One year ago, Canadian Prime Minister Justin Trudeau invoked his country's Emergencies Act as a tool to go after people who were protesting against the COVID-19 lockdowns.
This allowed the Canadian government to lock bank accounts of not only protesters but also small businesses that were seen as helping them by selling them coffee or gasoline. This was a blatant political move to silence the opposition.
Since 2014, China has built a social credit score system. Those brave souls who offer alternative ideas or just piss off the wrong politico can be locked out of finance, travel, and even the chance to rent an apartment.
Last March, the Biden administration announced it would begin research to formulate a plan to regulate digital currencies with the idea to develop a central bank digital currency (CBDC) — in other words, a digital dollar.
For those who don’t know, CBDCs are just digital versions of traditional fiat currencies that are backed by a reserve of assets and managed by a central authority. This is not the same as traditional cryptocurrencies like Bitcoin, which were created as a decentralized currency.
One gives power to the individual and the other to the state.
The government will tell you that CBDCs offer more secure and efficient transactions and would hinder crime and money laundering. Furthermore, with its link to the sovereign currency, it would be more stable.
The downside, of course, is that the centralization of digital currencies means they are subject to government regulation and control. Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
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We already live in a state that ignores the Fourth Amendment, which protects against unreasonable search and seizure of persons, houses, papers, and effects. It's been well documented that if you carry any amount of cash in certain jurisdictions, the police can take your money and make you prove it is yours.
Imagine the IRS, the FBI, and the local planning board knowing every dime you spend. You’d start to wonder if you should go to the gun range or even Home Depot.
Imagine a scenario in which you are a political protester who gets caught up in a January 6-type event. The government could shut off your ability to spend money. You couldn’t raise bail, pay rent, or hire a lawyer.
If you take the ESG trend to its obvious conclusion, you could also be dinged for not recycling or for buying oil stocks.
This is a fight that will take years (and probably a Supreme Court case or two) to work itself out. That said, some form of CBDCs seems inevitable, and many companies will make money from them.
Here are three stocks in the game that you should put on your radar:
- Block (NYSE: SQ): Block is a financial services company. It has a subsidiary called Spiral (formerly Square Crypto) that is involved in the centralized digital currency market. SQ’s stock got crushed over the last year, from $280 to $77 today. The company isn’t making money right now but expects to next year. Revenue growth was 17% year over year in its latest quarter.
- PayPal (NASDAQ: PYPL): PayPal has been around for decades as an online payment processor. The company has a service that allows users to buy, sell, and hold cryptocurrencies. PayPal is a $90 billion company with a P/E of 38. The stock got hit hard last year, falling from over $300 to $79. It's looking undervalued with a forward P/E of 16 and a PEG ratio of 0.93, although I imagine the chart will go sideways for another six months.
- Coinbase (NASDAQ: COIN): Coinbase is a leading cryptocurrency exchange. The company offers a range of services, including trading, custody, and merchant services, and it is well positioned to benefit from the growth of the centralized digital currency market. The stock sold off from over $400 to $56 today. It lost money last year and saw its revenue drop by 56%. The company has $5 billion in cash and a market cap of $12 billion. It trades at 2.30 times book value, which seems reasonable. That said, I wouldn’t buy it until the quarterly earnings start to turn around and the downtrend is broken.
The truth is I wouldn’t buy any of these three stocks right now. However, if you are looking for more immediate plays in the centralized digital currency space, check out my free research presentation; it will show you where the winners are.
All the best,