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The country driving Bitcoin prices, Canadian cryptocurrency stock plays, and the only analyst rating you can trust

A visual representation of the digital Cryptocurrency, Bitcoin on Oct. 23, 2017 in London, England.

Dan Kitwood/Getty Images

Deutsche Bank's global financial strategist Masao Muraki believes he has uncovered the main source of the cryptocurrency mania, writing, " 'Mrs. Watanabe' is a buzzword often used by U.S./European media and market participants to symbolize the typical Japanese retail investor who trades in FX [foreign exchange]. We think that [Japanese] retail investors are shifting from leveraged FX trading to leveraged cryptocurrency trading."

Mr. Murakai estimates that Japanese investors account for roughly half of all bitcoin and cryptocurrency trades after Chinese officials moved to curb speculation in the country. When the Chinese government cracked down on bitcoin speculation in China, that left Japan with a 50-per-cent share of trading afterwards.

By gross domestic product, Japan is the world's third largest national economy. This aggregate wealth means that Japanese investors have considerable investing power – easily enough to drive the price of cryptocurrencies even further into the stratosphere as more join in the frenzy.

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The extent of inflows into the cryptocurrency sector, from Japan and elsewhere, is the most important determining factor in the future course of the asset prices. There are simply too many unknowns – most importantly whether or not these new vehicles actually have sustainable worth – to calculate anything resembling an intrinsic or fair value for cryptocurrencies. So inflows and sentiment, not fundamentals, are driving prices.

Cryptocurrency prices will keep going higher as long as new money comes in and this isn't, admittedly, much help for those speculating or thinking about speculating in them. The only potential guideposts will be found in technical analysis but even there, the rise of prominent currencies like Bitcoin have been so rapid that usual technical measures like Relative Strength Index and moving averages don't often apply, at least so far.

I wouldn't attempt to forecast medium term investment inflows into cryptocurrencies and wouldn't trust anyone who did. Holders of cryptocurrencies are riding a giant wave, with all the exhilaration and inevitable crashes this implies, and nobody knows how long it will last.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

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Canadian stocks that could have you cashing in on the cryptocurrency craze

Investors either too late or too queasy to ride the bitcoin roller-coaster are turning instead to companies that support cryptocurrency transactions – but experts warn they can be just as risky. There are a handful of Canadian publicly traded companies – and more on the way – looking to capitalize on the exploding popularity of digital assets such as bitcoin and ethereum. They include digital currency "miners" that verify and process transactions in a public ledger known as blockchain, crypto investment firms and online payment platforms. Brenda Bouw explains.

Why the exploding popularity of ETFs may be creating some great stock buying opportunities

Exchange-traded funds are attracting a lot of money, but is their rising popularity among investors leaving some areas of the Canadian stock market unexplored and rife with buying opportunities? Stephen Takacsy believes it is. The chief executive and chief investment officer at Montreal-based Lester Asset Management has been discovering a lot of cheap stocks and takeover candidates in Canada's small- and mid-cap spaces and he figures that ETFs just might have something to do with it. David Berman reports.

The surprising way one of the greatest TSX success stories is paying for its share buybacks

Balance sheets matter, or at least some parts of them do, right? Wait – here's a different question: Can you name the only two stocks in the S&P/TSX 60 that have negative shareholder's equity, which suggests, from an accounting perspective, that if the companies were liquidated, the stockholders would get nothing when the process was done? One is Bombardier Inc., which may not surprise you. The other is Dollarama Inc., which certainly surprises me. David Milstead explains.

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There's only one stock rating from analysts you can truly trust

If you live and die by the recommendations of Bay Street stock analysts, two things are likely to happen. You will almost never sell anything. And you will probably underperform the market. It should not come as much of a surprise that equity research is skewed toward favourable stock ratings. Tim Shufelt explains.

