Blockstream Markets Weekly — July 2, 2021

$22B Point72, Soros Asset Management, $425B of German special fund capital, 24 million community bank clients, and countries across Latin America all eyeing Bitcoin investments as the GBTC discount shrinks and the Purpose BTC ETF hits a record high 22,190 BTC under management

By Jesse Knutson

What’s happening in the markets?

Consolidation

Bitcoin is on pace to post its third consecutive week of declines as consolidation between the $30,000 and $40,000 range stretches into week six.

Stonks continued to move higher with the S&P starting off 3Q21 with another new all-time high. Gains in US equities showed tentative signs of spilling over into Bitcoin world with MicroStrategy hitting an 11-week high mid-week, the GBTC discount starting to shrink and the Purpose Bitcoin ETF posting a new record high of 22,190 BTC under management.

Dry powder

Given the sideways trading of the past six weeks and a faster than expected cooling of the bull market, I think a lot of market followers are wondering where the new capital will come from to drive the next leg higher.

I think if you zoom out a bit, there are indications of new participants preparing to enter the market. This is probably one of the big themes percolating just below the headlines at the moment.

In terms of new institutional interest this week we saw reports that Steve Cohen’s $22B Point72 is looking to hire a head of crypto markets, that Soros Fund Management has recently been cleared to trade Bitcoin, a new German law that opens Bitcoin investment to $425B of ‘special fund’ capital, the creation of a new institutional focused trade platform from TP ICAP, Fidelity, and Standard Chartered, as well as a new Bitcoin ETF application from ARK and 21Shares and comments from Australia’s securities regulator supportive of an ETF down under.

From the retail side, headlines this week included NYDIG teaming up with one of the world’s largest point of sale providers to bring Bitcoin to 650 community banks across the US (24 million clients), and Strike announcing plans to take shake up US retail trading with much lower commissions.

There’s also a lot going on the sovereign side, with interest building in numerous parts of Latin America and Blockstream Finance working on bond offerings that could help provide capital to state-run mining projects.

Adding it all up, there is still a lot of dry powder that could enter the market.

Difficulty Adjustment

There was also quite a bit of mining news this week ahead of what is projected to be the largest downward difficulty adjustment in Bitcoin’s history.

The global semi shortage which has constrained hashrate for most of the past 12 months has made Bitcoin mining very profitable. China’s crackdown on mining, the sharp drop in hashrate, and now the largest downward difficulty adjustment on record puts miners with hardware up and running in a very good position.

Top mining headlines this week included capacity expansion announcements from Hut8 and Argo Blockchain as well as reports that smaller Chinese hydro plants are struggling to stay afloat as China’s miner exodus leaves them high and dry.

Retail returning?

Bitcoin ended June -6% for the third monthly drop in a row. A drop in July, and the fourth month in a row of declines would mean one of the longest losing streaks in Bitcoin’s history. Seems like odds probably favor a bounce in July.

Some tentative indications also this week of a modest return in retail interest. Three of the top retail targets seem to be showing signs of life.

MicroStrategy (holder of ~ 100,000 BTC) touched on an 11 week high this week and looks set to end the week ~ 60% off its May lows.

The GBTC is also looking a bit better. Despite concerns last week from JPM that GBTC share unlocks could drag price lower in June and July, the five-day average GBTC discount shrunk this week to the lowest level since early April.

At the same time, the Purpose Bitcoin ETF saw total BTC under management gain to a record high of 22,190 BTC, the strongest 10-day gain in more than 50 days.

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Bitcoin markets news

ARK teams up with 21Shares for new Bitcoin ETF application

  • The ARK Innovation ETF was the top-performing U.S. equity fund last year
  • ARK has been an aggressive buyer of Coinbase and GBTC shares recently
  • ARK will be responsible for the fund’s marketing and distribution

TP ICAP, Fidelity, Standard Chartered form launch trading platform

  • TP ICAP is the world’s larger interdealer broker
  • Earlier this year TP ICAP completed a $700M acquisition of low-touch block cash equities platform at Liquidnet
  • The platform will offer post-trade infrastructure with a network of digital asset custodians

NYDIG, NCR opens BTC to 24 million community banks clients

  • 650 U.S. banks will soon be able to offer bitcoin purchases to an estimated 24 million total customers
  • NCR (National Cash Register) is the largest provider of point-of-sale software to grocery and other retail stores globally
  • The structure allows the banks to move past burdensome regulatory requirements around custody by leveraging NYDIG’s custodial services

