Dear Reader,
It’s such an incredible time right now in the semiconductor industry.
As we’ve discussed before, there are significant supply constraints in the industry that are affecting many sectors of the semiconductor market.
The reality is that the underlying economy has been strong, and the demand for many semiconductor products is much stronger than the supply.
This results in strong economics for semiconductor companies. Prices and gross margins tend to increase. This results in stronger free cash flows.
And some of these cash flows are reinvested in capital expenditures to both increase capacity and also invest in the next generation of semiconductors.
Taiwan Semiconductor Manufacturing (TSM) just recently announced that it is pulling in its 4 nanometer (nm) manufacturing into 2021 ahead of schedule. It was the first to begin manufacturing its leading-edge 5 nm manufacturing last year, and it has been in full swing this year.
And not only is it pulling in its 4 nm production, it is also charging ahead full speed on its bleeding-edge, 3 nm manufacturing process. It will enter risk production late this year and mass production in 2022.
Semiconductor technology may seem esoteric. But each new generation brings chips that are smaller, more powerful, and more power-efficient.
These new semiconductors are particularly good at running technology like artificial intelligence (AI) and improving our communications technology. In other words, they have a direct impact on our lives.
And despite the pandemic, the global semiconductor materials market grew 4.9% to a record high of $55.3 billion. This was above the past high in 2018.
Furthermore, the February numbers for global semiconductor sales rose 14.7% year-over-year to $39.6 billion for the month. This is an impressive jump considering last February was a “normal” month in a very strong economy, just before the economic lockdowns ensued.
I keep a close eye on delivery lead times of semiconductors to get a feel for the pricing power of semiconductor companies, as well as the overall economic strength in the market. When lead times start to collapse, it can lead to a glut of semiconductors. And that’s always a bad sign for the industry and the economy.
But we’re seeing the opposite of that right now. Some lead times for networking semiconductors are now at 50 weeks – almost an entire year.
This is being driven by semiconductor foundries like TSMC, Global Foundries, SMIC, Samsung, and others being completely full. And the shortages have extended well beyond the automotive sector, laptops, and game consoles.
Semiconductors used for information technology (IT) networking (for use in switches and routers) are critical to expanding the overall capacity for increased data traffic over the internet. They are the “brains” and the workhorses that keep all of our bits and bytes moving quickly to the right destination. They allow us to connect with one another no matter where we are in the world.
These shortages are further exacerbated because we are experiencing a confluence of exciting events in the world of technology.
We’re leaping from 4G to 5G wireless technology, which requires brand-new smartphones. We’re leaping from the fifth version of Wi-Fi technology to the newly released Wi-Fi 6. We’re leaping from internal combustion engines to electric vehicles and self-driving cars.
And we’re leaping from analog processes in biotechnology to computational biology and drug discovery driven by artificial intelligence and machine learning.
The incredible thing is that these leaps are all happening right now… and they all require the next generation of bleeding-edge semiconductors to bring them to life.
Before we turn to today’s insights, I want all my readers to be prepared for the next big digital leap. That’s why I’m hoping you’ll join me on Wednesday, April 7, at 8 p.m. ET for my Last Digital Leap investment summit.
There, I’ll tell you more about the one sector that could bring investors unprecedented gains as it prepares to make its own digital leap. You can go right here to reserve your spot.
We’re in for one heck of a year.
Now let’s turn to today’s insights…
We start off today with big developments around China’s Central Bank Digital Currency (CBDC).
We last checked in on China’s CBDC back in March. That’s when the People’s Bank of China (PBOC) expanded the scope of its consumer trials from Shenzhen to Shanghai, Beijing, and other large cities.
To bring newer readers up to speed, China is calling its digital currency DCEP, which stands for digital currency electronic payment. It began testing the currency internally in 2019 with large national banks and Chinese mega-corporations like Alibaba and Baidu.
Then it began public testing last year by distributing 10 million DCEPs to 50,000 citizens in Shenzhen last October.
Since then, we have learned that China’s plan for its CBDC is far bigger than what most people realized. China wants the DCEP to be a global reserve currency. And the PBOC is now quietly testing it in different nations.
One of these test projects is called Multiple Central Bank Digital Currency (m-CBDC) Bridge. It’s a collaboration between the Hong Kong Monetary Authority, Bank of Thailand, and the United Arab Emirates (UAE).
These parties are working together on cross-border fund transfers, international trade settlement, and capital market transactions. It’s a bold initiative.
And this collaboration clearly shows that China wants to go global with its CBDC.
What’s interesting here is that China’s CBDC is not even on a blockchain. It’s completely centralized.
But to go global, China will need to use a common framework of blockchain technology. That’s the only way it will work efficiently across borders.
If we stand back a bit and look at the pace of development taking place with China’s CBDC, we see an accelerated timeline moving in a very systematic manner. Make no mistake about it – this is a geopolitical play.
