the NIKELAND digital showroom.

Fidelity Investments Targets Investors with Web3 ETFs

Key Insights:

  • Fidelity Investments targets a younger client base with web3 ETFs.
  • This month, Fidelity launched a digital asset and a Metaverse ETF.
  • U.S. banks have been bullish about the Metaverse for some time, with JPMorgan buying land in the Metaverse.

As more mainstream players enter the NFT space and the Metaverse, investors will be looking for both active and passive investment opportunities.

Such is the hype that JPMorgan and Citi have delivered impressive projections for the web3 economy.

Last month, Citi jumped on the web3 bandwagon, projecting a $13 trillion Metaverse by 2030. Citi’s projection followed a more conservative JPMorgan projection in February.

JPMorgan projected the Metaverse to deliver over $1 trillion in Metaverse-related yearly revenues. In February, JPMorgan put its money where its mouth is, buying land in Decentraland (MANA).

It, therefore, comes as little surprise that leading investment shops are starting to offer web3 investment products.

Fidelity Investment Launches Web3 ETFs to Widen the Client Base

This week, Fidelity Investments launched the Fidelity Crypto Industry and Digital Payments ETF (FDIG) and the Fidelity Metaverse ETF (FMET).

Fidelity launched FMET on April 19, 2022. According to the Fund objective,

“The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Metaverse Index.

The Fidelity Metaverse Index is designed to reflect the performance of a global universe of companies that develop, manufacture, distribute, or sell products or services related to establishing and enabling the Metaverse.”

Fidelity launched FDIG on April 21, 2022. According to the Fund objective,

“The Fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Crypto Industry and Digital Payments Index.

The Fidelity Crypto Industry and Digital Payments Index is designed to reflect the performance of a global universe of companies engaged in the activities related to cryptocurrency, related to blockchain technology, and digital payments processing.”

For investors looking for low fee investment opportunities, the two ETFs have a net expense ratio of 0.39.

As of June 2021, Fidelity Investments had US$4.2tn in assets under management.

Fidelity Investment Follows in the Footsteps of ProShares

ProShares is an issuer of exchange-traded funds with a 2021 Assets Under Management of US$65bn.

The ProShares Vers ETF launched on March 15, 2022, and “seeks investment results, before fees and expenses, that track the performance of the Solactive Metaverse Theme Index.”

“The Solactive Metaverse Theme Index is designed to track the performance of companies that have, or are expected to have, significant exposure to the provision of products and/or services that contribute to the Metaverse industry, as determined by the index methodology.”

Compared with the Fidelity ETFs, the ProShares Vers ETF has an expense ratio of 0.58.

With only a handful of big names already in the space, more ETFs will launch. Mutual funds will likely follow.

Bank Stocks Will Keep Underperforming. It’s The Business Cycle.

Summary

Bank stocks are sensitive to interest rates.

Interest rates are sensitive to the strength of the business cycle.

The attractiveness of bank stocks depends on the trend of the business cycle. Not interest rates.

My article of January 2021 concluded:

“…… rising yields at the beginning of a business cycle is good news for bank stocks. Yields rising to levels damaging the economy and causing the business cycle to decline is bad news for the banking sector.”

To recognize what is happening now it is useful to review how the banking sector responds to changes in the business cycle.

Chart, pie chart Description automatically generated

Source: The Peter Dag Portfolio Strategy and Management

Business Cycle and Its Phases

The business cycle goes through four distinctive phases. The trends pointing to the end of Phase 4 are:

  • Commodity and inflation are declining.
  • Sales growth is lower than the pace of inventory accumulation.
  • Income after inflation starts rising.
  • Consumer confidence rebounds as consumers respond favorably to the decline of inflation, interest rates, and to the rise of real income.

These favorable developments create the conditions for the business cycle to move into Phase 1. Sales increase because of consumers’ improved financial conditions. Business is forced to boost production to build up inventories to respond to the rising demand. Business will have to hire new people, buy raw materials, and increase borrowing to improve and possibly expand capacity.

These activities place a floor on commodities and interest rates. As the positive feedback continues, improved sales feed into rising inventories, rising employment, and increased borrowing.

This expansion benefits the banking sector, of course, because it provides the liquidity needed to fuel the positive loop thus creating even more growth. This is the time when bank stocks outperform the market.