This unloved bull market just hit another milestone

The longer this bull market rumbles on, the more milestones it picks up. As of Wednesday's close, the S&P 500 is now riding its longest rally since 1960 without experiencing a correction of at least 5 per cent. The current streak, which started in June of 2016, is 370 trading days and counting. Read more here.

These preferred shares are looking particularly attractive right now

Preferred shares have made an impressive comeback over the past couple of years, delivering double-digit gains and solid cash distributions. They are still a good deal. If central banks continue to raise interest rates and bond yields move higher, some of the more beaten-up areas of the preferred-share market could offer the best opportunities for capital gains and rising cash payouts over the next year or so. David Berman reports.

A shift in inflation is taking shape and investors may end up paying a big price

Investors had all eyes and ears on this week's pronouncement from the U.S. Federal Reserve. But what really matters is what inflation has to say. Any broad uptick in consumer prices in coming months will spur the Fed to aggressively hike interest rates as a way to put a lid on inflationary pressures. That would place new pressure on today's record-setting stock markets. Ian McGugan explains.

Can inverse ETFs protect your portfolio against a crash?

Soaring stock markets tend to make investors nervous. "With markets at record highs, I'm looking for products to hedge my portfolio in the event of a downturn," a reader writes. "What is your opinion about inverse ETFs?" Inverse exchange-traded funds use financial instruments called derivatives to provide the inverse return of a particular stock index over a one-day period. In a fast-falling market, you can make a lot of money quickly with inverse ETFs. The problem is in buying and selling them at the right time. It's so difficult to do that I suggest these investments only for active traders who monitor and adjust their holdings on a day by day and even an hour by hour basis. Inverse ETFs as a hedge for the typical individual investor? Take a pass. Rob Carrick explains.

Bitcoin, blockchain startups cashing in on cryptocurrency frenzy

The investor frenzy driving Bitcoin prices to precipitous heights is playing out on stock markets as well, as companies shift focus to cryptocurrencies to get in on the latest boom. "People are trying to surf off the wave of bitcoin by strategically changing their name," said Jean-Philippe Vergne, co-director of the Scotiabank Digital Banking Lab at Western University. "There's always been a strategic use of these market hype cycles." Ian Bickis of The Canadian Press reports.

Why it's so difficult to bet against Canada's marijuana boom

Pot's meteoric rise in Canada has spurred speculation of a bubble but betting against the boom isn't so easy. Short-selling Canadian marijuana stocks is expensive as the values of companies continue to climb and few shares are available to borrow, a key step in betting against a security. The brokerages of top Canadian banks don't trade those stocks, and smaller firms charge prohibitive interest rates to lend them. Jen Skerritt of Bloomberg News reports.

Airbnb, Spotify among big-name U.S. unicorns likely to list in 2018

The 2018 U.S. IPO market is expected to see the debut of some of the most anticipated unicorns — companies that have reached $1-billion in valuation without tapping the stock markets. With stock markets touching new highs every other day, investors are clamouring for new investment opportunities and that could help companies see a pop in shares on debut. Reuters reports on this issue.

Top Links

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Ask Globe Investor

Question: In January, 2017, I transferred almost $5,500 worth of a stock, at a loss, from my non-registered account to my TFSA. The shares were deemed to be sold, while their market value was deemed to be a TFSA contribution for 2017. Can I claim a capital loss on these shares?

Answer: No. Since you transferred the shares to your TFSA and maintained control of them, in the eyes of the Canada Revenue Agency you didn't actually sell them and therefore you cannot claim a capital loss. In the future, you could instead sell shares at a loss in your non-registered account, contribute the cash to your TFSA and then repurchase the shares after 30 days. That would allow you to use the capital loss to offset capital gains. As discussed in last week's column, another option is to sell the shares and then purchase a similar, but not identical, security, in which case you would not have to wait 30 days for the loss to be allowed.

--John Heinzl

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What's up in the days ahead

Canadian companies are hooked on their own, rosier versions of their earnings performance. And Canadian securities regulators are going to crack down. David Milstead will explain all about it in Saturday's Globe Investor.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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