Blockstream Markets Weekly — February 19, 2021

Blackrock dabbles, Canadian ETF enjoys strong debut, MSTR to add another $900M, CME Bitcoin futures post record $5B daily volume, $141B Doubleline Capital says Bitcoin is the stimulus asset, Bitcoin fund inflows see third-best week ever

By Jesse Knutson

What’s happening in the markets?

Bitcoin makes gold suffer

Bitcoin rallying into the end of the week on pace to finish ~ +11% for the eighth win of the past ten weeks.

Traditional markets remained supportive of Bitcoin gains, with most major indices just off record highs, Treasury yields firming somewhat, and sentiment around a post-Covid recovery continuing to gain traction. A bounce in Treasury yields continued to weigh on gold, which fell to a seven-month low, as Bitcoin investment product inflows gained to the third-highest week on record.

It looks like JPM’s prediction late last year that Bitcoin could make gold suffer for years is playing out to some extent.

This week's investment product inflows were probably also significantly underreported given a strong first day of trading by North America’s first Bitcoin ETF this week as flow aggregators have yet to incorporate that data into their analysis.

The price is the news

Newsflow this week remained positive with MicroStrategy announcing a new $900M debt offering to buy Bitcoin, Blackrock beginning to dabble in Bitcoin, Coinbase’s valuation hitting $77B on private markets (ahead of IPO), and the successful launch of Canada’s first ETF boosting the probability for a similar, but larger, product South of the border.

All of that was overshadowed, though, as Bitcoin extended gains past $50,000 this week, resetting the previous all-time high and inching closer to a $1T market cap.

Bitcoin…the confluence of all trends

This week the head of $141B AUM Doubleline Capital and long-time gold bull Jeffery Gundlach noted that Bitcoin might well be “the stimulus asset” that many anticipated gold would be.

While Bitcoin moved closer to a $1T market cap this week, gold not only dropped below $1,800 for the first time in two months but also saw its 50-day moving average cross below its 200-day moving average.

Part of the reason Bitcoin is outperforming gold is that it not only has characteristics of an inflation-friendly asset but also characteristics of risk assets (great charts on this below).

Bitcoin is at the confluence of many massive, multi-year trends — a growing distrust in establishment institutions, the $68B Great Wealth Transfer from boomers to their children, the growth of cross-border, digital finance, the erosion of individual sovereignty by big government and big tech, and the acceleration of inflationary pressures.

The tinder of these trends has been building for decades; the pandemic (or perhaps more accurately, the policy response to it) is really just the spark that set it all aflame.

The importance of a trillion dollars

Before this year, Bitcoin’s market cap was closer to a mid to large-cap stock than an asset class.

At a trillion dollars, this changes. Suddenly Bitcoin becomes a real asset class that pulls in more money. This trend has clearly already begun, and we’ve already seen a torrent of mainstream institutional investor and corporate adoption news. Another shorter-term data point was a record-high $5B trading day on CME Bitcoin Futures this week. I think this trend probably accelerates as we cross the trillion-dollar mark.

One of those drivers could be the proliferation of ETFs. Bloomberg wrote this week that the probability of a US ETF may now be higher given support from industry heavyweights like Paul Tudor Jones and Stan Druckenmiller, adoption by payment platforms like Paypal, and Biden’s nomination of Gary Gensler as SEC chairman (seen as Bitcoin-friendly). Not to mention the launch of Canada’s first Bitcoin ETF (BTCC-B.TO) today (which looks like it traded multiples of the biggest ETF in Canada XIU.TO on its debut) and the approval of the second Bitcoin ETF this week.

Dips for ants

While price action doesn’t look to have overheated, it’s definitely getting warm, and the stock-to-flow multiple is getting a bit stretched. After breaking above 1.6x this week, it’s now just shy of a three-year high.

That said, dips this year have been typically shorter and shallower than expected. There continues to be a pretty good bid out of the US, with prices on Coinbase mostly trading at a premium this week. The Purpose Bitcoin ETF launch in Canada this week should add some support to the US bid as it gets its first full week of trading next week.

We may see a period of consolidation incoming, but given peaks in on-chain transactions and exchange volumes clustered around the $48,000 level (chart below), this is probably a fairly strong line of support.

