Blockstream Markets Weekly — Jan 21, 2022

Bitcoin slips below $40K, BNY Melon expects significant BTC contribution, Charles Schwab open to BTC trading, Intel readies new mining chip, US policymakers call miners to congress, as Russia considers crypto ban.

By Jesse Knutson

Six month low

Bitcoin followed a slide in global stonks to end lower for the third week in a row.

Trading this week saw almost four months of consolidation resolved with a break to the downside triggering $240M of BTC liquidations and more than $600M across the broader digital asset space.

Bond yields fell a bit after the 10-year broke above 1.8% to a near two year high earlier in the week with traders looking for a rate hike in
March and three more by the end of the year.

Declines this week left Bitcoin at a 169 day low.

Infrastructure and adoption

News flow this week was a mixed bag.

In mining headlines, the House Energy & Commerce Committee held their first hearing on Bitcoin mining, as reports circulated that Intel may unveil a new Bitcoin mining chip in Feb and that the Russian central bank is reportedly considering banning crypto operations (including mining). Rolling seven-day Bitcoin hashrate increased to a new all-time high of 199 EH.

In terms of institutional adoption, the CEO of $7.5T asset manager Charles Schwab is reportedly open to Bitcoin trading if permitted by regulations, and custody giant BNY Mellon sees meaningful crypto contribution by next year.

In Blockstream news, I discussed Bitcoin innovation and El Salvador with Jonas Nick in this week’s episode of Blockstream Talk, and up and coming digital asset custodial platform, CYBAVO, announced Liquid Network integration.

Decouple

I think one of the most interesting characteristics of Bitcoin in 2021 was the disparity between how it traded and how institutional investors colored the narrative.

The institutional narrative on Bitcoin, which I think started with Paul Tudor Jones, was as an inflation hedge with a high beta kicker. Essentially Bitcoin is like gold (except better) and is still relatively small, so has a lot of potential upside. But Bitcoin, throughout the course of 2021, traded more like a risk asset with a decent correlation to US equities.

Interestingly, that correlation is now at the top end of its recent range and could be reaching an inflection point in which mean reversion begins to kick in. Bloomberg Intelligence’s Senior Commodity Strategist, Mike Mcglone, said this week that Bitcoin is

“…transitioning from a risk-on to risk-off global digital store of value, replacing gold and becoming global collateral…”

With China cutting rates this week for the first time in almost two years, I wonder also if a rotation from US equities to emerging market equities could help support Bitcoin’s decoupling from US stonks.

HSBC this week cut their rating on US equities and said that emerging markets may be a place to hide out given the different stage of growth and liquidity cycles.

Underwater

Given macro headwinds and declines in global stonks, I think Bitcoin has actually been fairly resilient over the past couple of weeks. A wick lower is probably what Bitcoin needs to reset market sentiment.

A number of metrics are already starting to flash oversold. Last week we highlighted Glassnode’s Entity-Adjusted Dormancy Flow. This week Glassnode highlighted that < 70% of recent transactions are being executed in profit. After this last drop below the $40,000 mark, probably more than 1/3 are underwater. Glassnode highlights that readings ≤ the current level have typically marked capitulations. Today’s drop also saw Bitcoin print its lowest RSI reading in about eight months.

With monthly options expiry to look forward to next Friday, we’re probably in for a decent bit of volatility over the next ten or so days.

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Bitcoin markets news

Blockstream Talk #8: Jonas Nick — El Salvador and BTC innovation

  • Jonas Nick is a core tech engineer on Blockstream’s research team and one of the authors of Bitcoin’s recent Taproot upgrade
  • Jonas was also recently in El Salvador and shared some good boots on the ground observations on El Salvador's national Lightning Network integration

CYBAVO announces Liquid Network support

  • CYBAVO is one of the fastest-growing players in the private key security/wallet management space
  • CYBAVO also intends to join the more than 60 members strong Liquid Federation, which will allow CYBAVO users to peg seamlessly out of L-BTC

First hearing on Bitcoin mining shows misunderstandings

  • I’m sure that nobody is surprised by this
  • Looks like Bitfury’s Brian Brooks did a particularly good job at getting policymakers up to speed

“But what is clear is that the 188 terawatt-hours used by bitcoin last year out of about 155,000 terawatt-hours consumed globally for all uses, was sourced more sustainably than other uses on average. So, for example, the energy mix used by bitcoin mining was about 58% sustainably sourced last year sustainable under the International Energy Agency definition including wind hydro, solar, nuclear, and carbon offsets, compared to 31% for the US economy as a whole”

Intel expected to unveil new Bitcoin mining Asic in Feb

  • The chip is described in the draft as an “ultra-low-voltage energy-efficient Bitcoin mining ASIC.”
  • Mining startup GRID looks like it will be Intel’s first client
  • GRID is scheduled to go public via a SPAC merger on the New York Stock Exchange in the coming weeks with an expected valuation of $3.3 billion
  • GRID’s S-4 filing says it’s already signed a supply agreement with Intel to be the first recipient of the new “Bonanza Mine” chips

Charles Schwab CEO: We welcome the chance to offer BTC trading

  • Charles Schwab is one of the world’s largest asset managers with $7.5T AUM

“We have a lot of ways that clients today can invest in crypto. What we don’t offer is direct trading. We would welcome the chance if the opportunity presents itself from a regulatory standpoint”

BNY Mellon sees meaningful crypto contribution by next year

  • According to BNY Mellon’s Chief Executive Officer — Emily Portney — digital assets could be a significant source of revenue starting from next year
  • Last year BNY Mellon joined State Street in a consortium with four other banks to ban digital asset trading platform Pure Digital
  • BNY Mellon made a strategic investment in Fireblocks’ $133M raise last year

Russian central bank reportedly call for crypto bans

  • Russia’s central bank called for a ban of numerous crypto operations — including mining — in a report published Thursday, citing concerns that digital assets could undermine financial stability
  • Russia is thought to be the third-largest global mining hub at 11.9%, behind the US at 35.2%, and Kazakhstan at 13.8% and just north of Canada’s 11.5%. That data lags a bit, though, and it’s unclear to what degree unrest in Kazakhstan has impacted global hashrate distribution

Judge says that BitMEX founder was joking about coconut bribes

  • A US district court judge blocked the government from presenting BitMEX co-founder Arthur Hayes’ coconut comment during trials in March
  • Fun fact: the comment was made at Taipei’s Asia Blockchain Summit in 2019 during a debate between Bitcoin heel Nouriel Roubini and Arthur Hayes. I was there and confirm it was indeed a joke. Kind of shocking that prosecutors would try and present it as anything else

Kevin O’Leary: A ton of institutional capital will flow to BTC mining

  • O’Leary reports in a recent interview with Anthony Pompliano that a number of sovereign wealth funds are looking for mining exposure

Charts

Here today, gone tomorrow

  • Pantera’s The Year Ahead investor letter had an interesting chart highlighting the top coins by market cap in 2017 and the top coins today
  • Of the top 20 in 2017, only six are still in the top 20 today
  • The average position of the remaining 14 is now #90
  • Bitcoin is still #1

Chart credit: Pantera Capital

Bitcoin Nasdaq correlation

  • Bitcoin’s 30-day correlation is at the top end of the recent range
  • Would expect to see some kind of mean reversion in the coming days/weeks

Chart credit: Dylan LeClair

Underwater

  • This week Glassnode highlighted that < 70% of recent transactions are being executed in profit…meaning a lot of investors are underwater
  • Historically this area has signaled capitulations and matches up well with price bottoms

Chart credit: Glassnode

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

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