There is a point, however, when the high level of production places upward pressure on commodities, interest rates, and inflation. The business cycle enters Phase 2, reflecting an even stronger economy.

But rising commodities, interest rates, and inflation eventually have a negative impact on the finances of consumers as it is happening now. Consumer confidence peaks and then declines. Demand for goods slows down.

Business recognizes inventories are now rising too rapidly due to the slower demand and are having a negative impact on earnings. Production is curtailed. Purchases of raw materials are reduced. Hiring is cut. Improvements and expansions of capacity are delayed resulting in lower borrowing, an unwelcome development for banks.

What Phase Are We in Now?

Chart, line chart, histogram Description automatically generated

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows the business cycle indicator updated in real time from market data and reviewed in each issue of The Peter Dag Portfolio Strategy and Management. It shows the previous two cycles (2011-2014 and 2014-2020) and the current one started in 2020.

This indicator and data about growth in heavy truck sales, in income after inflation, in retail sales after inflation, and the action of the defensive market sectors (see below) confirm the business cycle is now declining, reflecting slower economic growth. The business cycle is now in Phase 3.

The slowdown process will continue until the causes that produced it are brought under control and consumers recognizes their finances are improving. This new environment will be characterized by the decline in inflation and interest rates. This process will take place in Phase 4, the most painful phase for consumers and the financial markets.

During Phase 3 and Phase 4 the sectors outperforming the markets are utilities (XLU), healthcare (XLV), staples (XLP), REITs, and long duration Treasury bonds.

The performance of the various sectors keeps repeating as the business cycle swings from periods of stronger to weaker growth.

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The sectors outperforming the market over the last two hundred days (except for energy) have been the four sectors mentioned above. Their performance confirms the business cycle is declining, reflecting a weakening economy.

The financial sector, and banks in particular, is a cyclical sector outperforming the market during periods of strengthening business cycle.

Chart, line chart, histogram Description automatically generated

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows the ratio of Invesco KBWB bank ETF and the S&P 500 ETF (ratio KBWB/SPY). The ratio rises when bank stocks outperform the market. The ratio declines when bank stocks underperform the market.

The lower panel of the above chart shows the business cycle indicator computed in real-time as reviewed in each issue of The Peter Dag Portfolio Strategy and Management.

The chart shows bank stocks outperform the market (the ratio rises) when the business cycle rises, reflecting a strengthening economy. The ratio declines, reflecting the underperformance of the bank stocks, when the business cycle indicator declines in response to a weakening economy. Chart, histogram Description automatically generated

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows regional banks stocks (ETF: KRE) respond like the major center banks stocks to the changes of the business cycle. They outperform the market when the business cycle indicator rises and underperform the market when the business cycle indicator declines. Chart, histogram Description automatically generated

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

Even large and well managed banks like JP Morgan (JPM) are not immune to the changes in the business cycle as shown in the above chart. The stock of JP Morgan outperforms the market when the business cycle rises and underperforms the market when the business cycle declines.

Key Takeaways

  1. Bank stocks respond to changes of the business cycle and not of interest rates.
  2. Bank stocks outperform the market when the business cycle rises, reflecting a strengthening economy (Phase 1 and Phase 2 of the business cycle).
  3. There is a point when rising interest rates and inflation cause the business cycle to decline. This is the time when bank stocks start underperforming (Phase 3 and Phase 4 of the business cycle).

Best Bank Stocks To Buy Now

Key Insights

  • Banks have recently released their earnings reports. 
  • Some banks have managed to exceed analyst estimates, and their stocks moved away from yearly lows. 
  • Some leading bank stocks are down by 25% – 35% from their highs, so speculative traders will likely start searching for bargains.

Bank stocks are trading near yearly lows as the market is worried that rising rates and high commodity prices will slow down the economy and hurt bank profits. However, some bank stocks have already suffered strong pullbacks from their recent highs and may attract speculative traders.

Bank of America

Bank of America has just released its first-quarter results. The company reported revenue of $23.2 billion and earnings of $0.80 per share, beating analyst estimates on both earnings and revenue.

Ahead of the report, the stock was down by roughly 25% from highs that were reached back in February. The results exceeded analyst estimates, and traders rushed to buy the stock near yearly lows.