Soros Fund management is trading Bitcoin

  • Dawn Fitzpatrick, CIO of Soros Fund Management, has reportedly given the green light to Bitcoin trading
  • Not a surprise, in March, she revealed that Bitcoin is a top theme for the fund and indicated that they were preparing to enter the market

Point72 preparing to enter Bitcoin markets

  • Steve Cohen’s $22B Point 72 Asset Management is looking to hire a head of crypto markets
  • Follows rival Millennium Management who has been active in crypto futures and exchange-traded funds

China forced to sell hydro plants in wake of miner exodus

  • South China Morning Posts reports that small hydropower stations (≤50MW) are now for sale on e-commerce site Xianyu
  • The number of advertisements has increased and prices have gone down
  • One of the sellers promised:

“You can secretly mine cryptocurrency if you buy a hydropower station”

Strike challenges Coinbase, PayPal, Square in a race to zero

  • Jack Mallers, the CEO of Strike, announced plans to allow users of the platform to trade Bitcoin for zero fees
  • The plan will initially charge 30bps to cover market-making fees, but they hope to take that to 10bps as liquidity improves and then lower from there
  • Fees on many of the most popular US platforms like Coinbase, Square, PayPal and Swan range from 1% to 3.99%

“Acquiring open-source money should be free…It is a race to zero”

Australian securities regulator: BTC may satisfy ETF criteria

  • Comments from the Australian Securities and Investment Commission (ASIC) highlighted that it did not consider all crypto assets were capable to serve as underlying assets for an ETP

“At this point in time, in our view, the only crypto-assets that are likely to satisfy these factors are Bitcoin and Ethereum”

Hut8 will double hashrate by year-end

  • Hut8 has reportedly spent $44M for 11,090 new MicroBT mining rigs
  • They are expected to be delivered and online by the end of 4Q21
  • Pricing by hardware manufactures is … dynamic … at the moment. The cost could potentially be much higher at the time of delivery depending on market conditions

Argo Blockchain borrows $20M against BTC for Texas farm

  • The loan was facilitated by Galaxy Digital

Bitcoin Mining Council says Bitcoin is 56% green

  • That number feels a bit low. In 2019, Coinshares estimated that 74% of the network was powered by green energy
  • But Sichuan was also the biggest contributor to green mining at that time, contributing 54% of hashrate with renewable penetration at 90%
  • So maybe the removal of Sichuan caused a bigger drop in green mining than the relocation of hashrate form coal hubs like Inner Mongolia

Coinbase lands German custodial license

  • Reads like a non-event. Allows Coinbase to continue operations in Germany following legislation from 2019

Germany’s special funds allowed to invest $425B in BTC

  • Allows ‘special funds’ to allocate up to 20% of AUM into BTC. Special funds are apparently the dominant investment vehicle in Germany and 20% is estimated to total $425B
  • The new law came into effect this week

Charts

Purpose Bitcoin ETF hits new high

  • The Purpose Bitcoin ETF now has 22,190 BTC under management
  • Over the past 10 days, holdings have increased +10.84%, the best 10-day gain in 52 days

Chart credit: Purpose Bitcoin ETF

GBTC discount starting to shrink

  • The five-day average GBTC discount shrunk this week to the lowest level since early April, up from a low of ~-18%

Chart credit: YCharts

MicroStrategy hits 11 week high

  • MicroStrategy (3x BTC ETF) hit an 11 week high this week and is already close to 60% of its May lows
  • Bitcoin, meanwhile, continues to consolidate at the bottom end of its recent range

Record losing streak

  • Bitcoin is starting off 3Q21 on pace for the fourth consecutive monthly decline in a row. It’s interesting to note that we went from an unusually long win streak (six months in a row) right into a really long losing streak (three months and counting at the moment)
  • Looking back, there have only been a handful of three-month losing streaks. So odds are probably in favor of a bounce in July
  • The historic pattern is for bull markets to follow halving years. We will need a very strong second half to keep that pattern intact

This cylce vs last cycle

  • The 2016/2017 cycle really started to heat up around 440 days from the previous halving. We’re at day 417 in the current cycle now

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

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