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Alex King from Cestrian Capital Research and Growth Investor Pro on staying calm in volatile and confusing markets (0:35). We’re early in the AI demand cycle (1:50). Quantum computing and government intervention (11:40). Tesla earnings (13:35). Why gold’s gotten ahead of itself (17:30). Intel and semiconductors (21:10).
Transcript
Rena Sherbill: Very excited to welcome back Alex King from Cestrian Capital Research and Growth Investor Pro on Seeking Alpha. Alex, always fantastic to talk to you. Welcome back to the show.
Alex King: Thank you, Rena, and thank you for the invite. Always delighted to be on. Much appreciated. Thank you.
RS: Absolutely. Now more than ever, I think we need some cogent analysis about what’s happening in these markets. We’ve had Tesla (TSLA) earnings, we have a government shutdown, we have quantum and government and so many things to pick at and decipher. What are you thinking about most of all? What are you looking at in these markets?
AK: Yeah, mostly I’m focused on maintaining a zen-like calm.
RS: Good luck with that.
AK: It’s really easy to get caught up in the noise. There’s a huge amount of noise. if you spend any time at all on social media, particularly X, you get buried. And it’s really hard to focus on things that matter. It’s hard to get a fix on, is the market in an uptrend or is it likely to roll over soon?
It’s really easy to get distracted by politics because whether you are vehemently pro, vehemently against the current administration, that tends to color your own assessment of investment opportunities. Of course, that’s not where you want to be. You want to be cold and distanced.
So truthfully, my own focus is on that, which is just try and keep out of fray and focus on price, volume, and where appropriate, fundamentals. I just keep it really, really as cold as ice. I think that’s the trick right now.
RS: What would you say about the tech space right now that you’re looking at in terms of the obvious players, this AI bull market, that people are waiting for it to explode, other people are waiting for it to reach ever higher?
What would you say about the AI part of things and also how much those names are driving market sentiment these days?
AK: Clearly the top seven stocks in the S&P (SP500) are power in the S&P. And there’s a great Howard Marks podcast out this week or last week where he basically opined that, okay, the Mag-7 are not particularly ridiculously valued. But the things that he worries about are the other 493 stocks.
I think if you look at the AI boom, if you look at the unit growth, in other words, GPU shipment, server shipments, data center builds, kilowatts of power provisioned. That’s gonna keep going up.
I think we’re early in the demand cycle and we’re sort of at the stage where lots of companies, large companies have started to adopt AI. They’ve run in, they’ve dashed into it as they should, struggling a little bit, I would say with use cases, struggling a little bit with the true economics.
So which tasks can you use an LLM for and which not, which head count can you get rid of and which not. And any white collar employee at a large company is figuring out how do they take advantage of AI and not get swamped by it. So I think in the real world, it’s early, it’s very early.
The technology is, you when you first start using it, it’s really impressive. And you don’t have to be too far into it to realize its limitations.
So I’ll give you a very simple example. We obviously produce a ton of earnings analysis. And what we would love to do is have an LLM, the minute earnings printed for any of the companies we cover, we cover 50 or 60 stocks. Basically go and compile a custom spreadsheet based on how we’d like to prepare the numbers and then say, hey, the spreadsheet’s ready. Now you can write your thing.
Enamored with the idea of AI actually writing the stock analysis. It tends to be too generic, but it should be able to fill the spreadsheet. And so far, I gotta tell you, it just doesn’t.
We tried many tools, all the big LLMs and some niche tools as well, and it’s still not there. And so for what you would think would be a relatively simple task, which is go and look at a press release, pull some SEC reports from the web and compile a spreadsheet, which looks the same every quarter. It’s still not there.
So it’s early and, again, in the real world, we’re probably going to enter the trough of disillusionment stage soon where people get frustrated about what it can and can’t do. And very often in technology cycles, that’s followed not too far behind by a drop in valuation multiples because excitement about technology falls.