Citigroup

Citigroup stock has also enjoyed support after the recent earnings report. The stock has been moving lower for many months after it touched highs near the $80 level back in June 2021.

The market was skeptical about Citigroup’s financial performance, but the company has easily managed to beat analyst estimates on both earnings and revenue, and the stock received a major boost. Citigroup stock has a good chance to develop additional upside momentum in the upcoming weeks as it is still down by about 35% from 2021 highs.

JP Morgan Chase

Unlike the above-mentioned banks, JP Morgan had a disappointing quarterly report. The company missed analyst estimates on earnings as it had to build credit reserves.

More details on the company’s outlook will be revealed on Investor Day on May 23. However, speculative traders may still buy the company’s stock after the strong pullback as the company’s shares have already moved to the levels last seen at the start of 2021.

For a look at all of today’s economic events, check out our economic calendar.

Stock Traders Embrace Themselves For Another Earnings Week

US Stock Markets Fundamental Analysis

Stock bulls are trying to gain back some of the recent losses as Q1 earnings season gets off to a mixed start. As for the war in Ukraine, President Biden announced another +$800 million in weaponry for Ukraine on Wednesday, following an hour-long phone call with the country’s president, Volodymyr Zelenskyy. Biden said the new weapons package will include systems already deployed to the fight, as well as new artillery weapons, artillery rounds, armored personnel carriers and helicopters.

Earnings in Detail

In the USA, the big earnings highlight last week was JPMorgan which posted a -42% profit decline from last year, slightly worse than analyst expectations. Details include more than -$500 million in losses due to market volatility tied to Russia, of which -$120 million is attributed to extreme price moves in the nickel market last month.

Somewhat surprisingly, JPMorgan also took a -$902 million charge that it added to its loan loss reserves, a stark reversal from last year when it released $5.2 billion from its reserves. Executives say it was a preemptive move to guard against the increased odds of a “Fed-induced” recession. CEO Jamie Dimon stressed that they weren’t predicting a recession, but that ongoing inflation, the war in Ukraine, and higher interest rates are “storm clouds on the horizon” that need to be taken into serious account.

At the other end of the spectrum is Delta airlines which topped both earnings and revenue estimates as well as offering an upbeat outlook for next quarter. The airline noted that passenger revenue was running at about 75% of its 2019 levels but expects that to rise to 93% to 97% in Q2.

The reads are for March, which marked the first full month of the Ukraine war and caused gas prices to skyrocket, two things expected to weigh heavy on Consumer Sentiment. I should mention that the producer price index rose +1.4% in March and 11.2% from a year ago. Energy prices were the biggest gainer for the month, rising +5.7%, while food costs increased +2.4%.

Data to Watch

This week the calendar is jam packed for earnings and economic data. On the earnings front, top highlights will include Bank of America, J.B. Hunt, Pinnacle Financial, and Synchrony Financial on Monday; IBM, Halliburton, Hasbro, IBM, Interactive Brokers, Johnson & Johnson, Lockheed Martin, Netflix, and Prologis on Tuesday; Abbott Labs, Alcoa, Anthem, ASML Holdings, Baker Hughes, CSX, Kinder Morgan, Las Vegas Sands, Nasdaq, Procter & Gamble, Randstad Holdings, Robert Half International, Spirit Airlines, Tesla, and United Airlines on Wednesday; Alaska Air, American Airlines, AT&T, AutoNation, Blackstone Group, Charles Schwab, Danaher, Dow, Freeport McMoRan, NextEra Energy, Nucor, PPG Industries, The Progressive, Qualtrics, Quest Diagnostics, Snap, SnapOn, Tractor Supply, and Union Pacific on Thursday; and American Express, HCA Healthcare, KimberlyClark, Schlumberger, and Verizon on Friday.

As for economic data, key releases include the NAHB Housing Market Index on Monday; Housing Starts on Tuesday; Existing Home Sales on Wednesday; the Philadelphia Fed Index on Thursday; and the preliminary reads on IHS Market Manufacturing and Services PMIs. Have a blessed Easter Monday!

Citigroup Rebounds From Yearly Lows, Here Is Why

Key Insights

  • Citigroup’s Q1 report beat analyst estimates on both earnings and revenue. 
  • Recent earnings reports from JPMorgan and Wells Fargo were disappointing, so traders rushed to buy Citigroup after a better-than-expected report. 
  • Analyst estimates keep moving lower, and the continuation of this trend may put more pressure on the stock. 

