Blockstream Markets Weekly — February 5, 2021
Stone Ridge targets $25B in BTC by year-end, Elon pumps Bitcoin (again), miners earn $1.1B in Jan, PayPal and Visa double down on Bitcoin, Coinbase outflows continue and MicroStrategy adds another $10M BTC to the war chest
By Jesse Knutson
What’s happening in the markets?
Unfazed by dollar bounce
Bitcoin on pace to post its second consecutive weekly gain, and on track to finish up for the seventh time in the past ten weeks. Trading this week saw Bitcoin jump to a high of $38,748, just a stone’s throw away from the previous all-time high of $42,000.
Declines in recent Reddit favorites, GameStop and AMC, may have helped support a bid in Bitcoin this week as retail traders rotated out of equities.
Bitcoin strength this week came despite a continued rebound in the dollar that drove another leg lower in gold. Bitcoin and the dollar have traded in opposite directions for most of the past 12 months.
Dollar strength came as longer-term U.S. Treasury yields rose later in the week and as investors positioned for Biden’s pandemic relief package and signs of improvement from the US labor market.
January was good to miners
Bitcoin miners enjoyed their second-best month on record in January. January miner revenues came in at $1.1B, up 62% from the previous month.
Listed miners have had a pretty good start to the year with Marathon Patent(MARA) +107% year-to-date, Riot Blockchain (RIOT)+40%, and Hut 8 (HUT.TO) +39%.
Payment giants double down on Bitcoin
This week PayPal reported quarterly financials for the first time since rolling out crypto buying and selling late last year. The results came in ahead of analyst exceptions with profits tripling from a year before, a total of 16 million new users, and transaction volume +12% QoQ to a total of $277 billion.
After a limited buy/sell/hold crypto trading launch that “exceeded expectations”, the company’s Q4–20 Investor Update identified digital currencies as a key focus area going forward and the company will likely expand its cryptocurrency offering into payments later this year.
Likewise, Visa also announced this week a suite of services that will allow banks to offer Bitcoin services, including buying, selling, and custody.
Institutional adoption headlines were a bit slower this week, but it looks as though institutions might be back on the bid as Bitcoin stabilized above $30,000 and as Coinbase switched back to a large net outflow over the previous seven days.
Inline with that were comments from Stone Ridge Asset Management that their dedicated Bitcoin arm, NYDIG, already had $6 billion Bitcoin under management for institutional clients and that they anticipated growing their total Bitcoin AUM to $25 billion by the end of the year.
Also this week, MicroStrategy (MSTR) announced that they had added another $10 million to their Bitcoin war chest at an average price of $33,810. That brings MicroStrategy’s total holdings to 71,079 BTC.
After spending the previous seven weeks consolidating between $30,000 and the all-time high of $42,000, Bitcoin looks to be edging up again towards the top end of the range and I wouldn’t be surprised to see us make a test of $40,000 next week.
In perfect 2021 fashion, Bitcoin’s deteriorating technicals over the previous couple of weeks look to have been largely reversed by a couple of tweets from Elon Musk.
Sentiment looks to be improving. Recent Alt Coin strength relative to Bitcoin is probably stretched and likely due for mean reversion (chart below). An acceleration of Bitcoin outflows from Coinbase is also probably an indication that mainstream institutional money is back on the bid.
On top of that, Big end of week moves in Asian equities, new record highs for US stocks, and Bitcoin largely shaking off USD strength are all positive signs from traditional markets.
As mentioned previously the more volume we can accumulate above $30,000 the better. Lines of support are probably inching higher with the 50-day moving average now up to $32,000 and the 2021 volume weighted average price (VWAP) just north of $34,000.