I’m old as is obvious. So I’ve been here for the dot-com boom, the mobile boom, the social media boom. All of these things and then we’ll basically the same, which is everyone correctly gets all excited about a new technology, bids the stocks up reality lags for a while. The stocks fall back.
Reality quietly catches up while the stocks are on the floor. And then all of a sudden people wake up to them again. And the mainstream wakes up to them again. And then the companies and the stocks take off. I have no reason to suspect that the AI cycle will be any different.
If you look at the stocks right now, is Nvidia (NVDA) expensive? It’s not expensive based on its growth and its margins. It is expensive if you think it’s a monopoly that a lot of folks are gunning for at some point, someone’s going to succeed in deflating its market share, deflating its margins.
So the trick with all these things, I think is, know, don’t assume anything is forever. Learn to use stock charts. There’s no more reliable measure of price than price itself.
Don’t be swayed by a narrative, just look at price behavior. If price is going up, well then price is going up. If it’s going down, it’s going down. And just ignore the hype one way or the other.
RS: We had Kirk Spano on from Margin of Safety Investing, and he was talking about how the LLM model will be commodified at some point, and that will really change the investment thesis. Or inherently, it’s a different investment thesis than people may think it is. What would you say to that notion as it develops?
AK: Yeah, I think that’s a smart insight. If you think about the LLM, I’m going to slightly torture comparison this and, know, pure techies will pull me apart for this. But if you think of the LLM as a kind of operating system, and obviously it isn’t an operating system, I understand that, but a kind of platform upon which applications can be built, then he’s probably right, which is there will emerge two or three, you know, dominant by market share LLMs.
And people will write domain specific applications on top of those LLM. So you’ll find apps for Gemini, apps for ChatGPT and so on and so forth. I think that’s probably correct because you know, the time to put huge dollars into building, training, nuancing a brand new LLM, that’s probably in the rear view.
At least in the current incarnation, a thing that interests me is if you think about the way that LLMs are built right now, the software design is what leads to this colossal compute and power requirements. So right now, to be very simplistic about it, what does an LLM do? It comes up with a pattern and it says based on everything it knows about the world.
What’s the next value likely to be in that pattern? And it makes educated guesses. And in cryptography, there’s a phrase called a brute force attack. And it’s a bit like a brute force attack, where you have to deploy an enormous amount of computes to make an educated guess as to what the next thing that’s going to happen is.
And I suspect that the thing that will change the cost model for AI, the thing that will lead to just a 10x reduction in power, a 10x reduction in compute requirement is a different approach to the LLM.
What I mean by that is, if you think about two different people, a formal rational person and a very emotive person, a formal rational person in the conversation will follow the conversation literally and will try to think about what is it that a rational response should be to the thing that was just said to them.
Whereas an emotive person will tune into all of the cues and signs that are not in the words. And it seems to me that they’ll respond more fluidly, more naturally, and with less effort.
If you’re a formal rational person, you come home from a day at the office much more tired than an emotive person comes home because it’s been harder work for you.
And I think LLMs are a bit like that. So I suspect that coming down the path at some point will be an LLM that’s built on different methods, better understanding of the patterns they’re looking at. Stock trading algo is similar. We develop and sell a whole bunch of algo services.
They essentially do the same thing. They look at prior patterns and they try to guess what the next price movements are. But they’re pretty computationally intensive.
At some point, the world’s going to run out of power and compute. And the model has to change. I think, in the end, the thing that changes this bottleneck you’re seeing it. I mean, you just can’t get enough power provisioned in the United States. It’s not possible. You can’t get it quickly enough to the data center that people want to build. It’s not possible. You can’t ship enough GPUs quickly enough to the people that want them.
So that has to change. either AI falls on its feet, no, sorry, falls on its face and just goes away. I don’t think that’s likely.
Or something changes. So I think that LLM design could change and that would then not be a commodity, it be a different kind of platform. And/or we could see much more efficient silicon and silicon programming software, by which I mean obviously the CUDA platform that Nvidia uses.