Citigroup Stock Gains Ground After Quarterly Report

Shares of Citigroup gained upside momentum after the company released its first-quarter report.

Citigroup reported revenue of $19.2 billion and earnings of $2.02 per share, beating analyst estimates on both earnings and revenue. The company noted that revenue declined by 2% year-over-year, while earnings decreased by 44%, “driven by higher cost of credit, higher expenses, and the lower revenues”.

While the year-over-year comparison looks bleak, the market expected weaker results from Citigroup, so the stock managed to move further away from recent lows.

What’s Next For Citigroup Stock?

The recent reports from banks have been disappointing. JPMorgan Chase  found itself under strong pressure yesterday, after the company missed analyst estimates on earnings and highlighted “significant geopolitical and economic challenges”. Wells Fargo  moved lower today after reporting a 5% year-over-year revenue decline.

In this environment, Citigroup’s ability to beat analyst estimates provided material support to the stock. However, it remains to be seen whether the current strength will be sustainable.

Bank stocks are moving lower as the market is worried about the negative impact of higher interest rates on the economy. JPMorgan was the bank that  highlighted this issue, but the whole industry will face problems in case companies and consumers feel the pressure from higher rates.

Analyst estimates have been moving lower in recent months, and this trend may be continued due to external factors. At this point, it looks that the risk of further downside remains.

For a look at all of today’s economic events, check out our economic calendar.

JPMorgan Testing 52-Week Low After Earnings Shortfall

Dow component JPMorgan Chase and Co. (JPM) is trading lower by more than 3% in Wednesday’s pre-market session after missing Q1 2022 earnings-per-share (EPS) estimates. The commercial banking giant posted a $2.63 per-share profit on a 4.8% decline in revenue to $30.72 billion. Net income rose 7% but the bottom line was impacted by the unwinding of COVID loans, which have added to portfolio profits since the second half of 2020.

Geo-Political Headwinds

Underwriting income has dropped due to risk aversion generated by the Ukraine – Russia war, which has also put stress on the world banking system. A return to national interests, along with a shift away from globalization, has made big deals less palpable, especially with soaring inflation. On the flip side, improving overnight spreads have allowed commercial banks to earn more on their loans and the highly liquid U.S economy is firing on all cylinders, with few signs of growing delinquency rates.

Even so, JPMorgan Chase added $902 million to the loan reserve fund, now pressured by “increasing probability of downside risks due to high inflation and the war in Ukraine as well as accounting for Russia-associated exposure in CIB and AWM, and $582 million of net charge-offs”. The bank posted a Q1 loss of $524 million from commodity and Russia exposure, raising concerns that hundreds of other public companies will follow suit this earnings season.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 12 ‘Buy’, 2 ‘Overweight’, and 12 ‘Hold’ recommendations. In addition, two analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $125 to a Street-high $200 while the stock is set to open Wednesday’s session just $3 above the low target. Look for analyst downgrades and lower targets to follow in coming sessions.

JPMorgan Chase sold off to a 3-year low in March 2020 and rallied to the prior high at 141.10 in January 2021, ahead of a February breakout that lost momentum above 160. Rally attempts into October failed, yielding a topping pattern that broke to the downside in January 2022.  February and March bounces to new resistance failed, while today’s decline has landed on the March low near 127. This level is unlikely to hold, favoring downside that tests stronger support in the low 120s.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Stock Markets: Top 3 Things You Need To Know This Week

Keep in mind, this week is the official start of the US corporate earnings season and at the same time, there is going to be a lot of economic and inflation data being released as well as the latest headlines regarding Russia’s war in Ukraine.

It is also a short trading week with stock, bond, and commodity markets closed on Friday for Good Friday, which could bring some added volatility as we get closer to the long weekend.

SP500 Earnings

Most Wall Street traders recognize that the S&P 500 rally off the March 2020 lows was built on extremely strong US corporate earnings power. Several traders and investors are quick to remind us that prior to the Covid outbreak S&P 500 company earnings were averaging around $40/share per quarter. Fast forward to our last earnings report that showed 2021 Q4 earnings and we see an average of $55/share. In other words, there was a +38% jump in earnings from before the pandemic to our last quarterly estimates, which puts us fairly in line with the current price level of the S&P 500. The question is can US corporate earnings continue to show growth?

