✨ Crypto Made Simple ✨: What Are Stablecoins?
Stablecoins are cryptos that are pegged to the value of a non-crypto asset.
They’ve been around for a while. The first stablecoin was launched in 2014 and was pegged to the U.S. dollar. However, they weren’t a huge part of crypto until the last few years.
Heading into 2020, there were only about $5 billion worth of stablecoins in circulation. However, in just a few years, that number skyrocketed to $142 billion and counting.
The Importance of Stablecoins 🪙
Stablecoins play an extremely important role in the world of crypto: the intermediary between traditional finance and decentralized finance.
While a lot of the stablecoins out there aren’t decentralized, they serve as a way to keep your money on the blockchain in a relatively risk-free way.
So, when you want to cash out some of your crypto, you can just trade it for a stablecoin and continue to use that money in DeFi (earn yield, use as collateral, etc.) rather than cash it out into a bank account.
Keeping the Ecosystem Stable ⚖️
I think it’s safe to say that the explosion of stablecoins in 2020 and 2021 was a huge reason for the vast and rapid adoption in the space. And during the bear market, they’ve undoubtedly kept a lot of money in the crypto market by offering a crypto asset in the form of fiat.
At this point, most stablecoins are pegged to the U.S. dollar, although alternatives like the Stasis Euro have been around for a while as well.
More recently, we’ve seen Circle — the company that issues USD Coin (USDC) — and Tether — the company that issues Tether USD (USDT) — branch out to new assets.
Last May, Tether released Euro Tether (EURT), and this past July, Circle released Euro Coin (EUROC).
Tether also has stablecoins that are pegged to a variety of other fiat currencies, such as the British pound, Mexican peso, and Chinese yuan.
Outside of fiat, there are also some stablecoins that are pegged to the price of gold. Tether Gold (XAUT) and Paxos Gold (PAXG) are the two largest, with a combined market cap of almost $900 million.
There are also several different types of stablecoins in terms of how they’re pegged to each specific asset. On Friday, we’ll go over a few of these ways — and how the stablecoin industry has evolved over the past few years.
Airbnb 🏠 Overview
Now that we’re pretty much done with earnings season, we’re going to get back to our usual overview of the 21 Disruptors Index. This week, we’ll take a look at Airbnb Inc. (Nasdaq: ABNB).
For a quick update, watch the video below! 👇
I’ll be the first to admit I was somewhat skeptical of ABNB 0.00%↑ at first, but 2022 has been a breakout year for the business.
Like any growth stock, its share price is down … but the fundamentals of the company are impossible to ignore, and I believe it has a very bright future.
ABNB 0.00%↑ has just about every quality I look for in a disruptor: It’s profitable and an industry leader, it has positive cash flow, solid reinvestment into growth, and brand power — and, of course, it’s disrupting the $716.8 billion global travel/tourism industry.
Founded in 2008, ABNB 0.00%↑ immediately had its work cut out for it as it faced one of the worst recessions in recent history right out of the gate.
However, this is where the gig economy can really shine: When the economy is in a downturn, people look for ways to earn extra income. In this case, people didn’t mind renting out their homes to guests for a little while to help pay their bills.
Now, Airbnb has not just established itself as the dominant force in the $32.8 billion “alternative accommodation” industry with a 40% market share — I’d also argue, as its CEO did, that it’s become its own vacation rental market.
What I mean by this is that it’s in a league of its own when it comes to directly matching travel hosts and guests all over the world. This creates a clear supply/demand market.
Thanks to ABNB 0.00%↑'s “I’m Flexible” feature, travelers are shown less “touristy” places they might not have otherwise considered. This creates demand in more areas, and the supply of hosts in those areas grows in response.
And despite the tough macro environment we’ve seen this year with inflation, people are still choosing to travel — even if it’s on a tighter budget. That results in higher demand for budget stays as opposed to luxury.
This flexibility has proven itself this year as non-urban stays are higher than they were pre-COVID, and the active supply of listings is up 15% over the past year.
This has clearly translated into ABNB 0.00%↑’s financials as well…
Numbers Don’t Lie 💸
Back in 2020, when hotels and airlines were seeing revenue plummet by 60% to 70% or more, ABNB 0.00%↑’s fell by less than 30%. Since then, it’s been on a tear.
The company's expected revenue this year is $8.34 billion, which comes out to 73.5% growth since 2019.
Meanwhile, many other travel companies are just now getting back to sales numbers of 2019. Booking Holdings — ABNB 0.00%↑’s largest competitor — has just 11% revenue growth since then.
ABNB 0.00%↑ is also in excellent financial shape. It’s racked up $3.3 billion in free cash flow over the past year, and its Q3 balance sheet showed a total of $9.62 billion in cash and equivalents versus just less than $2 billion in debt.
This gives it plenty of runway going forward!
