💰 5 Fact Friday: Bitcoin To $150K?

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Hey Money Maniacs,

Welcome back! Let’s get into this week’s biggest stories in the world of money.

Today’s issue covers:

1. Economic Growth Slows 🐌

2. Nvidia Reaches $3T and Passes Apple 📈

3. Sideline Liquidity May Fuel the Next Rally 💵

4. Bitcoin Price Projections 👀

5. The Low Down on Zero-Down Mortgages 🏠

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1. Economic Growth Slows 🐌

The past week has been full of economic data that paints a picture of a cooling economy despite stubborn inflation.

Wait, that sounds familiar… 👀

Inflation, as measured by the core Personal Consumption Expenditures (PCE) price index, rose 0.2% monthly and 2.8% annually in April. For the 3rd consecutive month, the Fed’s preferred inflation gauge was flat, hovering well above their 2% inflation target.

Despite 11 hikes by the Federal Reserve and the fastest tightening cycle in U.S. history, inflation isn’t easing up as quickly as hoped.

On the growth front, the U.S. economy expanded at an annual rate of 1.3% in the first quarter, down from an earlier estimate of 1.6%. This represents the smallest increase in nearly two years.

The downgrade was driven mainly by weaker consumer spending. However, personal savings are also on the decline. Savings rates through March and April remain at their lowest point since 2022.

So Americans are tightening their belts and still barely saving? Yikes. If that pinch in the wallet isn’t enough, just wait…

The job market also shows signs of cooling.

Unemployment inched up to 3.9%, from 3.4% a year ago. Job openings are at their lowest level since February 2021, and the ratio of job openings to job seekers has finally normalized post-Covid.

A softening labor market is expected to ease inflationary pressures, but don’t forget how. In an employer’s market, we will likely see less wage growth and, in turn, less consumer spending.

With this rise in unemployment and slowing GDP growth, the Fed’s resolve is about to get tested.

In the next few months, we’ll either see inflation fall, the Fed cave, or mounting pressure to do so.

2. Nvidia Reaches $3T and Passes Apple 📈

Nvidia (NVDA) has officially surpassed Apple to become the second most valuable U.S. company, trailing only Microsoft.

Talk about a meteoric rise.

On one hand, Nvidia has exploded over the past year, returning 211%. The AI gold rush has positioned Nvidia as the ultimate "picks and shovels" business, profiting from Big Tech’s infrastructure buildout.

This dominance has even turned CEO Jensen Huang into a bit of a rockstar—he was recently spotted signing autographs at the Taiwan computer expo.

Apple, on the other hand, is up a more modest 9% over the past year, lagging the S&P 500’s 27% return. Why? Declining revenue, lack of innovation, and an unexplainable goose egg on the AI front.

That being said, Apple’s developer conference begins on Monday and analysts are expecting (read: praying) that the company finally unveils new AI integrations and capabilities.

With Nvidia crossing the $3 trillion mark this week—just 66 days after passing $2 trillion—the question on everyone’s mind is: How long can this growth continue?

The answer is mostly a function of AI adoption.

At some point, Nvidia’s customers need to see a return from their massive investments in AI infrastructure.

If these buildouts yield cost savings, enhanced capabilities, or user growth, Nvidia will retain its deep-pocketed customer base.

If AI fails to live up to the hype, however, Big Tech will have to answer to shareholders. As a result, the investment cycle will likely slow.

For now, business leaders expect to see:

• 16% revenue increase

• 15% cost savings, 5% through reduction in headcount

• 23% productivity improvement

But teens and young adults are less convinced.

• 8% don’t know what AI tools are

• 41% say they’ve never (knowingly) used AI

• 17% have only ever used AI once or twice

What’s your take?

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3. Sideline Liquidity May Fuel the Next Rally 💵

As the U.S. economy shows signs of cooling, you might think it's time to get out of the stock market. Think again.

Bank of America strategists analyzed data going back to 1950 under 4 different economic conditions:

Scenario A: Earnings growth ⬆️ and GDP growth ⬆️

• Quarterly returns: 2.0%

• Win ratio: 69%

Scenario B: Earnings growth ⬆️ but GDP growth ⬇️

• Quarterly returns: 3.6%

• Win ratio: 79%

Scenario C: Earnings growth ⬇️ but GDP growth ⬆️

• Quarterly returns: 3.0%

• Win ratio: 63%

Scenario D: Earnings growth ⬇️ and GDP growth ⬇️

• Quarterly returns: 2.0%

• Win ratio: 62%

As you can see, historically, a slowing economy paired with strong corporate earnings creates an ideal environment for stocks.

There’s just one concern: valuations.

The current Forward Price-to-Earnings (P/E) multiple for the S&P 500 is 20.57. This means investors are paying $20.57 for every dollar of the S&P 500’s projected earnings over the next year.

For perspective, this multiple was 17.17 last October during the market low. This sudden increase in valuation could indicate growing investor confidence or irrational exuberance.

Unfortunately, timing the market is a fool’s errand.