I worry because interest rates are starting to aggressively creep higher, wage inflation is real, energy inflation is real, the cost of doing business is obviously higher and supply chain dislocations are still creating supply-side imbalances.

China in the Spotlight

Remember, China’s lockdown in Shanghai continues. The lockdown began on March 28 in half the city but has since expanded to its entire population of around 26 million. A trucker shortage and closures of warehouses in Shanghai are also affecting nearby provinces of Zhejiang and Jiangsu, according to a recent note from Citigroup analysts.

The two provinces are major manufacturing hubs that produce about one-third of China’s total exports. Shipping experts warn the fallout will start to be felt in the months ahead as severe dislocations once again drive up shipping costs and exacerbate shortages of raw materials and other essential supplies. There are also lingering concerns about energy prices as Europe continues to debate the possibility of banning Russian oil and gas supplies. Such a move could bring another dramatic rise in prices as available global supplies get spread even more thin.

Data to Watch

The Atlanta Fed is now forecasting just +1.1% Q1 US GDP growth, whereas, three of their last four Quarterly readings were all above +6.1%. At the same time, there are a lot more investors and economists also starting to walk back their global economic growth estimates. Several sources are thinking Ukraine’s economic output will likely contract by -40% to -50%.

More economists are also forecasting a double-digit reduction in Russia’s GDP, as well as much larger reductions in countries like Belarus and Moldova. Growth estimates in the Central Europe region i.e. Bulgaria, Croatia, Hungary, Poland, and Romania are also starting to be reduced.

There was also more talk over the weekend that Russia could eventually start to default on some of its “external debt” for the first time since 1917.

As for this week, all eyes will be on Consumer Price Index, scheduled for release Tuesday morning, and the Producer Price Index scheduled for release Wednesday morning. Both will work to add a bit more color to our current inflation debate.

Also on Wednesday, we get the first batch of Q1 earnings from a few big names like JPMorgan, Black Rock, Bed, Bath & Beyond, and Delta. Then on Thursday the trade will be digesting the latest Retail Sales data and another round of earnings from names like Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanely, and United Health Group.

Keep in mind, several of the largest US banks might be reporting their biggest slowdown in investment banking revenue in years, as more and more “deals” have been getting put on the back-burner. Who knows how long this slowdown will last?

For a look at all of today’s economic events, check out our economic calendar.

Citi Gets Bullish, Projecting a $13 Trillion Metaverse by 2030

Key Insights:

  • On Thursday, Citi analysts projected the Web3 economy to reach $13 trillion by 2030.
  • Greater access to host use cases, including commerce, art, media, advertising, healthcare, and social collaboration, support the bullish outlook.
  • Significant infrastructure investment is needed to reach around five billion Metaverse users.

Market sentiment towards the Metaverse has turned yet more bullish. More mainstream players are entering the Metaverse. Trademark application filings suggest a marked increase in virtual engagement.

Across the broader crypto market, Metaverse-related news has been a key to price action. This week, Zilliqa (ZIL) has surged by more than 100% in response to Metaverse-related news updates on Metapolis. Metapolis is powered by Zilliqa.

With the increased activity and endless possibilities, banks have become particularly bullish with their Metaverse projections.

Citi Projects a $13 Trillion Metaverse and Five Billion Users

Citi delivered a bullish assessment of Web3 on Thursday.

An analyst report talked of the Metaverse becoming the next generation of the internet, bridging the digital and physical worlds in an immersive manner.

The report delivered two projections:

  • A narrow definition with Metaverse usage limited to VR/AR headset users. Analysts project 900m to 1bn users by 2030 and a total addressable market estimate of between $1tn and $2tn.
  • A broad definition, with the Metaverse having unique internet users. Analysts project 5bn users by 2030 and a total addressable market estimate of between $8tn and $13tn.

Citi views gaming as the primary Metaverse use case. Analysts expect the Metaverse to expand and allow people to find new ways to carry out everyday activities.

‘Enterprise use cases of the Metaverse in the coming years will likely include internal collaboration, client contact, sales and marketing, advertising, events and conferences, engineering and design, and workforce training.’

