Blockstream Markets Weekly — Jan 28, 2022
Putin quashes Russia ban, Biden wants BTC regs for national security, Turkey explores BTC after Bukele’s visit, Texas may make BTC legal tender, SEC kills Fidelity’s BTC application, and Cathie Wood expects $1M BTC by 2030.
By Jesse Knutson
Bitcoin is on pace to recover from an intraweek drop below the $33,000 mark to end the week modestly higher.
Bitcoin’s bounce was aided by gains in global stonks after the fed said it would continue tapering and tightening in the most cautious manner possible. There seems to be a fairly strong belief in markets that the fed will probably chicken out and not raise rates as many times as analysts had originally forecasted.
With Bitcoin already hit pretty hard earlier in the week, we managed to clear monthly options expiry reasonably unscathed with Bitcoin finishing just north of the weekly range’s midline. I think this points to a high degree of indecision in the market and, potentially, a bit of a reset.
Bitcoin and geopolitics
It was only just a few years ago that this was the part of the Bitcoin pitch I would really downplay in conversations with institutional investors. Nation-states leveraging natural advantages of geothermal and hydroelectric energy to power an alternative to the legacy banking system, cities, countries, and states competing over Bitcoin investment and talent, and superpowers imposing regulations in the name of national security seemed a bit out there.
Inflation hedge with a high beta kicker sounded slightly less insane.
But things in Bitcoin tend to happen a lot faster than expected. 2021 saw a number of cities, states, and countries turn to Bitcoin as a growth driver of last resort. 2022 looks like it could be the year when Bitcoin entered geopolitics.
This week we saw Putin quash rumors of a Russian Bitcoin ban as the US and NATO built up forces in and around Ukraine and as the Biden administration considered imposing sanctions on Putin personally. Almost on queue, reports emerged that Biden was preparing an executive order for new regulations on Bitcoin operations as a matter of national security.
Outside the US, Turkey’s Erdogan has also reportedly instructed an exploration into Bitcoin and digital assets after a meeting last week with the president of El Salvador and Rio De Janeiro made the case for a 1% of treasury reserve allocation to Bitcoin.
Bitcoin also seems to be increasingly part of US domestic political headlines, with Texas gubernatorial candidate Don Huffines pledging to make BTC legal tender and Ohio senate candidates debating Bitcoin merits and policy.
I think Bitcoin’s risk/reward is starting to look pretty attractive, especially in the context of global markets.
After a drop earlier in the week all the way down to ~ $33,000 the current Bitcoin drawdown is just off a low of ~50%, making it the second-worst retracement since the 2018–20 bear market and worse than any pullback in 2017.
If you’re a portfolio manager looking to deploy money in 2022, Bitcoin probably looks fairly attractive given that US equities are down only ~ 10%.
Glassnode has a pretty interesting chart called the short-term holder profit: loss ratio. For those interested, Glassnode defines short-term holders as those holding coins ≤ 155 days.
Smoothing this metric over 14 days shows that short-term holders are currently feeling a lot of pain. Since 2017, there have only been three other points when short-term holders have felt this much pain.
Historically, reversals in this metric have lined up very well with short to mid-term market bottoms. It’s also probably positive that we’re seeing that reversal form just as the monthly options expiry overhang clears.
Bitcoin is probably near an inflection point. If you like chart patterns, the weekly close looks like a pretty textbook spinning top — which indicates points of indecision and often foreshadows price reversals.
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Bitcoin markets news
- The comments come after a call from Russia’s central bank last week to ban the use and mining of Bitcoin and other digital assets
- Putin assured government officials that. the bank was not preventing the country’s technological advancement:
“The central bank does not stand in our way of technical progress and is making the necessary efforts to introduce the latest technologies in this area of activity…we also have certain competitive advantages here, especially in the so-called mining — I mean the surplus of electricity and the well-trained personnel available in the country”
- Russia’s Ministry of Finance appears to also disagree with the central bank, saying that a cryptocurrency ban was not needed, arguing it was necessary to allow ‘these technologies’ to develop
- From a geopolitical standpoint, I think it makes a lot of sense for Russia to support anything that would chip away at USD hegemony…which segues well into our next headline:
- The order is expected to task parts of the government with analyzing digital assets and assembling a regulatory framework that covers Bitcoin, cryptos, stablecoins, and NFTs
- I think this potentially could not go well politically. I think policymakers were probably a bit surprised by the amount of pushback they received around last year’s Infrastructure Bill.