So you can see Broadcom (AVGO), Arm (ARM) and other people gearing up to sort of pick away at Nvidia’s market share and if Arm gets to play a part in that arm is much lower power by design at its core has been for 30 odd years.
And so that’s another way I think where the current setup of vendors, the current set up a buildup could get deflated.
So the thing I would look for is watch price in all these names, at some point, at some point, this roaring bull market will correct. Of course it will.
That could be tomorrow. Could be in a year, could be five years. I don’t know, but of course it will correct. And so you have to watch for that.
And secondly, if you look at changing the garden vendors and video has been dominant for a long time now and all empires fail and Nvidia will be no different. And when it comes down, when it comes crashing down, it’ll be the hands of somebody that delivers 10 times.
I think power performance, traditionally in something that true it was a 10 times improvement in cost performance, but this time I think it’ll be power performance because power requirements translates to total cost of ownership for the data center vendor.
So I think there’s plenty of stuff to watch out for, but I don’t think one should convince oneself that because all these things are likely to come down the path, it’s all over for Nvidia and all these data center stocks now.
While the price is going up, again, the price is going up. You have to separate price analysis from things that may happen in the future and just have those on your radar that might hit price in the future.
RS: And then do you have any thoughts? I’m sure you have some thoughts, but any opinions you’d care to share on this, on the US government getting into quantum names?
AK: I don’t to be honest. I mean, quantum, the stocks have clearly been on a tear. And it’s a bit (GME) like, there’s a retail enthusiasm for them. They’ve been driven up on momentum alone. That’s fine. You can make a lot of money doing that as long as you know what you’re doing. They dropped a lot in last few days. I made a little bit of money shorting those last couple of days.
I’ve got out thankfully just before the government announcement, because I thought, well, short games in the bull market, they’re usually ephemeral, so don’t be greedy. And, you know, is quantum a technology of the future? Probably.
The question is whether these smaller vendors, know, IonQ (IONQ), Rigetti (RGTI), D-Wave (QBTS), all these names, whether they’ll be the leaders or whether your Googles (GOOG) (GOOGL), (IBM)s, Microsofts (MSFT), whether they’ll be leaders. And I don’t know.
I think if you listen to the founders of those companies that they’ll all tell you that the quantum advantage is quite some way away. Google made some announcement yesterday about having found some quantum advantage. So I think it’s one of these things where in 10, 20 years, we’ll look back and go, yeah, there you go.
Those are the killer apps, but we’re not there yet. And so I think that the stock prices, even if they’re supported, let’s say this federal government investment comes to pass and it actually happens, they’ll get some support from that as Intel (INTC), but that doesn’t change the fact that the prices are far, far above fundamental.
I don’t plan to invest any of those stocks personally. If they’re run away successes, I can live with missing them. The risk is, the risk of reversing to any sort of fundamental basis is so huge that for me to keep away and congratulations to anyone that enjoyed the run up, it’s been tremendous. But I think one has to be careful at these levels, will be my take.
RS: Speaking of being careful, what would you say about Tesla’s (TSLA) earnings this week? It had a bit of a drop post earnings, some questioning about what’s coming down the line and how much excitement there is to be had or how much excitement is warranted.
What would you say to Tesla bulls and to Tesla bears and to just market observers about Tesla?
AK: Well, I own Tesla stock. It’s not a particularly large position, but I do own some stock and I own it because I think they’re going to merge it with xAI. And I think that that’s a sort of a no loser scenario. know, Tesla as a car company, obviously has challenges. Its leadership and EV is slipping. Federal tax credit situation is changing. Any, you know, you can’t come up with Tesla’s
price based on any comparison to the fundamentals of the car or the energy business. But if you think about xAI, know, xAI is a pure play LLM business. And right now, most people can’t invest in it.
So if you merge Tesla and xAI, and I’m pretty sure they’ll do this, then right away, you give the market a pure play vertically integrated, this is how they will describe it, vertically integrated AI robotics, LLM, and probably Twitter’s in the mix there somewhere.