The report does highlight that in its current form, the internet infrastructure is inadequate for ‘building a fully-immersive content streaming Metaverse environment.’

Significant investment is needed to integrate the Metaverse with the real world. Low latency is considered a critical factor in delivering an appropriate user experience.

For a truly immersive Metaverse experience, the report highlights the need for sub-12ms latency and faster connectivity speeds.

In the Metaverse, NFTs will also be a key component. Users can store NFTs in digital wallets and take them everywhere within the Metaverse.

Big Names Take to the Metaverse Supporting Citi’s Outlook

Mainstream interest in Web3 has surged since the beginning of the year. Corporations across industries have entered the Metaverse or have filed Metaverse-related trademark applications.

In February, McDonald’s entered the Metaverse, giving fans a virtual experience to celebrate the Lunar New Year.

Warner Music Group bought land in The Sandbox (SAND), with the fashion industry also going virtual.

Last week, a 4-day fashion week took place in Decentraland (MANA), with big names from the fashion industry present.

Sport has also embraced Web3. In January, Tennis Australia went virtual for the Australian Open. The Metaverse gave fans virtual access to Melbourne Park.

The increased activity had caught the eye of JPMorgan earlier this year.

JPMorgan Buys Land and Projects a $1tn Metaverse

In February, JPMorgan put its money where its mouth and bought land in Decentraland. The U.S investment bank is bullish on the Metaverse, forecasting a $1 trillion market.

JPMorgan talked of the limitless opportunities that the Metaverse presents, ranging from virtual workspaces to music artists holding concerts. As a result of these opportunities, the bank sees all types and sizes of companies entering the Metaverse.

JP Morgan highlighted many issues that need addressing. These range from taxation to policing activity.

As more industries enter the Metaverse, the more bullish projections will likely have a cascade effect, accelerating the pace of infrastructure investment and mainstream adoption.

Free Cryptos: The Top 5 Upcoming Airdrops For 2022

The crypto airdrop has been a buzzword in the community for a long time due to its wide usability among crypto projects. Last year witnessed record-breaking token airdrops with leading Ethereum decentralized finance (DeFi) projects.

For instance, Instadapp, one of DeFi’s most popular portfolio management tools, airdropped 11,000,000 INST tokens to Maker DAO, Compound, and Aave users on Ethereum and Polygon.

In August, the on-chain trading platform dYdX announced its governance token launch, dropping 7.5% of the total tokens to early users. Paraswap is yet another project last year that dropped 150 million PSP tokens in November to frequent users, despite stating that it is not planning for an airdrop.

These records of airdrops have proven that those who consistently get involved early are likely to be handsomely rewarded with free tokens.

What Is a Cryptocurrency Airdrop?

Airdrops are distributions of tokens or cryptos sent to users for free – a fundamental way of garnering mass attention and engaging recipients with the related project.

Active early members of the blockchain community will receive small amounts of the new virtual currency for free or in return for minor services such as retweeting the company’s post.

The main criteria for receiving crypto airdrops are holding a cryptocurrency wallet such as Coinbase with a crypto balance.

On the Downside

It is important to note that legitimate crypto airdrops will not ask users to invest. The greed of “free money” in their wallets leads to recipients falling for airdrop-based ‘pump and dump’ schemes.

Additionally, the airdropped tokens are relatively new coins for which a market is yet to develop, and traded prices are unavailable.

Here are some of the top crypto projects that could airdrop their tokens in 2022.

1. MetaMask

MetaMask is one of the widely used cryptocurrency wallets. A possible airdrop has been rumored to be in the pipeline for a long time. 

The possibility of MetaMask releasing its token, dubbed MASK, has been widely discussed and was mentioned several times by the MetaMask team.

The revelation comes after ConsenSys CEO Joe Lubin tweeted last November, in response to speculation, that ConsenSys may not want tokens on its balance sheet as JPMorgan has a stake in the firm.

His tweet triggered various MetaMask token expectants’ responses, indicating the excitement the crypto project infuses.

As influencers spread the rumors of a possible airdrop on social media, activity through MetaMask Swap “has seen a huge usage increase in recent days,” per data from Delphi Digital.