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Bitcoin markets news

MicroStrategy upsizes debt offering to buy more Bitcoin

  • Size increased to $900M from the original $600M.
  • Microstrategy currently holds ~ 72,000 BTC at an average cost of $16,109

Doubleline Capital’s Gundlach: Bitcoin is the stimulus asset

  • Jeffery Gundlach heads $141B Doubeline Capital.

“I am a long-term dollar bear and gold bull but have been neutral on both for over six months. Lots of liquid poured into a funnel creates a torrent. Bitcoin maybe The Stimulus Asset. Doesn’t look like gold is”

Bitcoin ETF Roars in Debut With $165 Million of Trading Volume

  • This will trigger a string of copycat products. In a year, Bitcoin ETFs will be everywhere
  • Probably not good for the GBTC or hedge funds locked into that arb trade

Blackrock has started to dabble in Bitcoin

  • In January, Blackrock added Bitcoin Futures to two of its funds

“People are looking for places that could appreciate under the assumption that inflation moves higher and that debts are building, so we’ve started to dabble a bit into it.”

Coinbase gets $77B valuation from Nasdaq private market

  • IPO is expected in the next few months, but Coinbase valuation is already said to be $77B based on the trading of the company’s privately held shares
  • Forbes reported two weeks ago that 4Q20 annualized revenues hit $2.3B with a profit margin of 20% (on par with brokerages like Schwab). The article said that its valuation could be as high as $100B based on fintech revenue multiples

Gartner: most corporates don’t want Bitcoin on the balance sheet

  • Yes…but…5% said they would begin to hold bitcoin in 2021
  • Which I think is interesting, because a year ago that number was almost certainly 0%
  • The top concern amongst those surveyed was Bitcoin’s volatility

Canada approves second Bitcoin ETF application

  • Less than three weeks after filing a preliminary prospectus for a Bitcoin ETF, Evolve Funds Group Inc announced Tuesday that the Ontario Securities Commission had approved its fund
  • Follows approval for The Purpose Bitcoin ETF last week
  • Will trade under the ticker EBIT for CAD trading and EBIT.U for USD

NYDIG files for American Bitcoin ETF approval

  • The funds ‘authorized participant’ (an organization with the right to create and redeem shares of an ETF) will be Morgan Stanley
  • NYDIG is the Bitcoin subsidiary of Stone Ridge, a $10 billion alternative asset manager
  • Saifedean Ammous highlighted all transactions, creation, redemption, and fees will be in BTC, not USD. All-in fee set to just 0.5%

Bitcoin made the front page of the Wall Street Journal this week

  • Bitcoin trades above $50,000 for first time


Risk On 1. Fund managers gone wild

  • Fund managers surveyed by Bank of America Merrill Lynch are running record levels of risk.

Chart credit BofAML via The Daily Shot

Risk On 2. Extreme Risk On

  • Investor flows heavily skewed towards risk (equities)
  • Universal FOMO across asset classes has to end in tears at some point

Chart credit The Daily Shot

Inflows into inflation-friendly assets moons

  • Bitcoin is really the perfect asset for the current macroeconomic backdrop, an inflation hedge with a high beta kicker

Chart credit Jeroen Blokland (Portfolio Manager, Robeco Multi-Asset Funds)

$48,000 is the new $35,000

  • Both on-chain transaction and exchange volumes indicate significant support at $48,000
  • Below that $35,000 shows another peak in volume and transaction data from the four weeks of consolidation Bitcoin did around that level.

Chart credit Glassnode via Yann & Jan

Retail traders…they’re baaack

  • The chart below plots Bitcoin (orange) vs. GameStop (red)
  • Interesting to note how the WallStreetBets phenomenon sucked retail attention away from Bitcoin. The GME dump now has retail eyes back on Bitcoin

Third best week of fund inflows…or better?

  • Digital Asset funds saw inflows of $602M this week, the third-best on record. Bitcoin funds accounted for 62% at $602M. However, that number doesn’t capture the big first day of trading from North America’s first Bitcoin ETF. So actual fund inflows were significantly larger and will certainly grow next week, given a full week of trading

Chart credit Coinshares

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

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