Most people can’t invest in OpenAI (OPENAI) or any of these other names. So I would imagine that will get some pretty successful capital markets marketing, I think it’s to the benefit of the stock.
If you’re an xAI shareholder today, you have some liquidity, of course, these high profile, highly valued private companies are not completely liquid, but you don’t have the liquidity of a public stock.
And so I think if and when the two companies are brought together, xAI shareholders get liquidity. They get all sorts of other securities that will be created based on the underlying common stock and Tesla shareholders ought to get a re-rating based on the excitement of the new model.
So that’s my logic for owning it. The earnings of the vehicle company, I think are somewhat incidental to the stock. That’s okay. Many such cases. So I think Tesla has a bright future, but I think it’s based on a combination with xAI. That’s my opinion.
RS: Were you surprised by anything in the earnings or what was said in the earnings call?
AK: Not really. think it’s a pretty mature setup, Tesla and its shareholders. think everybody who is a long Tesla shareholder understands that you’re not investing in an auto business. You’re not investing in an energy business. You’re not investing in an optimist robotics business.
You’re investing in Musk and Musk will succeed for as long as he succeeds and then like everybody at some point, he’ll stop succeeding. But if you look at the discussion over the comp plan right now, so I voted for and I voted my shares in favor of all of the board’s recommendations.
And it puzzles me as to why anyone would vote against really, because I mean, is it corporate governance 101 to have your CEO capable of earning a trillion dollars, which is certainly unusual. Would you teach it in a civic ethics class? Probably not. But is it a good idea as a shareholder to have the CEO highly motivated to get the share price moving up? I think it is.
I think Tesla bulls, Tesla holders are there for the Musk lottery ticket. And Tesla bears, who have been bearish on the same point for a very long time, are of the opinion that well, it’s just a car company and a failing one at that. It’s losing market share, the vehicles are old. Where’s the full self driving, blah, blah.
And of course they’re correct on fundamentals, fundamentals are only peripherally related to stock prices and Tesla more than most is not driven by fundamentals. It’s a more mature version of the quantum stocks we’ve just talked about. So no, there’s no surprises, particularly for me.
I think the stock has a bright future, but I don’t think it’s because of cheaper electric vehicles. I think it’s because of the X-AI Mojo.
RS: Anything that you would say about what’s happening between gold and the broader markets and this run that gold and silver have been having and the run that the markets have been having, anything that you would provide contextually or highlights that you feel like investors might not know enough about?
AK: I think gold’s gotten ahead of itself, in my opinion. So for disclosure, I made some money on the way up in gold. have an ETF rotation algorithm that we use that was long (GDX) and (GLD) for quite some time. So that did really well. And then I made some money on the way down in the last week. Again, I got out, I think two days ago using the (GLL), two times short, ETF and then the short (IAU) spot price ETF.
Gold, think, is a fear purchase. And the thing that made me take a short position, it only held for a few days, but it did quite well, was the pictures of people in Australia queuing up to buy physical gold. I mean, this is just a complete overreaction. If you look at what’s happening around the world right now, there is a reconstruction of the post-World War II world order. And the pieces will land where the pieces will land.
Nobody knows. The actors don’t know. The general population doesn’t know. Journalists don’t know. Political analysts don’t know. No one knows. But it’s changing. And so I think the gold purchase is a fear-driven reaction to that. People will say, inflation. But there isn’t any evidence that inflation is rising. More likely, inflation is cooling.
The Fed’s held rates are pretty chunky level. Compared to recent history, not compared to long run history, but compared to recent history, you know, fairly high level for some time now. There’s some evidence of some weakness in the real economy. So I don’t think that inflation is a big risk.
I’m not saying it can’t tick up, but the idea that inflation is going to moon, there’s no data for that yet. You have, I think, a general worry driving it. And again, I think it’s fear of change. So people will point to tariff policy or the China policy or Russia policy or any number of things that are unfamiliar to them.