Just ask Morgan Stanley’s Mike Wilson who wrote “While we are confident valuations are too high, we have little confidence in our ability to predict the exact timing or magnitude of this normalization.”

There are 2 reasons to believe it won’t be soon.

1) Sideline Liquidity

As the U.S. economy slows down, the Fed will likely begin its rate-cutting cycle over the next 6 to 12 months. As rates decline, CDs, high-yield savings accounts (HYSAs), and money market funds become less attractive.

Currently, money held in these accounts sits at record highs—over $6 trillion. This capital will come off the sideline, and much of it will flow into the U.S. stock market (worth ~$54 trillion).

2) Market Breadth

The stock market run-up has been tech-centric and top-heavy this year.

This is because Big Tech doesn’t rely heavily on debt, so elevated interest rates haven’t affected their bottom lines.

But soon, tech may not be the only game in town.

When the Fed lowers rates, smaller companies that do rely on debt to fund operations and make investments may begin to break free.

This shift could create a more broad-based rally across the market. In this case, we could see continued momentum even if tech valuations experience a minor correction.

4. Bitcoin Price Projections 👀

Chamath Palihapitiya of the All-In Podcast recently laid out ambitious price targets for Bitcoin, ranging from $500K to over $1M. Although he clarified these were extrapolations not predictions, a clear trend seemed to be missing.

Here's a deeper look at Bitcoin's post-halving performance:

1. 46x return in the 18 months after the 1st halving

2. 28x return in the 18 months after the 2nd halving

3. 8x return in the 18 months after the 3rd halving

Chamath applied a range of 8x to 18x (midpoint of the last two halvings) to the price of Bitcoin at the most recent halving on April 19, 2024.

However, the returns after each Bitcoin halving are clearly decreasing: 46x, 28x, and 8x.

This trend is because Bitcoin's total market value has significantly increased between each halving—from $130 million to $10 billion to $160 billion, and most recently to $1.25 trillion. As a result, larger investments are required to significantly impact the price.

For example, $15 billion has flowed into Bitcoin ETFs since January, boosting the $1 trillion asset class by 54%. Just imagine the impact $15 billion would have had back in 2012 when the asset class was 0.01% of the size it is today.

Of course, returns from bull markets are decreasing as well. Bitcoin appreciated 5,500% in 2013, 1,300% in 2017, 300% in 2020, and 254% in 2023.

As Bitcoin's market cap grows, gains from halving events should continue to decline but remain positive.

To offer a more realistic projection, I performed a similar exercise.

I started by looking at the rate at which each halving’s performance has declined. The 2nd halving’s 18-month return was ~60% of the 1st halving’s. The 3rd halving’s 18-month return was ~30% of the 2nd halving’s.

Next, I extrapolated to create 3 scenarios:

1. The 4th halving performs 30% as well as the 3rd. This yields a 2.34x return and a target price of $150K.

2. The 4th halving performs 25% as well as the 3rd. This yields a 1.95x return and a target price of $125K.

3. The 4th halving performs 20% as well as the 3rd. This yields a 1.56x return and a target price of $100K.

This range implies 40% to 110% upside by October 2025, which feels far more reasonable, especially with potential Fed rate cuts acting as a tailwind.

*As always, this information is for educational and informational purposes only and should not be construed as financial advice. Investing in cryptocurrencies involves significant risk, and past performance is not indicative of future results.

5. The Low Down on Zero-Down Mortgages 🏠

Zero-down mortgages are making a comeback in today’s tough housing market. With low inventory and high prices, these loans offer a way for buyers to enter the market without needing a hefty down payment.

How It Works: Let’s say you buy a $300,000 home. With a zero-down mortgage, you’d finance 97% ($291,000) with a standard mortgage and borrow the remaining 3% ($9,000) interest-free. The second mortgage ($15,000 max) must be repaid in full when you sell, refinance, or pay off the primary mortgage.

Pros:

1. Immediate Homeownership: Buyers can purchase a home without saving for years.

2. Preserve Cash: Keeping your cash for other investments or emergencies instead of a down payment.

3. Leverage on Rising Markets: If home prices keep rising, buyers can build equity without an initial investment.

Cons:

1. No Starting Equity: If home prices fall, homeowners could owe more than the home’s value.

2. High Risk of Foreclosure: Financial distress could force a sale, leaving the owner to cover the shortfall.

3. Locked into High Rates: To refinance, the borrower must first pay off the second mortgage. Without the cash to do so, they may be stuck with today’s ~7% mortgage rates.

In a strong market, zero-down mortgages can be a lifeline for those eager to buy now. They propel new homeowners into faster equity growth.

However, in a downturn owners are left with no equity cushion. If hardship strikes, they could find themselves underwater, facing foreclosure and damaged credit.

That’s all for today! For more insights, follow me on Instagram, Twitter, and at TheMoneyManiac.com.

Also, I’d love to hear your feedback. So please reply with comments – I read everything.

Until next time,
Daniel

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.