Blockstream Markets Weekly — Feb 4, 2022
Russia and India warm to BTC, Fidelity sees BTC becoming the primary monetary good, Arizona could make BTC legal tender, and US debt breaches $30T as the Purpose BTC ETF hits all-time highs.
By Jesse Knutson
HFSP
A rally into the end of the week put Bitcoin on pace to end little changed, modestly higher after last week’s gains and putting us on pace for the tenth win of the past 15 days.
Bitcoin stability this week was actually pretty impressive given wild swings in stonks with big moves in tech bellwethers like Amazon, PayPal, and Snap while the stonk formerly known as Facebook posted the largest ever single-day drop (in dollar terms).
America’s gross national debt also set a new milestone, crossing above $30T for the first time in history just as the Fed preps for the first series of rate hikes since 2015. Higher borrowing costs will make that debt harder to finance.
As JP Morgan’s chief global strategist said this week:
“It doesn’t mean a short-term crisis, but it does mean we are going to be poorer in the long term”
Inflows
With price action slowly regaining momentum, Canada’s Purpose Bitcoin ETF saw a reacceleration of interest and its second-best day of BTC inflows ever this week. Inflows from Monday until yesterday totaled more than 1,800 BTC.
In total, inflows this week drove BTC under management to a new record high of 31,032 BTC.
I think this is probably a fairly constructive signal and given the consistent premium between Coinbase Pro (an indication of US interest) and Binance (an indication of offshore interest) since Bitcoin’s drop to the $33,000 level, possibly an indication of recovering institutional interest from North American investors.
Testing the trend
Bitcoin’s end-of-week rally has us once again testing the downtrend we’ve been stuck in since mid-November.
Risk appetite looks to be returning somewhat with non-BTC crypto outperforming after lagging BTC for several weeks and big moves in Ethereum and Solona over the last seven days (rebounding after a massive $320M DeFi hack).
Over the course of the previous 13 months, Bitcoin has accumulated a lot of volume around the current level. If Bitcoin can break out of the current downtrend and reestablish its footing north of $40,000 I think that will give the market a lot more confidence and allow price to catch up to several weeks of generally very positive news flow.
As Fidelity pointed out this week, though, Bitcoin’s long-term return profile is driven by the growth of the digital asset ecosystem and global macro instability — two trends that I think are likely to continue to play out in Bitcoin’s favor.
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Bitcoin markets news
Fidelity: BTC is unique and may become the primary monetary good
- In the report, Fidelity makes the case that Bitcoin is not likely to be replaced by ‘innovation’ and is unique amongst other digital assets
“Bitcoin is fundamentally different from any other digital asset. No other digital asset is likely to improve upon bitcoin as a monetary good because bitcoin is the most (relative to other digital assets) secure, decentralized, sound digital money and any “improvement” will necessarily face tradeoffs.”
- Fidelity’s comments were focused on Bitcoin’s position within the digital asset ecosystem…but I think probably easily extends to other major assets as well and veers pretty closely to hyperbitcoinization territory
“Bitcoin clearly possesses a lot of good qualities of money, combining the scarcity and durability of gold with the ease of use, storage and transportability of fiat…We won’t be so bold as to predict there will only ever be one money, but we do believe that one monetary good will come to dominate the digital asset ecosystem due to the very powerful effects of networks…we believe bitcoin has the potential to be the primary monetary good”
- It wasn’t long ago that the idea of hyperbitcoinization was a very, very far-fetched idea. To see commentary like this from Fidelity (and previously from Morgan Stanley Investment Management’s chief global strategist …amongst others) is probably a significant data point
Russia’s Minister of Finance: Banks should be allowed to sell BTC
- Russia’s Minister of Finance said in a letter to the Prime Minister that authorities should legalize and regulate Bitcoin rather than ban it
- The Ministry of Finance supports allowing the trading of digital assets through banks and stated that Bitcoin should be treated like gold or other assets
India will legalize Bitcoin investment
- My conversations with Bitcoin businesses in India (like Pankaj Balani, CEO of Delta Exchange the second-largest crypto options market globally) have long indicated that India is open to allowing Bitcoin investment, but do not like the idea of BTC or USDT competing in any way with the INR
- This is probably a very important milestone as it will legitimize Bitcoin investment in a market with 1.4B potential investors, a strong cultural preference for hard assets, and some of the best developers, traders, and investors on the planet
- The 30% tax is rough, but they do have a regime in place for long-term capital gains. So perhaps this slides lower over time for long term holders
US Senator Wendy Rogers wants BTC as legal tender in Arizona
- Republican State Senator Wendy Rogers of Arizona formally introduced Bill 1341 which seeks to include Bitcoin as a legally accepted form of payment
Grayscale launches Future of Finance ETF
- The ETF will track the Bloomberg Grayscale Future of Finance Index. Probably an effort to beef up its ETF credentials in hopes of converting the GBTC to a proper ETF at some point
- Current constituents in order of weighting include: Coinbase, Slivergate, Robinhood, PayPal, Block, Plus500, Argo, Hut 8, Bitfarms, Hive, Northern Data, Monex, Galaxy Digital, Canaan, Marathon, Riot, Voyager, Cleanspark, Bakkt, Bit Digital, Mogo and Bit Mining
- Given the constituents and the weighting, I think this will get smashed by Bitcoin and there are probably better BTC proxies in the market (MSTR, HUT, MARA, the upcoming Valkyrie Bitcoin Miners ETF, or the Purpose BTC ETF in Canada)
Former Facebook Libra lead: Bitcoin is unique and can’t be replaced
- David Marcus has probably learned a lot about the importance of decentralization over the course of Libra’s regulatory gauntlet. Earlier this week he tweeted
“Bitcoin is truly leaderless, censorship resistant, and has much greater network effects. In essence, it’s unique and cannot ever be replicated. Its creation truly was the Big Bang event of crypto”
- Jack Dorsey, the former CEO of Twitter, also commented this week that Facebook would have gotten farther if they embraced decentralization and focused on BTC rather than Libra
“This whole thing with Libra and then Diem, I think there’s a ton of lessons there…hopefully, they learned a lot, but I think there was a lot of wasted effort and time.”
Peter Brandt suggests it may be time to buy Bitcoin
- I think Peter’s analysis can be a good balance to perma bulls like myself and can probably be very useful in short to mid-term timing
- While Peter’s recent comments don’t exactly sound like a high conviction call to back up the truck, he has also noticed that Bitcoin has probably already hit max pain levels and we are probably entering (or have already entered) an inflection point in price
Charts
Bitcoin Under Management hits ATH
- Canada’s Purpose BTC ETF saw strong inflows this week totaling > 1,800 BTC
- Total BTC under management gained to more than 1,800 — a new ATH
Chart credit: Glassnode
This is fine…
- US national debt tops $30 trillion for the first time ever
Chart credit: CNN
Coinbase Premium
- The Coinbase premium relative to Binance is close to a YTD high
- Given Coinbase’s dominance in the US OTC market, this is typically seen as a gauge of US / institutional interest in BTC
Chart credit: CryptoQuant
Testing the trend
- Bitcoin price is testing the downtrend we’ve been stuck in since November of last year
- If we can break out of this trend, cross north of $40,000, flip all the volume that has accumulated around this level to support, I think that would go a long way to turning a corner and allowing Bitcoin price to catch up to generally positive YTD headlines