And there is a dash to something that feels comfortable, which is physical gold. And I think it’s gotten ahead of itself. Of course it can go up, could double tomorrow, who knows. But I think it’s premature. So yeah, we’ll see. Just look at a chart in a spot gold. Charts like that can’t keep going up at that rate forever. They just don’t.
Probably there’ll be a reset and then perhaps another move up. I don’t know. But I think this recent dramatic run to the upside, that’s a bit of speculative further. Another way to look at it, again, in the spirit of staying ice cold, for anyone who has access to stock charts, you can do this within Seeking Alpha. Don’t just look at the price, look at the volume and try and look at the volumes transacted in gold futures or the gold ETFs up here at the highs.
Tiny. So what you don’t have up at these levels is big institutional buying. You have retail and small momentum players buying. That’s not evidence of a big rush to gold from the institutional investor base.
If anything, you look at the volume profiles, that happened some time ago. And I would expect them to be the large investors to be starting to take some profits around this time, or take some hedges.
This sort of goal continuing its race up, I don’t buy it personally. We’ll see, but that’s my take.
RS: You’re not alone in that take, I would say a lot of comfortable positions on that side of the aisle.
Earnings wise, we talked about Tesla reporting this week. We have Intel (INTC) coming up today. It’ll be after our conversation, obviously. Anything that you would say – Intel has been in the news a lot, also speaking of government help or intervention. We’ve got some government help with Intel as well. I know that you brought a semiconductor chart with you.
If you’d care to share that with our audience. That would be insightful for them and helpful how you’re thinking about that space or that space within the tech space.
AK: So I’m going to show you the (SOXX) ETF. So this is not Intel specifically, but it’s worth, with any single-name stock, you always have to situate it within the overall market and also within its overall sector.
So this is a slightly messy chart. So let’s talk about semiconductors and then let’s come back to Intel. So this is the SOXX Semiconductor ETF. I like this ETF. It’s pretty well balanced between the top vendors. (SMH) is another popular one, but it’s heavily weighted to Nvidia, which means it jumps around a bit more than SOXX.
This is the April lows down here, post-liberation day lows. So it hit a 148 low. We use a couple of different methods for charts. Elliott waves and Fibonacci levels, as do many, for guesswork basically as to where over a period of time might the stock or the ETF go to. And we also use moving averages as a matter of fact to look at them as tripwires on the way down and the way up.
Post-liberation day lows, so it hits 148 down on April the 7th, which was the bottom for pretty much everything in the market. We then get the famous presidential tweet, great time to buy.
Hopefully people took that as a signal, because one thing I would say about this administration, like or dislike the administration, doesn’t matter, you get plenty of signal from them. So this was a screaming buy point here.
We got a big run up to 186 within a few days, a normal sort of pullback. And then we’ve just been in this tremendous run up for semiconductors from around the 22nd of April for let me see, six months now. Yeah, six months almost to the day. Which moved from 162 to right now, 290, remarkable.
And the question I think is at what point does semiconductors become a source of funds? So explain what I mean by that. If you’re a large account investor, there are many ways to make money, but one way to make money is rotation.
You’ll buy a sector at its lows and you’ll wait for, or perhaps see some good news stories, have the sector run up and you’ll take gains at some major highs and then go put your money somewhere else.
So at some point when the sector’s run up as much as semis have, so again I remind you, 148 April the 7th, 291 right now, when it’s run up that much, you’re going to see people at some point take capital out of that sector and rotate it into sectors that are not as run up.
And so it’s possible, possible, that we see semiconductor as a source of funds and enterprise software, for instance, as a use of funds.
So basically capital pulled out of chips and put into software because most of the software stocks, most of them are quite beaten up. Not unreasonably on fear of AI replacement and so on and so forth.
So the big question with semiconductor right now is, I think, has this topped? Arguments why it’s topped?