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Bitcoin markets news
- Stone Ridge’s Bitcoin business, NYDIG, currently manages $6 billion in Bitcoin for 280 institutional clients
- NYDIG expects to onboard at least 75 clients a month
- Points to strong institutional demand from mainstream investors
“Our strategy here is to work with wallets and exchanges to enable users to purchase these currencies using their Visa credentials or to cash out onto our Visa credential to make a fiat purchase at any of the 70 million merchants where Visa is accepted globally”
- Visa has partnered with 35 different Bitcoin and crypto platforms
- Has announced plans to help banks roll out Bitcoin and crypto buying and trading services with a Visa crypto software program which is set to launch later this year
- Speaking on social audio app Clubhouse, Elon Musk said
“Bitcoin is really on the verge of getting broad acceptance by conventional finance people”
- Musk drove Dogecoin +50% later in the week with a Tweet
- Marks a +62% MoM on increase from December
- Transaction fees accounted for $116 million, ~10% of total
- Slightly confusing comments this week from Scott Minerd, chief investment officer of the multi-billion dollar investment firm Guggenheim Partners
- His interview on Bloomberg last week suggested that he thought the run above $30,000 had come too fast and that the investor base may not be there (at the moment) to support it
- But also thinks that Bitcoin’s scarcity could eventually push price up to $600,000
- Quarterly revenue topped $6B for the first time
- Company guides for full-year 2021 revenue to top $25B
- Bitcoin trading beat expectations with Bitcoin users showing double the typical platform engagement rate
“Something with a long-term volatility of 80% can’t be considered a medium of exchange”…though… “blockchain technology is here to stay”
- This is such a 2015 view of the industry
- Goldman’s research on Bitcoin feels really dated. Their May 2020 client call, US Economic Outlook & Implications of Current Policies for Inflation, Gold and Bitcoin, is a good case in point
- CEO Michael Saylor predicts an avalanche of companies moving cash into Bitcoin over the next 12 months
“If your company has money on its balance sheet and it’s sitting in fiat currencies like euros and dollars, they are losing about 15% of their purchasing power each year…the simple solution is to convert some of that cash into Bitcoin”
- MicroStrategy pads war chest with another $10M in Bitcoin
- The firm invested 2.5% of its $27 billion portfolio into bitcoin back in November, making its purchase via One River Digital and Coinbase
- The 2.5% allocation was made across all Ruffer’s funds, costing around $600 million
- The company took $650 million in profit and has left $700 million in
- Brings the company’s total to 71,079 BTC
- The average price for this purchase was $33,810
- With Samsung and TSMC both promising larger chip allocations to the Automotive sector fabless chipmakers particularly second-tier players have expressed concerns about their supply being further constrained
- My understanding is that no Bitcoin mining rig maker was given 7nm or 8nm allocation in 1Q21, so this will likely constrain access to hardware
- TSMC has also reportedly invested close more than $70B in its 3nm process which is already fully booked out until 2024
- Integration is planned for the coming quarter and is part of an effort to reduce transaction times and fees
- I think we’lll likely see continued adoption of second layer technologies like Lightning and Blockstream’s Liquid throughout the year
Bitcoin/SPX hits new highs, volatility about the same
- A report from Bloomberg Intelligence this week highlighted that Bitcoin’s annual volatility is almost the same as the SPX toward the end of 2020
- A mean reversion in volatility may mean that Bitcoin price could move well above the previous Bitcoin/SPX peak
“If volatility is an indication, risks lean toward the Bitcoin price resuming its upward trajectory vs. equity prices.”
Chart credit Bloomberg Intelligence
January ends +14.2% MoM for the fifth consecutive monthly gain
- February is a consistent up month, positive four of the previous five years. That said Month-to-date gains are already inline with normal seasonality.
- Bitcoin hasn’t made six consecutive monthly gains since the September 2016 — February 2017 run
Blame it on the rain — Bitcoin hash rate vs China’s rainy season
- During China’s rainy season (April-October) hash rate normally sees a seasonal uptick as Chinese miners take advantage of cheap hydro energy
- My guess is that, given the constraint at foundries and the difficulty of accessing/deploying new machines, this uptick will likely be much more muted this year
There she blows. The number of Bitcoin whales has surged in 2021
- Since the beginning of 2020, the number of Bitcoin whales (holders of > 1,000 BTC) has increased by 27% to a total of 2,160 entities
- The surge around the beginning of this year seems to support the narrative that recent price gains have been driven by high net worth and institutional investors
Chart credit Glassnode
Alt Coin outperformance probably nearing mean reversion
- Chart below shows Bitcoin/Alt Coins
- Bitcoin underperformance vs Alt Coins over the previous 50 days is now nearing two standard deviations
- Historically, this has tended to mark an inflection point
Bitcoin outflows resume
- Total Bitcoin outflows last week totaled -25,000 BTC across the platforms monitored
- Bitcoin outflows tend to be price positive as it implies users have a low near-term propensity to sell
- The large Coinbase outflow likely suggests reengagement from institutional clients
Chart credit Viewbase
Coinbase sees 15,000 BTC outflow at $32,400
- One of the largest outflows of the past six months
- May indicate OTC trades from institutional buyers
Chart credit Ki-Young Ju 주기영
Bitcoin unfazed by USD bounce
- Bitcoin and the dollar (DXY) have been mirror images over much of the previous 12 months
- I had assumed USD strength to be one of the major threats to continued Bitcoin gains, we’ll have to see how this plays out