And this has prompted the U.S. to respond. U.S. Federal Reserve Chairman Jerome Powell just said that development of a digital dollar is now a top priority. The Federal Reserve Bank of Boston and MIT have been working together to develop a prototype for a digital dollar platform for some time now. And research on this project could be revealed as early as July.
So it’s clear that China’s CBDC development is putting the heat on the U.S. We can expect to see some exciting developments in the second half of this year.
Grayscale, a subsidiary of the Digital Currency Group, has become the largest digital currency asset manager in the world.
Founded in 2013, Grayscale operates publicly traded trusts that give investors exposure to cryptocurrencies. It all started with the Grayscale Bitcoin Trust (GBTC), which trades on the over-the-counter market.
There’s been a lot of talk about how no bitcoin exchange-traded funds (ETFs) have been approved yet. And that’s true. But from an investor’s standpoint, GBTC trades almost exactly like an ETF.
So Grayscale makes getting exposure to bitcoin easy. Investors simply look up ticker GBTC in their brokerage account and press “buy.” That’s it. No digital wallets or custodial services to deal with.
The more investors buy GBTC, the more bitcoin Grayscale holds. And it has been growing its holdings of bitcoins hand-over-fist in recent months.
In fact, Grayscale’s holdings have swelled from over 365,000 to 654,885 BTC in the last ten months. That means Grayscale’s stash is now worth more than $38 billion.
And get this – Grayscale now holds 3.1% of all bitcoins in the market. Impressive.
The rise of Grayscale signals a growing interest in bitcoin and cryptocurrencies in the investment community. And to meet this rising demand, Grayscale is rapidly expanding its publicly traded trust offerings.
Grayscale now provides instruments that allow investors to get exposure to Ethereum, Litecoin, Stellar Lumens, and Zcash. And it just announced that instruments to trade the Basic Attention Token, Chainlink, Decentraland, Filecoin, and Livepeer are coming soon.
Grayscale will have a total of 14 cryptocurrency investment products when it’s all said and done. And much of this success is thanks to simplifying the process. Grayscale makes investing in cryptocurrencies easy. That’s attractive to both institutions and retail investors.
So the cryptocurrency space is clearly heating up. As solutions like this continue to come to market, it will become easier for the everyday investor to get involved. And that’s good for the entire industry.
Grayscale went from nothing to $38 billion worth of bitcoin in just eight years. And there’s plenty of opportunity for other companies in the space to become billion-dollar companies as well.
Shifting gears, it turns out that not every country is excited about cryptocurrencies and digital assets.
Thailand’s central bank just declared that any privately issued stablecoin denominated in the Thai baht is illegal. This is a warning shot. If Thailand is going to have a digital currency, it’s going to be issued and managed by the Central Bank of Thailand.
This came in response to the creation of THT – a stablecoin denominated in Thai bahts. Interestingly, the THT was created on a South Korean stablecoin platform called Terra.
And Thailand’s warning went one step further. Not only is the creation of Thai stablecoins against the law, but it is telling Thai citizens to refrain from using them. Talk about a heavy-handed approach.
This isn’t surprising. No government wants to see its currency issued by another entity… let alone from an entity outside of its borders. From the central bank’s perspective, this could destabilize the nation’s monetary system.
So the Thai government wanted to act before it was too late here. I expect we’ll see more governments follow suit. In fact, there are already similar bans enacted in China and India.
This illustrates that the value of a state-backed currency is enormous. Governments and central banks aren’t going to give up control of their national currencies easily. We can expect that they’ll fight. That’s why we are finally seeing countries scramble to develop their own CBDCs. It’s a race to catch up with China.
So we’ll keep a close eye on this space in the months to come. There is a lot of geopolitical jockeying ahead.
Regards,
Jeff Brown
Editor, The Bleeding Edge
P.S. The developments taking place in digital currencies are representative of a major turning point in the industry. This is something I call a digital leap. That’s where industries move from the analog stage to the digital stage.
Digital leaps always bring with them unbelievable opportunities. Just think about the rise of Amazon and Netflix. Early investors made an absolute fortune in these two companies.
And thanks to the COVID-19 pandemic, the next major digital leap is at hand. As I write, an $11.9 trillion industry is cutting through the red tape that’s held it back for decades, setting itself up for a massive move to digital.
This is something I’ve been furiously researching in my spare time, and I’m convinced that what may be the last digital leap of our lifetimes is imminent. The time to position ourselves for massive profits is now.
That’s why I’m hosting a special event on Wednesday evening at 8 p.m. ET. I’m going to pull back the curtain on this last digital leap, and we’ll discuss what investors need to do to be ready for it.
The event is free to all readers of The Bleeding Edge. Just go right here to reserve your spot.
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