Well, it’s at a big, big, big Fibonacci extension. So for those familiar with the system, this way through here is around about a 3.6 extension. That’s a big move up. It also on a much simpler level, it just can’t really break SOXX. It can’t really break 292 for any period of time. It’s been trying since the sixth of October and we’re now on the 23rd of October.
So for more than two weeks, it’s been trying to push up for that level. It’s failed one daily close above it. And what does that tell you? It tells you that’s resistance, that’s resistance right there. It tells you that aren’t any buyers of any size for SOXX over 292. So it could be that this is just consolidation, mostly some sideways action on another move up.
That definitely could be, but it also could be that the sector is going to turn down. And again, not because it’s the end of the world, just because there’s plenty of profits to be had here, time to take them and go and do something more interesting with them.
So I’m watching semis pretty carefully. And the way we do it is we look at these tripwires, these moving averages, the red line here is the eight day simple moving average, green line, 21 day exponential moving average, blue, 50 day simple, purple, 200 day simple. And so very simple rule of thumb. It’s not very scientific, but it kind of works is, if the eight day trips from above time to have your antenna often be concerned.
So it’s done that a couple of times. S double X here, green line, the 21 day exponential moving average trips from above. Okay, that’s time to be concerned. And my rule of thumb is two daily closes below that. Now forget intraday, it doesn’t matter, but two daily closes below that. That’s time to be truly cautious. So it’s time to maybe take profits, reduce exposure, hedge something, but just be careful.
So I think semiconductor is, it might be rolling over now. Now I’ve thought that could happen back here as well. And frankly, back here. So it’s run up very aggressively, but at some point it will roll over and that could be now. So you have to be a little bit careful with chip stocks right now, I think.
Now, if we talk about Intel, I remember talking to you, gosh, a long time ago now and saying, gosh, was probably 18 months, maybe two years ago and saying, I thought Intel was a great opportunity because it should be a benefit of reshoring of semiconductor manufacturing back to the US and that proved to be a great idea, but it was about 18 months too early. It took a long time to come to fruition, but that is what you have now.
It’s only a 5 or 10% ownership state, but it’s essentially a state owned enterprise in the way it behaves. And again, you can agree or disagree with this policy, but the policy the administration has decided to take is that if it’s going to truly reassure semi-native capability, it needs a vessel to do so, it can’t just hope that companies play ball.
So you can see the China policy as regards NVIDIA exports. You can see the domestic policy as regards to the Intel capital investment. You can see its policy of getting third parties to invest in Intel. You can see Intel basically becoming a vehicle for US sending that to excellence.
Now, whether that all comes to pass in an actual operating business, who knows? The history of government driving companies is not desperately good, as everybody knows.
But can the stock keep running out for a little while? It probably can. It looks like Intel is having some success with its 18 angstrom plant. That’s the most advanced node at which it operates. It looks like, if only for political expediency, you’re gonna have lots of vendors coalesce around the idea of Intel fabricating their chips. And probably that has some upside for the stock.
The fundamentals on Intel, we’ll see what the numbers are when they print, but mean, they’re not going to be dramatically different. It’s too hard to turn a company that size around quickly. It’s not going to suddenly become a great business. It isn’t a great business today. Growth is poor to non-existent, cash flow is terrible, balance sheet stretched. So it’s not suddenly going to become a wonderful fundamental business to own. But there’s a good chance I would say the stock can run up further.
Big question for me is can it actually become the sort of business that people hope it can? Could it be a successful holding company for want of a better argument? You’re a venture capitalist as a CEO, someone skilled in capital markets operations. Could it be good at that? Yes.
Could it become, once again, a really successful cash generative manufacturing and design business? That’s a much higher hurdle. And so I personally wouldn’t hang my hat on that.
But can the stock go up? Sure, the stock can go up. Doesn’t mean it necessarily will on earnings, of course. But if you zoom out a bit, does it an upside from here? Probably yes.
RS: Lots of shoulds and coulds in this market, right?
AK: Yeah, that’s right.