That said, it is most likely that the team would not disappoint the anticipating user base. However, it’s unclear who exactly will be eligible for airdrop tokens.

2. Arbitrum

Arbitrum, a layer two expansion roll-up for Ethereum, is next on the list for a highly-expected token airdrop this year. There is a buzz that the company may do an airdrop to users who’ve used their bridge.

This is because a popular token bridge to Avalanche airdropped 100% of its token supply to users who had used their bridge – Good Bridging – to transfer funds.

In September 2021, Arbitrum surpassed $1.5 billion in total value locked (TVL), following rumors of a possible token airdrop. Less than two weeks after Arbitrum launched on the mainnet, crypto influencer Cobie took to his Twitter, declaring a possible token airdrop soon.

However, Arbitrum immediately confirmed that “there is no Arbitrum token” on its social media page. It said,

“Anything claiming to be an official Arbitrum token is a scam.”

However, this hasn’t stopped people from speculating though. Given Arbitrum network’s increasing growth in users and the number of applications deployed, a token airdrop and possible liquidity mining program could be underway.

3. zkSync

zkSync, which uses ZK-rollups, has already announced that they will launch their native token in the future. Users who try out the mainnet and testnet may be eligible for an airdrop in the future.

Initially, on their Medium blog, there was a mention of their governance token that it might issue to the community but later was removed.

Though users have been eagerly waiting for a possible token airdrop, the zkSync team has been moving in fits and starts in deciding over a token release. The company has repeatedly stated that it doesn’t have a token yet, asking users not to rush and warning them of possible scams.

4. OpenSea

OpenSea, a leader in the non-fungible tokens (NFT) marketplace, still does not have its token, but users expect to arrive in 2022.

With its insane transaction volume in the NFT market in 2021, OpenSea has won many user hearts showcasing positive signs for a possible token launch this year. Speculations state that it might drop tokens to users who’ve bought or sold NFTs on the platform.

Also, OpenSea’s newest competitor, X2Y2, recently had an airdrop, offering users accumulative rewards for using their marketplace or staking their tokens. This has left OpenSea users expecting an OpenSea token soon.

 5. Bored Ape Yacht Club

The next most hyped token airdrop is from the ape and mutant-themed NFT developers of the Bored Ape Yacht Club (BAYC). The project explicitly mentioned in its Twitter post that a possible token is underway in the first quarter of 2022.

The NFT collection also stated that it wants to launch a token for the sake of NFT community members ‘in a sound way’. It is working with partners Fenwick, a legal service team, and Horizen Labs, creators of the ZEN token.

However, a possible airdrop has not been mentioned for the Bored Ape Yacht Club NFT holders. Still, it is expected likely to offer free tokens initially.

More Airdrops Likely

With a new round of crypto airdrops arriving this year and NFTs witnessing explosive growth as well as increased demand, NFT based airdrops are expected to draw in major rallies.

In 2022, Ethereum Layer 2 solutions, NFTs, and cross-chain bridges seem to have likely chances of hitting an airdrop. Besides Ethereum, other ecosystems such as SolanaCosmos, and Avalanche are also expected to launch an airdrop to its users. However, it is still too early to predict that.

JPMorgan Projects a $1 Trillion Metaverse

The hot topics of the month continue to be NFTs and the Metaverse. A sharp increase in interest from mainstream players and rise in NFT and Metaverse related trademark applications point to a big year ahead for digital assets and virtual reality.

In February, NFT trading volumes may have pulled back from January’s record highs. Based on news traffic, however, it could prove to be a breather. For the Metaverse, corporations and industries are drawn to boundless opportunities that the Metaverse presents.

Major Names Take to the Metaverse

It’s been an active start to the year for the Metaverse, with some big names entering the virtual world. Last week, Gucci bought LAND in the Sandbox (SAND). This follows McDonald’s and its celebration of the Year of the Tiger. Music giant Warner Music Group bought a beachfront plot in Decentraland (MANA). Following news of Tennis Australia going virtual for the Australian open, even a 4-day digital fashion week is planned for Decentraland.

Considering the level of interest and quick progress to establishing events in the Metaverse, more mainstream players are likely to want to play catchup. The Metaverse removes boundaries, giving access to a global audience.

This week, beauty and lingerie powerhouse Victoria’s Secret joined the growing list of leading brands with Metaverse ambitions.

