Welcome to our Friday mailbag edition!
Every week, we receive great questions from your fellow readers. And every Friday, I answer as many as I can.
This week, we’ve got questions about nuclear power… what happens next if the Securities and Exchange Comission (SEC) approves a spot Bitcoin ETF… and whether the entire artificial intelligence (AI) market is in a bubble…
I’d like to know if there are any changes in the SMR?
– Jim F.
Hi, Jim. Thanks for bringing up the topic of SMRs, or small modular reactors!
There has been a lot of momentum in the nuclear space on Capitol Hill. In fact, there were two main related bills that were approved by large vote margins in the Senate just last month.
First, the ADVANCE Act was passed to become a part of the National Defense Authorization Act (NDAA) of 2024. It passed by a bipartisan vote of 86-11 on July 27.
Now, based on my conversations with senior D.C. staffers, I’ve said for months that if a major nuclear bill was to pass this year, it would be the ADVANCE Act.
For some context, Congress must vote on the NDAA bill each year.
By inserting the ADVANCE Act (meaning all the relevant language) into the NDAA bill, the chances of it passing are incredibly high.
The ADVANCE Act within the NDAA would do several things, including:
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Empower the Nuclear Regulatory Commission (NRC) to lead international forums to develop regulations for advanced nuclear reactors.
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Develop and deploy new nuclear technologies.
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Reduce regulatory costs for companies seeking to license advanced nuclear reactor technologies.
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Create a prize to incentivize successful deployment of new nuclear reactor technologies.
I’ll explain what else needs to happen for its passage shortly.
But there’s a second piece of key nuclear legislation that was also inserted into the NDAA.
It’s called the Nuclear Fuel Security Act. Senators Manchin (D-WV) and Risch (R-ID) cosponsored it. On July 27, the Senate passed legislation by 96-3 to include it in the 2024 NDAA.
That act would direct the Department of Energy to prioritize domestic production of low-enriched uranium (LEU) for use with existing nuclear reactors.
It would also accelerate efforts to make high-assay, low-enriched uranium (HALEU) available for use in advanced reactors. And that means for advanced modular reactors (AMRs), which include SMRs (smaller versions).
To recap: The Senate has passed two major acts supporting nuclear energy and modular reactors. But there are a few more steps to go before these acts become law.
You see, the Senate and the House passed different versions of the NDAA of 2024. (This is customary.) The House passed its version on July 14. The Senate passed its version on July 27.
Both bodies must agree on a single final version before it can be sent to President Biden and signed into law.
That will give a big boost to nuclear energy, SMRs, and uranium prices (uranium is an energy resource needed for nuclear power).
None of the points in contention between the House and the Senate are related to nuclear energy policy. In fact, The Hill said:
Already, things are tilting in the Senate’s direction, as provisions related to abortion and the culture wars are expected to be watered down. A final bill will need to be nailed down by the time members leave for Christmas.
Based on D.C. conversations I’m having, I think we could see something by the Thanksgiving break, if not sooner.
So, it’s a great idea to get yourself positioned in the nuclear space now.
For the biggest potential upside energy sector, however, I encourage everyone to tune into a new market briefing I’m releasing tomorrow, August 26, at 10 a.m. ET.
I’ll do a deep dive on a breakthrough energy technology I call “Project Infinity.” It could see 2,000-fold growth, and right now you can get in on the ground floor for as little as $2.
Inside Wall Street readers can be among the first to watch my new briefing. Simply register for it here with one click.
Recently, you extolled the benefits of a spot Bitcoin ETF. Would redeeming shares in such an ETF result in actual Bitcoin or conversion to CBDC?
If the latter, the advantage of a decentralized currency for retail investors such as myself that avoids potential government interference in private personal use of my own money would be lost.
– Hector G.
Thanks for writing in, Hector!
There’s quite a bit of confusion about what a Bitcoin exchange-traded fund (ETF) is and what it does. So let me clarify a few key concepts.
First, when I talk about a Bitcoin ETF, I mean a spot Bitcoin ETF.
As you may recall from previous essays, Bitcoin ETFs already exist in the U.S. Two popular products are the Grayscale Bitcoin Trust (GBTC) and the new ProShares Bitcoin Strategy ETF (BITO).
But neither are spot.
Yes, GBTC is a trust that actually holds Bitcoin. But it trades like a closed-end fund and has no redemption mechanism.
This means that the market price of GBTC can deviate a lot from the actual value of the Bitcoin it holds.
Take 2018, for example. At times, investors were paying as much as a 100% premium to the underlying price of Bitcoin. That’s GBTC’s biggest drawback.
What about BITO?
Well, with BITO, you don’t even invest directly in Bitcoin but in Bitcoin futures contracts. So, there’s no Bitcoin to redeem in the first place.
A spot Bitcoin ETF is different because it’s designed to track the price and performance of actual Bitcoin in the market.
So, when you invest in a spot Bitcoin ETF, you’re essentially buying shares that represent a proportional ownership in a pool of actual Bitcoin.
This allows investors to gain exposure to the price movements of Bitcoin without having to buy and store the cryptocurrency themselves.