RS: Speaking of shoulds and coulds, I think that’s a nice segue into the crypto scene. Lots of highs, some lows in that part of things. What would you say this, think also, you know, blends in really nicely with the conversation of government being able to prop things up, government not being able to, not wanting to prop things up, investors and observers looking at a pretty to very confusing market, wanting to park their money somewhere that they feel like might be absolved from some of the shenanigans that some people might be calling things. What would you say about the crypto space? What would you say to investors? What should they be keeping in mind there?
AK: Well, I was late to crypto, but it’s been good to me.
RS: That sounds like the beginning of a country song.
AK: I remember when crypto got started and I remember the Mount Gox episode and the guy with his USB drive, the bottom of the municipal dump and all of that, that looms large in my head.
I’ve avoided crypto entirely until I could buy it with a BlackRock wrapper. And so I own (IBIT), the BlackRock Bitcoin ETF, I own (ETHA), the BlackRock Ether ETF, and I own three of the Ether treasury companies being Bitmine (BMNR), SharpLink (SBET) and Ethzilla (ETHZ). I think crypto has some upside in it yet.
What do ( mean by that? I think that when the market turns, I don’t buy for one second this idea that crypto is a hedge against anything really. I think it’s the highest of high beta investments.
And when you have a red hot market, it’s a little high. And when the market turns, the next bear we get, it’s probably going to be a pretty brutal bear because the bull has been so aggressive. Then you only have to look at what happened in 2022. And whilst you can wheel out an army of crypto, let’s call them influences to tell me that that won’t happen.
I don’t believe it. I can’t see any reason why crypto wouldn’t dump mightily at the point where the NASDAQ is selling off hard. I think if you look at the events of October 10th and they’re starting to be well documented as a fantastic newsletter by Molly White that you can find anywhere on the internet, it’s on Twitter, it’s no paywall.
That just sets out in very stark terms what happened at the various crypto exchanges and why the immature nature of those exchanges and the lack of traditional securities infrastructure rules and regulations meant that so many people were wiped out in conjunction with the huge leverage that people had and where if you run a margin account for securities, you have to pose US dollars as your equities, your collateral.
But in some of these crypto exchanges to borrow money from more Bitcoin, your collateral is also Bitcoin and lower order coins as well. So that was a big collapse. It’s not really surprising.
The question for me is whether it’s really killed the golden goose in the lower order coins, because there is an awful lot of people on crypto Twitter, which is a very special place, who have a view that I’m done. I had what I thought was a lot of money. I now have no money and I’m never doing that again.
So I suspect the intent of the sell-off was your normal market shakeout. It happens in all stocks from the most boring to the most exciting, an altcoin. So nothing unusual there. I suspect the intent was something of a shakeout. Get rid of some leverage longs, be able to buy up at the lows, but because of system failures and excess leverage people were hit very hard.
What wasn’t hit particularly hard is the spot price of Bitcoin (BTC-USD) and the spot price of Ether (ETH-USD) went down a bit. Bitcoin though held fast at the 200 day moving average and bounced right back up again during that hour or two after the equities market closed on the 10th.
And the other thing that wasn’t hit particularly hard is the ETFs, the large liquid ETFs has something like 86 billion dollars of assets under management. ETHJ is something like 15 billion dollars under management. they’re big ETFs and they sold off someone. But if you held your positions in those ETFs, you were fine. Just garden variety sell off.
So for me, the way to play crypto, if you want to do so, is to play it the way big money plays it. To me, if BlackRock’s ETF goes to zero, that’s a big problem for BlackRock. It’s more BlackRock’s problem than it is mine. And there’s a sort of element of safety there.
So for me, for the remainder of this bull market, I think there is upside to be had in Bitcoin and in Ether. The lower order coins, I don’t know. I saw Citadel today made an investment in a Solana (SOL-USD) vehicle. We’ll see. I personally think that the top two names are the ones that have the best risk reward, put it that way.