- Coinbase alone has > 73 million users and last year Bakkt said that 48% of US investors have invested in digital assets. I think this is probably a fairly large constituency and one that stretches across demographics and traditional political affiliations
- Turkey’s President has ordered the ruling party to conduct work on all and any new developments pertaining to “Metaverse, Cryptocurrencies, and Social Media.”
- Possibly an interesting development given a recent meeting between the leaders of El Salvador and Turkey
- El Salvador’s President Nayib Bukele met with Erdogan earlier in the week and signed agreements in a wide range of fields, among them economy, trade, defense, diplomacy, and education
- Despite banning cryptocurrencies as a payment method last year, Bitcoin interest in Turkey has grown significantly over the past 12 months as inflation spirals out of control and the domestic currency implodes
- El Salvador bought the dip again adding another 410 BTC for ~ $15M
- I think it would probably be beneficial if they published their wallet addresses to verify their acquisitions and balances
- In an interview on Kitco this week, Keiser said that he knows which country will be the next to adopt Bitcoin, but that he was reluctant to say so publically
- The first question put to Josh Mandel (R) and Morgan Harper (D) was about Bitcoin and ‘blockchain technology’
- In the Bitcoin and Cryptocurrency section of Don Huffines’ website, his platform states:
“Decalre Bitcoin as legal tender for its citizens and businesses to transact in”
- Huffines is challenging Governor Greg Abbot in the 2022 Republican primary for governor of Texas
- They see Bitcoin as a growth driver:
“We know that [bitcoin] is volatile, that some people criticize us for that, but it is the future, and Rio wants to be a reference for the world as a cryptocurrency-friendly city, like Miami or Zug in Switzerland”
- And as an inflation hedge that can be especially beneficial to low-income people that bear the bulk of inflationary pain:
“The last four years have been difficult for Brazil with inflation. And we know that some cryptocurrencies are deflationary and can be used for people not to lose purchasing power. That got people interested in the possibility of having an alternative to central banks, and having more possibilities to fight inequality”
- In line with expectations, but still ridiculous
- Rep Tom Emmer, a four-term congressman from Minnesota, called the rejection ‘baseless’
- I still think that the primary reason spot ETF approval is being slow-rolled is because of the huge amount of pent-up demand created by mandate and regulatory restrictions in the US. A spot ETF would release an ocean of money into a still relatively small container. The SEC doesn’t want to be responsible for pumping BTC to $1,000,000
- Tesla did not buy or sell any bitcoin in the quarter, nor did it record any impairments to the value of its bitcoin holdings because the price of bitcoin was essentially flat from the end of the third quarter to the end of the fourth quarter
- Looks similar to VanEck’s miner ETF
- Allows for investment in listed BTC miners, companies holding a lot of BTC, and a small allocation to miner issued debt instruments
- Wood previously called for BTC to top $500k by 2026
“Bitcoin’s market capitalization still represents a fraction of global assets and is likely to scale as nation-states adopt [it] as legal tender”
“I don’t want my clients to miss this. I’m telling them to size it appropriately — that’s a 1% to 3% allocation, 1% to 4% at cost…You can let it run, of course…But size it appropriately then recognize that this is going to be part of our future”
- Position sizing has always been the name of the game. Interestingly, this is also in line with the treasury reserve allocation being executed by Rio De Janeiro
- The ratio of short term holders (< 155 days) in profit/loss shows that there is a lot of pain in the market at the moment
- Smoothed for on a 14-day rolling basis, this metric has already started to improve
- Historically, reversals in this metric have lined up very well with short to mid-term market bottoms. It’s also probably positive that we’re seeing that reversal form just as the monthly options expiry overhang clears.
Chart credit: Glassnode
Just a flesh wound
- Given the drop earlier in the week all the way down to ~ $33,000 the current Bitcoin drawdown hit a low of ~50%, making it the second-worst retracement since the 2018–20 bear market and worse than any pullback in 2017
Chart credit: Glassnode
Last Friday of the month
- Monthly options expiry has been a good inflection point for most of the past 12 months
- There’s typically been some selling into the last Friday of the month and a bit of a bounce in the days following