Blockstream Markets Weekly — February 26, 2021

Coinbase and Coinshares look to IPO at big valuations, Canadian ETFs force GBTC to a discount, Square and MicroStrategy buy more Bitcoin, Tether removes NYAG overhang…and JPM says investors should put 1% in Bitcoin

By Jesse Knutson

What’s happening in the markets?

Blame the bonds

Bitcoin on pace to finish on the bottom end of the week’s range, down about 15% and on track for the largest drop in dollar terms on record.

An aggressive selloff in global bonds looked to be the primary culprit for declines in both Bitcoin and global equities. Declines in bonds saw yields surge with the U.S. 10-year yield trading as high as 1.6%, the highest since June of last year after a poorly received government auction was followed by selling from holders of mortgage securities.

Declines this week brought an end to Bitcoin’s four-week win streak. February, though, is still on pace for a +37% MoM gain.

IPOs, ETFs, and more corporate adoption

News flow this week remained constructive.

IPOs were one of the key themes of the week after Coinbase filed for a direct listing. Recent trading on Nasdaq Private Markets reportedly puts Coinbase’s valuation at $100B.

That would make Coinbase one of the largest financial services providers in the world. For perspective, the current market cap of the CME Group is $73B, and Goldman Sachs is $113B.

Asset manager Coinshares is also preparing to IPO with a potential $3–5B valuation. The listing would make CoinShares the first major digital asset investment firm to list publicly.

Strong debuts from two Canadian Bitcoin ETFs last week looked to be shaking up the Bitcoin fund industry and pushing the GBTC to its first discount to NAV since March 2017, as investors rotated into the cheaper, more accurate Bitcoin trackers north of the border.

Finally, corporate adoption news continued with MicroStrategy planning to buy more Bitcoin even after last week’s $1B purchase and Square following up on its original $50M Bitcoin purchase with an additional $170M acquisition.

The Taxman Cometh

Looking back at Bitcoin’s seasonality, March is typically the worst month of the year.

Over the past five years, Bitcoin has finished March lower 80% of the time with a median decline of -9.2% and an average decline of -13.1%.

The filing deadline for U.S. federal income tax returns for individuals is April 15. Historically, we’ve seen a dump in the weeks ahead of this as retail investors sell Bitcoin to raise money for taxes.

The historical pattern is for a strong bounce after that selling has been digested. Given the much higher degree of institutional participation this year, I expect to see a lighter-than-seasonal March sell-off as institutional investors backstop retail selling.

Risk Asset or Inflation Hedge?

This week’s big move in the government bond market points to how investors are looking for both growth and inflation to move higher on the other side of the pandemic.

Most recent mainstream institutional and corporate Bitcoin converts have been looking at Bitcoin as an inflation hedge, but it has shown a pretty high correlation with equities for most of the past two quarters. The narrative has been inflation hedge, but the trading has looked a lot more like a risk asset. The dollar is also strengthening a bit, which is challenging for Bitcoin.

It will be interesting to see if Bitcoin can decouple from equities.

Where now?

With Bitcoin falling below the 20-day moving average and last week’s expected support level of $48,000, I think the next level of support is probably the early February high of $42,000.

With monthly Bitcoin options expiry wrapping up just a few hours ago, we’ve probably exhausted some of the selling from traders trying to push price favorable to their positioning (price bouncing now since the 7:30–8:00 am UTC expiry bottom). Over the last few months, we’ve seen a bit of a price rally in the few days immediately following the expiry.

Given the big move in price over the previous few weeks, a load of macro concerns, normal seasonality, and with price running a bit ahead of the stock-to-flow implied fair value price; it seems like a natural place in the cycle to expect a bit of consolidation. This is healthy and will allow fundamentals to catch up to recent price action.

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Bitcoin markets news

Microstrategy will buy more Bitcoin after $1B purchase

  • MicroStrategy paid an average of $52,75 for nearly 20,000 BTC last week after issuing $1.05B in convertible bonds.
  • Total holdings now top 90,000 BTC at a total cost of $2.17B
  • The company said it will continue buying Bitcoin using excess cash and may issue more debt to finance the purchases.

Coinbase files for IPO. $100B valuation!?!

  • Coinbase filed with the SEC to go public via a direct listing yesterday. A strategy used by both Slack and Spotify to sell shares directly to the public without an intermediary
  • The company will list its shares on the Nasdaq under the stock ticker “COIN.”
  • Coinbase hasn’t yet provided an official date for its IPO
  • Shares sold via Nasdaq Private Markets were most recently valued at $373, giving Coinbase a valuation of about $100 billion. To put that in perspective, the current market cap of the CME Group is $73B, and Goldman Sachs is $113B. At $100B, Coinbase will be one of the largest financial services providers in the world. It will be cashed up and able to acquire licenses, businesses, and headcount as it sees fit.

Tether’s NYAG settlement is positive for the industry

  • As part of the settlement, Tether and Bitfinex agreed to pay an $18.5 million fine, publish quarterly reports on their financial holdings, and block any New York residents or entities from using their services (something they’ve been doing for years)
  • Pat LaVecchia, CEO and Co-Chairman of Oasis Pro Markets, summed it up:

“Long and short, great result for them. Very workable fine, and they can continue their business.”