And at the point where this market reverses, plan personally to be out of all those names because I think it’s just that they’re essentially speculative vehicles. We can get into the utility of ether and tokenization and that is the thing for sure. But that doesn’t mean that the price has to stay up in the unit volume usage goes up.
RS: So much more a fan of the ETFs in this space?
AK: Yeah, yeah, for sure. I mean, I can’t personally countenance the notion that I value held at a crypto exchange, which is not subject to all of the US securities regulations, or I don’t know if it’s better or worse, but I know if I held crypto on a hard wallet, definitely, an offline wallet, I definitely would be that guy searching in the municipal dump to see where my crypto was. I know I would be that guy. I’ve always known that, which is why I’ve never done it.
So the ETFs, perfectly good way to do it. And you know what, you can treat them like any other stock. can even, if you want to play long short Bitcoin. There’s (BITO) and (BITI), long short based on Bitcoin futures, ETF pair, all the things that you ever want to do, you can do.
I don’t really understand the need to go native crypto. Unless you are unable to participate in US ETFs. If you’re outside the US security system, okay, then you don’t have as many opportunities.
If you’re a regular US investor, you have those ETFs. I don’t really understand why you go anywhere else to be honest.
RS: I said once a few months ago that the ETF space now seems like the app space when the iPhones were just coming out. Like there’s an ETF for that. You want to do something? There’s an ETF for that.
AK: Yeah, that’s right. That’s right. And now there are leveraged ETFs for everything as well. So that’s another story. And can we can talk about that when the market turns as well.
RS: Yeah, exactly. There’s many other stories to be had for sure. Alex, I really always enjoy talking to you and I know our audience always enjoys these conversations as well.
I mentioned at the start of the show, you write under Cestrian Capital Research that’s on the free site. Your investing group on Seeking Alpha is called Growth Investor Pro. I’d be interested to hear maybe some of the things you’re talking about with your group these days or highlight some stock names or other parts of the market that you’d care to highlight, but interested in maybe if you would share with our audience some of the conversations coming out from your subscribers and yourself.
AK: A sort of dominant theme in subscriber chat rooms, we do a live webinar every week, open mic, anyone can say anything within reason. A dominant theme is when should one get out of this market? Has it run too far? And of course everybody’s worried about that.
And so what we try to do is focus on cold reality, price movements, again, not narrative, not fear or greed, but just what is price doing? And we also try to do that with the individual stocks. And so we try and include really rigorous fundamental analysis as well as chart analysis.
So if you look at, for instance, lots of these new data center plays that were Bitcoin miners, the stocks have been on fire. Fundamentals just aren’t there. And so we always try to look at, well, know what you own. You can make a lot of money in these speculative businesses, but know that they aren’t supported by fundamentals.
So know that when risk goes off in the market, they’re going to drop. We saw a little bit of that this week in the quantum names and a couple of drone names and one of the nuclear names and one or two other things. So we try to be really grounded in reality, watch price for what it is, watch fundamentals for what they are.
Recently introduced some crypto coverage. So we’ve had success, like a lot of the investing groups who run these picks, which are basically swing trading ideas for us. So we had some good success with Bitmine Immersion. We have ETHA as a pick right now as well, which I think can do well. So crypto has been quite popular in it.
Again, the sort of big money grown up version of it. And apart from that, business as usual, we’ve been running for a number of years and we don’t get particularly excited in a bull market, depressed in a bear market.
There’s always an opportunity to make money somewhere. We look for large account capital rotation in and out of stocks and sectors. We try to highlight those for our subscribers. So far so good.
Feedback from our members has been great over the years. It’s a popular service. Chat’s busy. Webinars are great. I enjoy them. If anyone’s watching and they’d like to try it out, please do so. It’s not expensive at all. We’d be delighted to see anyone there. You can go to our profile on Seeking Alpha. You can reach us through X as well, @CestrianInc. But of course, there’s all the usual ways to reach us through Seeking Alpha. So that’s probably the best way for Seeking Alpha subscribers to reach us.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
