Bitcoin Mining Is Big in China. Why Investors Should Worry.
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Bitcoin Mining Is Big in China. Why Investors Should Worry.

Why the digital currency’s dependence on China, specifically Xinjiang, is concerning.

By Isaac Stone Fish
Wed, Feb 24, 2021 1:27amGrey Clock 3 min

Critics of the nearly ubiquitous digital currency Bitcoin often focus on its environmental consequences. After Tesla announced recently that it had bought roughly US$1.5 billion in Bitcoin, sending the cryptocurrency’s value skyrocketing, sustainability investors decried the “level of carbon dioxide emissions generated from Bitcoin mining.” Certainly, “mining”—the energy-intensive process by which computers solve complex algorithmic problems to verify blockchain transactions, for which they’re rewarded in digital currency—is an undeniable environmental offender.

But there is another worrying aspect of Bitcoin, one that should make investors think twice about including it as part of an ethical investing strategy.

A large amount of new Bitcoin comes from Xinjiang, the region in northwest China where more than a million Uighur Muslims and other minorities have been imprisoned in concentration camps. According to the Cambridge Bitcoin Electricity Consumption Index, as of April 2020, China was responsible for 65% of all Bitcoin mining. And of that, 36% takes place in Xinjiang, the largest regional component. Why? Cheap coal means cheap energy to power the machines that mine Bitcoin. Xinjiang has an abundant supply of coal, and the region’s relative remoteness means that it’s far cheaper to use the resource locally than move it to other parts of China. The issue is not that the Chinese government uses forced labour in Xinjiang coal mines—the reporting on that is inconclusive. Rather, because of the atrocities occurring in Xinjiang, any product produced there brings with it high ethical and regulatory risk.

In the camps—which Beijing calls “vocational educational and training centres”—guards try to “deradicalise” Uighurs for crimes such as wearing long dresses, abstaining from pork or alcohol, or praying. While the difficulty of reporting in the region means that concrete evidence is scarce, camp survivors have described systemic torture, forced sterilization, and rape. (Beijing denies committing atrocities.) In January, right before leaving office, Secretary of State Mike Pompeo declared that Beijing was committing “genocide” in the region. His successor, Antony Blinken, agrees.

To summarize: Roughly 20% of new Bitcoin is mined in Xinjiang, the site of some of the world’s most egregious human-rights abuses.

Today, Bitcoin’s association with Xinjiang is barely discussed. But that may change. For public-facing funds considering investing in the notoriously volatile asset, there are two other risks to consider. The first is that because of the concern among the American public about human-rights abuses in Xinjiang, holding assets tied to the region comes at the risk of a public relations disaster.

Already, activists have criticised Olympic sponsors for participating in the “genocide Olympics”—the 2022 Beijing Winter Games. Multiyear campaigns to hive Xinjiang off from the global supply chain are already well under way.

In July, more than 190 organizations, including the AFL-CIO, called for clothing brands to end all sourcing from Xinjiang within the next 12 months. (In 2020, roughly 20% of the world’s cotton came from Xinjiang.) It’s not hard to imagine Bitcoin becoming another frontier in their campaigns.

Investors should be alert for regulatory action. Bitcoin’s Xinjiang relationship gives ammunition to those in the U.S. government who may want to further monitor or restrict the transactions. Analysts expect the Biden administration to pay close attention to Bitcoin. In mid-February, Treasury Secretary Janet Yellen criticised the “misuse” of cryptocurrencies in laundering money or funding terrorism. At the same time, Bitcoin’s Xinjiang connection could put it on the radar of the various arms of the Commerce, State, and Defense departments that are seeking to reduce U.S. dependence on physical and digital Chinese goods. If this trend intensifies, the Treasury Department could sanction the Bitcoin mining firms that have large operations in Xinjiang, or issue advisories that it is “studying” Bitcoin’s links to the region—signalling to global financial institutions another risk of holding the cryptocurrency.

In January, U.S. Customs banned the imports of Xinjiang cotton and tomato products and told U.S. companies to get forced labour out of their supply chains. Extricating Bitcoin from Xinjiang could be far more difficult. Unlike, say, blood diamonds or Iranian crude oil, Bitcoins exist only digitally. While there is a public record of the billions of Bitcoin transactions, it’s exceedingly complicated to determine the geographic origin of a particular Bitcoin. That means all Bitcoin holders can deny any connection to human-rights abuses—but also risk being tarnished by the association.

It has long been ironic that Bitcoin, developed to decentralize power, is so dependent on China, a country ruled by a government obsessed with centralizing it. But depending on China is one thing. Depending on Xinjiang is another. There are many excellent ethical and regulatory reasons not to buy Bitcoin. Add Xinjiang to that list.