JPM: Put 1% in Bitcoin

  • It’s funny to see major financial services providers making the same pitches Bitcoiners made years earlier.
  • It is annoying, though, how they use cryptocurrency and Bitcoin interchangeably.

“In a multi-asset portfolio, investors can likely add up to 1% of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio”

Square doubles down, buys $170M more Bitcoin.

  • Follows a purchase of $50M worth of Bitcoin in October last year.
  • Total now brings Bitcoin holdings to 5% of cash and cash equivalents.
  • Square’s CFO, Amrita Ahuja, said

“Bitcoin has the potential to be a native currency of the internet and we want to continue to participate and learn in a disciplined way”

Bloomberg ETF analyst: pioneering Bitcoin ETF a ‘raging success’

  • On Monday alone, investors traded $260M of the Purpose Bitcoin ETF (BTCC), which was launched Thursday. In just the first two days, its trading volume approached $421M.
  • Bloomberg ETF analyst Eric Balchunas said the Purpose Bitcoin ETF’s performance surpassed analysts’ estimates, adding that.

“if it were to keep up this pace it will be the biggest ETF in Canada in 20 days”

Coinshares to IPO for $3–5B

  • CoinShares is on track to become the first major digital asset investment firm to list publicly.
  • The firm is based in London and intends to list on Nasdaq First North Growth Market in Sweden with a target trading date of March 11th

Anchorage raises $80M after receiving banking charter

  • Anchorage is a Bitcoin custodian. The company also wants to become a crypto-banking-as-a-service startup, meaning it could become a crypto partner for both challenger banks and traditional banks.
  • The Series C funding round was led by GIC, Singapore’s sovereign wealth fund.
  • One of the world’s largest sovereign wealth funds taking leading the round in a digital asset custodian is very interesting.

Commission compression at Bitcoin ETFs is fast and furious

  • North America’s 2nd Bitcoin ETF, EBIT, cut fees from 1% to 0.75%
  • BTCC launched just a day before EBIT, but the momentum it’s garnered really points to the importance of a first-mover advantage
  • BTCC has outpaced EBIT with $448M in assets compared to just $28M for EBIT
  • The median fee for passive ETFs is just 0.49%…at this rate, BTC-focused ETFs might get there sometime next week.

GBTC tanks, outpacing Bitcoin correction

  • I think the article is completely missing what’s going on here. This isn’t reflective of declining demand for Bitcoin; I think it’s being driven by the ETF launches in Canada and the growing probability of a similar product in the US
  • Retail traders are going to rotate to ETF products that are cheaper and track NAV better. That will kill the premium. Once the premium is gone, there’s no arbitrage trade for the hedge funds. Leveraged positions or those with borrow costs might be forced sellers. The GBTC could be in for a bumpy ride

ARK’s Cathy Wood: Bitcoin hedges against confiscation of wealth

“We see so many use cases for Bitcoin, but probably the most important use case is an insurance policy, around the world, against the confiscation of wealth”

CME Bitcoin Futures see strong growth in volume, users

  • January ADV hit 87,700 BTC (Each CME Bitcoin futures contract is worth the value of 5 BTC paid out in dollars), +57%MoM, +63%YoY
  • 2021 has seen the addition of 733 new users, 2.3x all of 2020

Fed to Congress: Looking carefully at digital dollar issuance

  • Chairman Powell called the potential digital dollar a “high priority” project, according to the testimony
  • I don’t think this will be positive for individual freedom or privacy

Treasury Secretary Janet Yellen: Bitcoin is inefficient and speculative

  • Her comments were followed later in the week by an operational error at FedWire, the central bank’s real-time wire-transfer service that is used to send large sums of cash between banks, that crashed the Fed’s payment system
  • Yellen has also worried about the ability of Bitcoin to be used for money laundering and other forms of illegal activities despite reports that indicate only 0.34% of cryptocurrency transactions are linked to illicit activities

Charts

CME Bitcoin Futures accounts hit new high

  • Points to strong institutional interest

Chart credit Alistair Milne

Commodities/Equities

  • Implies a rotation out of risk assets (equities)

Chart credit Otavio Costa

GBTC premiums flip to discount

  • As mentioned above, I think this reflects the success of the two Canadian ETFs listed last week and the increased probability of a US ETF in the coming months than it is a reflection of Bitcoin investment appetite

Chart credit Bloomberg

2020 debt/GDP growth

  • Global debt up by $24T in 2020 to $281T, or 355% of global GDP
  • This is fine…
  • Chart credit Jeroen Blokland

Seasonality. March is the worst month of the year

  • March has been down MoM four of the past five years.
  • The median decline is -9.2%. The average decline is -13.1%

Bitcoin has tended to bounce recently after options expiry

  • Options traders typically push price in the direction they want it to settle. Recently that has been down. Once that selling is exhausted, price has tended to bounce 15–20% in days following expiry.

Chart credit James Viggiano

Canadian ETF already holds more than 10,000 Bitcoin

Chart credit Glassnode

Treasury yields pass 1.6%, highest since June of last year

  • Seen as a potential warning sign for risk assets
  • Yields globally now look to be back to pre-pandemic levels.

Chart credit Bloomberg

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

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