What about redeeming shares in a spot Bitcoin ETF? Here’s what we know, based on what we’ve seen in places like Canada where such Bitcoin products already exist.
In general, the process is designed to provide investors with the equivalent value of actual Bitcoin.
This means that if you choose to redeem your shares, you would receive the corresponding amount of Bitcoin based on the current market value at the time of redemption.
This is in contrast to converting to a Central Bank Digital Currency (CBDC). A CBDC is just a digital version of regular money controlled by a country’s main bank.
And when you redeem shares for actual Bitcoin, you keep the benefits linked to owning a decentralized cryptocurrency.
But here’s the deal…
If the SEC gives the thumbs-up to a spot Bitcoin ETF, it would be the first one of its kind in the U.S. That means we’re in a bit of a wait-and-see mode. We’re not exactly sure how it’ll operate just yet.
Remember what happened when the SEC raised concerns in June about BlackRock’s application? BlackRock went back to the drawing board and submitted a revised one.
This new version included a “surveillance sharing” clause. That would involve Coinbase – the second-largest crypto exchange in the world – reporting on any potential shady dealings.
Before long, Valkyrie updated its application with a similar provision, and so did Fidelity and ARK Invest.
So, while we can take a glance at the applications, we don’t know what the actual product will look like yet. That is, if it gets the regulatory green light.
But if you’re looking for another reason to include Bitcoin in your investment portfolio, this could be it.
The price of Bitcoin is still down about 60% from its November 2021 all-time high of about $68,000.
And that’s a good thing. It means you can still buy it at lower prices before big financial institutions like BlackRock swoop in.
That said, I don’t recommend you put all your savings into Bitcoin – or any other asset, digital or not.
Instead, consider investing a fixed amount of money on a regular basis, such as monthly or bi-weekly. That way, you can get a better average price per Bitcoin over time. This is called dollar-cost averaging.
But again, cryptos are speculative assets. Remember, even Bitcoin is only 14 years old. It’s still a very new form of currency.
So, as with any speculation, don’t bet the house on it. You don’t need to put a big chunk of your portfolio in crypto to see big gains. Even a small investment can go a long way.
If AI is just getting started, at least beyond its current development, how could it be in a bubble yet? This is not the year 2000, and investing experts who keep harping on Nvidia and ChatGPT are demonstrating that they don’t care about the future of AI. These are the only 2 options?!
– John F.
Thanks for writing in, John. This is a great question!
To answer, it’s worth looking at AI-linked stocks in two different groups.
One group is the beneficiaries of AI in the early stages, and their stock prices have shot higher very quickly.
Training and deploying AI algorithms requires vast amounts of computational power. That’s why you’ve seen share prices in semiconductor and networking companies like Nvidia and Super Micro Computer go through the roof this year.
They’re providing the “picks and shovels” to get the AI off the ground.
Other early beneficiaries are companies like Microsoft and Google-parent Alphabet that are already adopting AI into software applications and search engines.
This is where I believe you need to be careful with bubble-like moves in stock prices and valuations. Just take Nvidia for instance. The stock price has gone up by 219%… just this year!
But that’s left the company’s price-to-sales ratio at 21. For comparison’s sake, the S&P 500’s price-to-sales ratio is 2.3.
Think about it this way. If you put together enough money to take over NVDA today, it would cost you $1.1 trillion to buy all the outstanding shares at current market prices.
Let’s assume there’s no acquisition premium to keep it simple. Let’s also assume that NVDA has no expenses and that you get to keep all of the company’s sales as your profits.
It would still take you 21 years to be paid back in full on your acquisition of the company… and that’s using sales estimates over the next 12 months that are shooting higher on the back of AI demand.
Now, consider that Nvidia has expenses like payrolls and research and development. Your payback is pushed out even further.
Other investors will realize this, and NVDA’s share price will reflect that reality at some point. That’s why I believe it’s risky to buy in at these levels.
And that brings me to my next point.
While there may be a bubble in some AI stocks, I don’t think we’re in a general AI bubble. In fact, the full impact of AI has yet to be felt by the industries it will change the most.
That’s why AI has the potential to be a huge lever in the Great Distortion. It has the potential to deliver benefits that will boost corporate profits in several ways, like productivity gains and new product development.
While technology companies are getting all the AI attention, my team and I believe some of the most disruptive potential will take place in sectors like banking, biotechnology, and energy.
They all fit into my distortion themes in different ways, and we’re already making trades to take advantage of it in our paid publications.
In fact, the smart money is already positioning itself to profit from energy developments linked to AI.
OpenAI CEO Sam Altman, for example, has invested in a groundbreaking corner of the energy markets because it can provide the power that AI needs to advance.
Microsoft has also signed an agreement to buy electricity produced with this kind of power. (This is the same energy source with massive upside that I’ll share details on in tomorrow’s new briefing. To be among the first to watch it, be sure to register here.)
So I think there is a lot of time left for AI’s full potential to play out. You just have to be selective about which companies have yet to reflect AI’s impact in their stock prices, and not overpay for the stocks that have already moved.
And that’s all for this week’s mailbag! Thanks to everyone who wrote in.
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. Write me at [email protected].
Happy investing… and have a fantastic weekend!
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
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