JPMorgan and a $1 Trillion Price Prediction

JPMorgan has put its money where its mouth is and has also bought land in Decentraland. The U.S investment bank has become bullish on the Metaverse, forecasting a $1 trillion market in a recently released paper.

Titled “Opportunities in the Metaverse” JPMorgan talks of the limitless opportunities that the Metaverse presents. These range from the likes of Microsoft creating virtual workspaces to music artists holding concerts. As a result of the opportunities, the bank sees all types and sizes of companies entering the Metaverse.

Some headline figures from the paper included:

  • Spending on “in-game ads” to hit $18.41bn by 2027.
  • Average price of a parcel of virtual land doubled to $12,000 in just 6-months.
  • There are 200 strategic partners to date with The Sandbox, including Warner Music Group.
  • Each year, spending on virtual goods sits at $54bn.
  • Almost 60 billion messages are sent on Roblox each day.
  • NFTs current have a market cap of $41 billion.

With regulatory scrutiny over NFTs and the Metaverse on the rise, JP Morgan noted that many issues needed addressing, including:

  • Regulatory, tax, and accounting treatment of Web 3.0 digital real estate / property and virtual world commercial transactions.
  • Adept navigation of regulatory, tax, and accounting treatment of primarily Web 2.0 virtual worlds with web 3.0 digital assets.
  • Support virtual worlds that are globally accessible but may have local jurisdictional requirements and rules related to commerce and payments.
  • Evolution of community governance. (Who sets the rules in the virtual worlds?).

Today’s Virtual vs Tomorrow’s Reality

Considering the above issues and the pace at which corporations are entering the Metaverse, a major regulatory shift is likely. Today, JP Morgan may have a lounge in Decentraland, tomorrow it could be virtual offices. Virtual office space would strip major fixed costs from company expenses. The COVID-19 pandemic and work from home policies proved that organizations can remain a “going concern” without entire workforces “in office”.

Late last year, we reported of more than 1,300 Chinese companies filing for Metaverse related trademarks by mid-December. A few months earlier, the number of filings had stood at just over 100.

Bank of America Says Bitcoin Trades as a Risk Asset

Since the crypto market has become more popular, Bitcoin is one of the principal topics to discuss when it comes to this market.

Alkesh Shah of Bank of America said that Bitcoin has traded as a risk asset since June of 2021. Although its price volatility has fallen since 2013, it is still very volatile compared to S&P 500, Nasdaq 100, and Gold, commented Shah on the research note.

With the bitcoin price being highly volatile, Shah said that Bitcoin would be less traded as an inflation hedge in developed countries, except in countries with “inflationary environments,” which some investors may view it as an inflation hedge.

Alkesh Shah is the head of the Global Cryptocurrency and Digital Asset Strategy research in Bank of America that was launched in October 2021. Simultaneously with the launch, a report called “Digital Assets Primer: Only the first inning” was published.

What Are the Other Banks Saying?

JPMorgan recently estimated that Bitcoin’s “fair value” is about $38,000, when it is trading at the time of writing at $44,008.38. The estimation is based on Bitcoin price volatility being almost four times as gold. The news also said that Bitcoin could reach $150k as a long-term target.

Wells Fargo published a report earlier this week called “Cryptocurrencies – too early or too late?”. The report commented that Bitcoin is perhaps one of the least volatile cryptocurrencies, but “it is still roughly four times more volatile than gold”.

Last month, Goldman Sachs said that Bitcoin will compete with gold as a store of value. As crypto adoption continues, parts of Gold market capitalization will shift into Bitcoin.

BTC Is Up 14.5% in the Last Seven Days

BTC is the biggest cryptocurrency by market capitalization with $835 billion, according to CoinMarketCap. It is trading at $44,008.38 and is up 1.30% in the last 24 hours.

The cryptocurrency is still down 36.12% from its all-time high of $68,900 in November 2021. Since hitting its all-time high it has been in a descending channel until it found support around $35,000 in mid-late January. Then it started an ascending channel, as you can see below:

BTC/USD Chart – Source: FXEmpire.

One sure thing is that banks think of Bitcoin as a highly volatile asset when it compares to traditional financial markets.

If Bitcoin adoption continues and the overall crypto market matures, volatility might decrease.