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Good morning.
It’s crypto carnage. A Bitcoin bloodbath. An Ethereum thud. A Dogecoin—woof!—drop. You get the picture.
It’s ugly out there, and crypto Twitter is a pretty glum place this morning. The pumpers, the HODLers, the newbies are all trying to make sense of this one-month 40% plunge. Overnight, investors wiped a further $280 billion, at one point, off the Bitcoin market cap. On a plus note, the Bitcoin faithful haven’t lost their will to meme their crypto bets forward.
Meanwhile, U.S. futures and global stocks are in the red, too.
What’s up? The dollar and gold. Yes, those traditional safe havens are climbing as stocks and crypto sink.
Let’s see what else is moving the markets.
Markets update
Asia
- The major Asia indexes are mostly lower in afternoon trading with Japan’s Nikkei down 1.3%. The Hang Seng is off for National Day festivities.
- 6,000 doctors in Japan have signed an open letter to the prime minister asking him to call off the Olympic Games as the COVID situation continues to look fraught. Hosting the games is already deeply unpopular there.
- India just reported the grimmest COVID tally yet, with 4,529 coronavirus deaths in the past 24 hours. It’s getting so bad that the Serum Institute of India warns vaccine exports will be delayed until the end of the year, a huge blow to the COVAX program.
Europe
- European stocks sank out of the gates with the Stoxx Europe 600 down 1.1% at the open.
- Stocks in Paris fared little better at the open. This despite it being libération day. After a grueling seven-month COVID-19 lockdown, restaurants, museums and all manner of shops will re-open today. Now restaurateurs are scrambling to find workers and everyone’s hoping for a break in the weather, Fortune‘s Vivienne Walt reports from Paris.
U.S.
- U.S. futures point to another weak open. That’s after all three major averages sunk in afternoon trading on Tuesday, led lower by tech stocks.
- The big retailers posted some knockout results yesterday, but, with the exception of Walmart, investors were unimpressed. Take Home Depot, down 1% despite CFO Richard McPhail telling Fortune the DIY giant sees the boom in house prices driving sales “over a multiyear period.”
- Tesla shares are down 2.2% in pre-market trading this morning. On Monday, it emerged that Michael Burry, he of The Big Short fame, has taken a big bet against the EV maker.
Elsewhere
- Gold bugs are happy. The shiny yellow stuff is trading above $1,870/ounce.
- The dollar is flat.
- Crude is off with Brent trading below $68/barrel.
- Bitcoin is down more than 13% in the past 24 hours, falling below the dreaded $40,000 price barrier. Who’s buying the dip?
***
Most overcrowded trade
On the way up, everybody’s an expert. With Bitcoin trading above $60K last month, all manner of observers pointed out that BTC was going all 🚀 on account of, you know, institutional investors.
Guess what? These crypto soothsayers got the “cause” part right. There has in fact been a surge of new money into crypto since the start of the year. A whole lot of money.
According to BofA Securities’ closely watched global fund manager survey, Bitcoin is not just a hot trade, it’s now the most crowded trade out there for this group.
As the chart above shows, “long Bitcoin” has now replaced “long tech” as the most popular trade among fund managers.
Today, that looks like an exceptionally bad call. As I note above, Bitcoin is off 40% from its April 16 all-time high.
But before we all pile onto these knucklehead fund managers, you can see some logic in their thinking. The 2021 tech trade isn’t going to earn any fund managers a big bonus this year. After yesterday’s sell-off, information technology is dead last—the worst performing sector in the S&P 500 this year. Why not move funds it into something hot, like crypto?
Still, something doesn’t add up. If the suit-and-tie crowd started putting so much client money into crypto why then is this big bet unraveling so quickly? Why doesn’t cause = effect here?
BofA has a theory, based on a bit of historical analysis.
“Prior ‘peaks’ in crowded trades (tech Sep’20 & Sep’18, US Treasuries Mar’20, US dollar Jan’17 & Feb’15) were associated with relative tops,” BofA writes in explaining that “top trades” tend to fall out of favor fairly quickly.
In other words, dear crypto pundit, financial assets have a tendency to go up and down.
***
Postscript
It’s mid-May. In this part of the world that means it’s time for the annual Giro d’Italia bike race. In today’s stage, the cyclists blast off from Perugia, the hilltop capital city of Umbria. They bomb downhill to Lago Trasimeno (site of Hannibal’s daring victory against the Roman army in 217 B.C.), and veer Northwest across the Tuscan border. From there, they circle the mountains and climb, ending with an up-hill sprint to finish in the spectacular town of Montalcino.
I’ve made this journey myself many times over the years—though never on bike—usually to stock up on a case or two of Brunello di Montalcino.
I love that the Giro d’Italia organizers are calling this one the “wine stage.” 🍷
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
Euro-style inflation. Consumers on this side of the Atlantic haven't yet seen the stratospheric price hikes for food, cars and houses triggered by the commodities boom and supply chain kinks the world over. Fortune's Christiaan Hetzner explains why European inflation remains such a puzzle to everyone but the economists (hint: they're excited it's coming.)
What is tapering? Lawrence Gillum of LPL Financial pens an excellent explainer on a term we hear a lot these days: tapering. There's a lot of concern that inflation will force the Fed's hand to raise rates. Gillum explains what that could mean for your portfolio. It's a quick, but timely read.
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Market candy
Quote of the day
I noticed there was one day where our sales dropped 30% year over year. I mean, we were growing 30% year over year. To see sales drop 30%, it was quite jarring. And to be able to be prepared for that was quite important. I think if we had not seen that presentation, we wouldn’t have taken it as seriously.
That's Sequoia Capital’s Alfred Lin, one of Silicon Valley's most powerful VCs. Before that, Lin was the CFO at Zappos working with the late entrepreneur Tony Hsieh. In a poignant feature, Lin opens up to Fortune's Michal Lev-Ram about the ups and downs of startup investing, and what it's like to lose a close friend and former business partner. You can read the full story here.