Isaac Stone Fish is the CEO and founder of Strategy Risks, a firm that quantifies corporate exposure to China.>



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These stocks are getting hit for a reason. Instead, focus on stocks that show ‘relative strength.’ Here’s how.

By KEN SHREVE
Wed, Jun 12, 2024 4 min

A lot of investors get stock-picking wrong before they even get started: Instead of targeting the top-performing stocks in the market, they focus on the laggards—widely known companies that look as if they are on sale after a period of stock-price weakness.

But these weak performers usually are going down for good reasons, such as for deteriorating sales and earnings, market-share losses or mutual-fund managers who are unwinding positions.

Decades of Investor’s Business Daily research shows these aren’t the stocks that tend to become stock-market leaders. The stocks that reward investors with handsome gains for months or years are more often  already  the strongest price performers, usually because of outstanding earnings and sales growth and increasing fund ownership.

Of course, many investors already chase performance and pour money into winning stocks. So how can a discerning investor find the winning stocks that have more room to run?

Enter “relative strength”—the notion that strength begets more strength. Relative strength measures stocks’ recent performance relative to the overall market. Investing in stocks with high relative strength means going with the winners, rather than picking stocks in hopes of a rebound. Why bet on a last-place team when you can wager on the leader?

One of the easiest ways to identify the strongest price performers is with IBD’s Relative Strength Rating. Ranked on a scale of 1-99, a stock with an RS rating of 99 has outperformed 99% of all stocks based on 12-month price performance.

How to use the metric

To capitalise on relative strength, an investor’s search should be focused on stocks with RS ratings of at least 80.

But beware: While the goal is to buy stocks that are performing better than the overall market, stocks with the highest RS ratings aren’t  always  the best to buy. No doubt, some stocks extend rallies for years. But others will be too far into their price run-up and ready to start a longer-term price decline.

Thus, there is a limit to chasing performance. To avoid this pitfall, investors should focus on stocks that have strong relative strength but have seen a moderate price decline and are just coming out of weeks or months of trading within a limited range. This range will vary by stock, but IBD research shows that most good trading patterns can show declines of up to one-third.

Here, a relative strength line on a chart may be helpful for confirming an RS rating’s buy signal. Offered on some stock-charting tools, including IBD’s, the line is a way to visualise relative strength by comparing a stock’s price performance relative to the movement of the S&P 500 or other benchmark.

When the line is sloping upward, it means the stock is outperforming the benchmark. When it is sloping downward, the stock is lagging behind the benchmark. One reason the RS line is helpful is that the line can rise even when a stock price is falling, meaning its value is falling at a slower pace than the benchmark.

A case study

The value of relative strength could be seen in Google parent Alphabet in January 2020, when its RS rating was 89 before it started a 10-month run when the stock rose 64%. Meta Platforms ’ RS rating was 96 before the Facebook parent hit new highs in March 2023 and ran up 65% in four months. Abercrombie & Fitch , one of 2023’s best-performing stocks, had a 94 rating before it soared 342% in nine months starting in June 2023.

Those stocks weren’t flukes. In a study of the biggest stock-market winners from the early 1950s through 2008, the average RS rating of the best performers before they began their major price runs was 87.

To see relative strength in action, consider Nvidia . The chip stock was an established leader, having shot up 365% from its October 2022 low to its high of $504.48 in late August 2023.

But then it spent the next four months rangebound—giving up some ground, then gaining some back. Through this period, shares held between $392.30 and the August peak, declining no more than 22% from top to bottom.

On Jan. 8, Nvidia broke out of its trading range to new highs. The previous session, Nvidia’s RS rating was 97. And that week, the stock’s relative strength line hit new highs. The catalyst: Investors cheered the company’s update on its latest advancements in artificial intelligence.

Nvidia then rose 16% on Feb. 22 after the company said earnings for the January-ended quarter soared 486% year over year to $5.16 a share. Revenue more than tripled to $22.1 billion. It also significantly raised its earnings and revenue guidance for the quarter that was to end in April. In all, Nvidia climbed 89% from Jan. 5 to its March 7 close.

And the stock has continued to run up, surging past $1,000 a share in late May after the company exceeded that guidance for the April-ended quarter and delivered record revenue of $26 billion and record net profit of $14.88 billion.

Ken Shreve  is a senior markets writer at Investor’s Business Daily. Follow him on X  @IBD_KShreve  for more stock-market analysis and insights, or contact him at  ken.shreve@investors.com .