Blockstream Markets Weekly — Feb 11, 2022

Russia aims to recognize BTC as currency, Blackrock to integrate Bitcoin trading, US recovers ~ $4B from 2016 Bitfinex hack, JPM thinks BTC could hit $150k, El Salvador opts to ignore IMF’s Bitcoin advice and Canadian truckers turn to Bitcoin for funding.

By Jesse Knutson

Transitory

After breaking out a three-month downtrend late last week, Bitcoin looks on track to squeeze out a third consecutive week of gains despite a wobble in risk assets on the back of another big inflation surprise.

Bitcoin retreated from a mid-week high of ~ $46,000 following a worse than expected CPI reading that indicated prices are climbing at the fastest rate in more than 40 years.

Bitcoin was fairly resilient, though, given a slide in stonks and jitters that there could be a full 50bps rate hike in March.

Whales

Bitcoin headlines remained upbeat this week. I think the general theme of the week was increased adoption from governments, investment banks, and institutional investors.

Top stories this week included Russia moving forward with plans to recognize BTC as a form of currency, Blackrock working to integrate Bitcoin trading, US authorities recovering ~$4B in stolen Bitfinex funds, JPM saying Bitcoin could go as high as $150,000, El Salvador opting to ignore the IMF’s Bitcoin advice and Canadian truckers turning to Bitcoin to offset government controls.

Breakout

After breaking out of the downtrend we’ve been stuck in since November, the next major lines of resistance look to be just north of the current level.

Since January of last year, Bitcoin has accumulated a significant amount of volume at the $46,000 — $50,000 level. It would make sense for this to be a significant level of resistance.

The quick reversal in the CPI/rate hike dip is a good indication that sentiment has already improved considerably. More aggressive buying over the past two weeks (buy taker ratio chart below) is also a good sign.

Bitcoin had a pretty decent correlation with 10-year treasury yields until the end of the year and the retracement back down to $33,000. I wonder with Bitcoin now somewhat reset, and a lot of the froth having been removed from the market, if the correlation can regain its legs and if Bitcoin can catch up a bit to inflation expectations (chart below).

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Bitcoin markets news

Russia moves to recognize Bitcoin as a form of currency

  • Marks a significant reversal from the Bank of Russia’s proposal last month to ban cryptocurrency transactions and operations
  • It looks like this recognition will come with strict controls with transactions restricted to within the banking system and licensed intermediaries. Transactions exceeding 600,000 rubles ($8,016) will have to be declared
  • Another interesting detail is that it looks like regulated Russian exchanges will be open to foreign investors as well
  • Regardless, recognition of Bitcoin as a currency by a G20 nation is a pretty major milestone in Bitcoin’s evolution

Blackrock looks to support Bitcoin trading

  • The world’s largest asset manager, BlackRock, is reportedly planning to offer Bitcoin trading services to clients
  • It will also reportedly allow clients access to loans by putting up cryptocurrency as collateral
  • This could definitely move the needle and potentially be an interesting workaround to the SEC’s reluctance to greenlight a BTC ETF — allowing institutional investors direct exposure to Bitcoin through process flow and counterparties they already know and love

New iPhone feature will enable BTC ‘tap to pay’ transactions

  • Apple announced that apart from Apple Pay itself, contactless credit and debit cards, as well as other digital wallets, will also be able to make the transactions without the need for any third-party hardware or payment gateway
  • It looks like Bitcoin payments will be supported via debit cards provided by Coinbase, Visa, and Crypto.com that allow users to pay with their Bitcoin balances
  • A step in the right direction I suppose

El Salvador opts to ignore IMF advice

  • El Salvador on Monday rejected a recommendation by the International Monetary Fund to drop Bitcoin as legal tender
  • Treasury Minister Alejandro Zelaya said:

“No international organization is going to make us do anything, anything at all.”

“In Fitch’s view, weakening of institutions and concentration of power in the presidency have increased policy unpredictability, and the adoption of bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022–2023.”

US authorities recover ~ $4B of stolen Bitfinex funds

  • It will be interesting to see what will happen with the funds. Given the jump in Bitfinex’s Recovery Right Token and LEO, the market is expecting US authorities to return the funds to Bitfinex
  • I’m not sure authorities are that magnanimous. Even though Bitfinex settled up with users in 2016, former users will definitely come out of the woodwork with a preference for Bitcoin given that it’s gone from ~$600 to ~$45,000 since the time of the hack. Could be in for a lot of legal wrangling

Lightning Network capacity sets a new ATH

  • Capacity increased to a total just shy of 3,440 BTC, ~$151M

Tennesse introduces bill to allow local governments to buy BTC

  • Democrat Representative Jason Powell introduced a draft bill to allow the state of Tennessee and other municipalities to invest in bitcoin…as well as other cryptocurrencies, and NFTs (what could go wrong?)

Bitcoin for Truckers raises 21 BTC

  • Follows GoFundMe’s refusal to support Canada’s Freedom Convoy and as provincial authorities attempt to restrict donations
  • Not sure how these funds will be distributed or used, but it highlights Bitcoin’s censorship resistance and is reminiscent of when Wikileaks turned to Bitcoin following censorship from traditional payment platforms

JPM: Bitcoin’s fair value is $38,000 but could go to $150,000

  • I think he’s shooting from the hip a bit with his price targets
  • The analysis focuses on Bitcoin’s volatility in relation to gold’s as well as Bitcoin’s ability to absorb gold fund flows and compete as an alternative currency

“This long term upside based on an equalization of the market cap for Bitcoin to that of gold for investment pruposes is conditional on the volatility of Bitcoin converging to that of gold over the long term”

  • I’m not sure this is the right way to model Bitcoin. Bitcoin is a relatively small asset that most investors are still underweight. I think volatility will be with us for the foreseeable future

Charts

Buy Taker Ratio

  • Makers refer to orders that make up the order book and queue in line on the bid and offer. Takers are the more proactive orders that take liquidity makers offer on the exchange.
  • This chart shows that buyers have been more front foot on a rolling 14-day basis than they have at any time since Oct of 2020
  • Most of CryptoQuant’s charts are available free with signup, it’s a pretty good resource

Chart credit: CryptoQuant

Lightning Network Capacity

  • The Lightning Network Capacity has started to reaccelerate
  • Total network capacity is now just shy of 3,440 BTC, ~$151M

Chart credit: Glassnode

Bitcoin vs 10-Year Treasury Yield

  • Bitcoin had a pretty decent correlation with 10-year treasury yields until the end of the year and the retracement back down to $33,000
  • I wonder with Bitcoin now somewhat reset, and a lot of the froth having been removed from the market, if the correlation can regain its legs and if Bitcoin can catch up a bit to inflation expectations

The most concise roundup of Bitcoin market action in the industry.

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