Performance Update
Performance:
Disruptors Index: -1.82%
S&P 500: -0.68%
Nasdaq: 0.25%
Russell 2000: -1.46%
ARKK: 0.19%
Top 3 Performers:
Enphase Energy Inc. (Nasdaq: ENPH) +5.13%
Ethereum (ETH) +4.76%
The Trade Desk Inc. (Nasdaq: TTD) +2.94%
Bottom 3 Performers:
Energy Fuels Inc. (AMEX: UUUU) -9.1%
Desktop Metal Inc. (NYSE: DM) -8.33%
DocuSign Inc. (Nasdaq: DOCU) -7.8%
The past week has been a mixed bag in terms of performers.
On a positive note, ENPH 0.00%↑ Enphase Energy Inc. made new all-time highs on Friday and Monday and was our top performer for the week, and our two crypto holdings were both positive for the week.
However, commodities stocks continue to struggle, with UUUU 0.00%↑ being the worst performer, and MP 0.00%↑ MP Materials (NYSE: MP), LTHM 0.00%↑ Livent Corp. (NYSE: LTHM), and CCJ 0.00%↑ Cameco Corp. (NYSE: CCJ) all down for the week.
We do have one more company reporting Q3 earnings tomorrow with DOCU 0.00%↑. We’ll go over that report in next week’s update.
The State of U.S. Manufacturing 🏭
For the last few months, I’ve been updating everyone on the Conference Board Leading Economic Index (LEI), as it’s a great gauge to see if there are signs of potential economic strength or weakness down the line.
Leading indicators are economic data that typically start to get weaker many months in advance of overall economic weakness and bottom out ahead of the economy and the stock market.
First, you see strength or weakness in leading indicators, then coincident indicators, and then lagging indicators.
To me, they’re the most important economic data to follow, as they can tell you when rough times are likely to be around the corner.
As you can see in this chart, leading indicators have been in a very strong downtrend for over a year:
The COVID-related economic policies overheated the economy so much that it’s taken a while for these indicators to go into recession-predictive territory, but we’ve now been there for a couple months.
Last Thursday, we got the ISM Manufacturing Purchasing Managers Index (PMI) report for November, which tracks business conditions for the United States manufacturing sector.
Generally, the Manufacturing PMI is seen as a mix of leading and coincident indicators, meaning it’s a more imminent sign of where the economy is headed in the next few months.
This is an old chart, but it shows the relationship between the Manufacturing PMI and the direction of the Wilshire 5000 index, which covers just about all the stocks traded on U.S. exchanges:
As you can see, it’s a pretty direct relationship without much of a delay.
Here’s a look at November’s PMI Data:
Any PMI reading above 50 means that the economy is expanding in that area, and a reading below 50 means it’s contracting.
Overall, the Manufacturing PMI came in at 49, making November the first month that the PMI showed economic contraction since May 2020.
Other than the COVID crash — which we can chalk up to an anomaly — the most recent sub-50 reading was only a little bit earlier in December 2019.
Looking at the details, we can see that the most-impacted items in November were Customers’ Inventories (+7.1), Backlog of Orders (-5.3), Imports (-4.2), and Prices (-3.6).
These are all related, and they’re all pointing towards companies slowing down their orders due to inventory buildups.
This is also an area where the disruptors stand out. Many of the capital-intensive companies in our index are seeing rising backlogs, signaling demand in an economy where backlogs as a whole are sinking fast.
One thing that really sticks out to me is that inventories are still contracting (sub-50), continuing a 74-month trend. Within the next couple months, I expect that to turn positive.
This would mean that aggregate manufacturing inventories would be expanding for the first time in over six years.
That’s a huge signal that deflation is coming — at least in manufacturing. It’s also the reason that imports and backlog of orders are both decreasing/contracting at faster rates.
Because of the relative inventory buildup, companies are curbing their spending rapidly.
They’re going to have to decrease prices in an environment where demand for goods is already minimal, and it likely won’t get much better as that type of demand is driven by the housing market, which we know is extremely weak right now.
Markets Going Risk-Off 🚨
Over the past couple months, we’ve seen a huge upswing in the most defensive parts of the market.
At the time of writing (Monday evening), the SPDR Consumer Staples ETF (NYSE: XLP) and the iShares 20+ Year Treasury Bond ETF (NYSE: TLT) have both rallied around 15% from their recent bottoms, yet other parts of the market like growth haven’t budged.
This is a risk-off signal, as people are flocking to the “safe havens” once again.
If I had to guess, I’d say this is due to all the activity that we have coming up next week.
On Tuesday, we’ll get the November CPI data, followed by the FOMC meeting on Wednesday when the Fed is expected to raise the Fed Funds Rate by another 0.5%. And to end the week, we have a huge futures and options expiration day on Friday.
As a reminder, we’re in the middle of a years-long transitional period where the companies that are overly reliant on debt and seeing no growth are still seen as “safe.”
It can be frustrating to see the flight to safety go to companies with little to no growth and massive debt reliance in a high-rate environment.
However, I still expect that this trend will continue to change every quarter as earnings reports show who has the real growth: the disruptors.
For more guidance and coverage on stocks I believe we can profit from in an uptrend or downtrend, check out my options service in our Platinum Membership!
We recently locked in a gain of 55% in just a few days on ABNB 0.00%↑!
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