Blockstream Markets Weekly — July 30, 2021
Germany OKs $420B of insto investment, $68B ProFunds launches the first public BTC mutual fund, $7B Horizon allocates 10% of fund to GBTC, and Fidelity’s macro head says BTC looks like Gold in the 1970s
By Jesse Knutson
What’s happening in the markets?
Sparkle and fade
Bitcoin is on pace for the second consecutive weekly gain after finishing higher nine of the previous ten days.
Declines in equities looked to weigh on Bitcoin’s momentum a bit as China’s crackdown on domestic tech giants drove HK and China lower and following signs of slowing growth from Facebook, Amazon, and Apple. Bitcoin is on pace to end Friday lower after a multi-year high nine consecutive days of gains.
Bitcoin’s rally, while largely technical, was helped in part by indications from Jerome Powell this week that the Fed was unlikely to hike rates any time soon. Gold had its best weekly gain in more than two months as consumer prices continued to trend higher and Fed comments indicated that inflation could be higher and more persistent than previously expected.
An end-of-week correction probably makes sense, though, given resistance at $40,000, ~ $2B futures and options expiry today and after a 36% rally over the previous ten days.
Dry powder
Headlines this week were mostly positive with new products and regulations promising Bitcoin access to a broader range of investors including a new rule coming into effect in Germany that will open Bitcoin to $420B of institutional money, $68B ProFund launching the first publicly available Bitcoin mutual fund, and PayPal looking to implement BTC trade functionality in the UK.
Regulatory headlines were a bit less rosy, with Senator Elizabeth Warren worrying about Bitcoin’s shadowy super-coders and the Biden administration proposing tougher crypto taxation to help foot the bill for a $1 trillion infrastructure plan.
Early days
I think there’s always a feeling from investors watching Bitcoin’s long-term price appreciation that they’ve missed the boat.
A report from Crypto.com this week points to just how early we are in the development of this asset. Crypto.com estimates that global crypto users probably total to just over 220 million. The report highlights that while it took nine months for total users to hit 100 million from 65 million, it took only four months for the global crypto user/investor population to double from 100 million to 200 million.
The growth is impressive, but it’s still early days. 220 million sounds like a big number, but represents only ~ 3% of the 6.65B smartphone users expected by 2022.
$40,000
It’s encouraging to see Bitcoin resolve several weeks of low volatility trading with a strong move to the upside and a renewed push to break above $40,000 resistance.
Momentum (as measured by the Directional Movement Index) has turned positive for the first time since the start of the correction in April. Retail sentiment is also showing signs of recovery with the GBTC discount shrinking and the Crypto Fear and Greed Index recovering to neutral after being buried in extreme fear for several weeks.
Significant outflows this week from Kraken, Coinbase, Binance, and Bitfinex should also be price positive as the total balance of Bitcoin on exchanges has fallen to the lowest level since 2018.
After a multi-year record of nine consecutive days of gains, price probably needs to take a couple of days to consolidate the gains of the previous two weeks.
While momentum and sentiment look to be turning favorable, Bitcoin still has a lot of wood to chop. After $40,000, the next near-term line of resistance is probably the 20-week moving average at ~$44,500.
📬 Register your email to receive Blockstream Markets Weekly delivered straight to your inbox. 📬
Bitcoin markets news
Germany opens Bitcoin to $420B of institutional money
- The new law comes into effect on Monday and will allow ‘Special Funds’, which can only be accessed by institutional investors, to invest up to 20% of their holdings in Bitcoin
- Special Funds currently managed about $2.1T of assets
- Could easily mean billions of new powder coming to the market
$68B ProFund launches first publicly available Bitcoin mutual fund
- The fund won’t hold BTC directly, but rather invest in Bitcoin futures
- Will have a minimum investable unit of $1,000
- The main difference between mutual funds and ETFs is that ETFs trade throughout the day while mutual fund trades close at the end of the day
- Seems like an indication the regulators are moving closer to a Bitcoin ETF
PayPal hints at bringing BTC trade functionality to the UK
- Dan Schulman, PayPal’s President, and CEO, said that they continue to work on banking integration and may be able to roll out further Bitcoin functionality to UK users as early as next month
Tesla is now back in the money on BTC
- Elon Musk revealed that the company has close to 42,069 BTC
- Tesla’s average price looks to be around $35,000
- So they’re probably up around $200M at the moment
MicroStrategy wants more Bitcoin
- MSTR currently holds 105,085 BTC with a carrying value of $2.051B at an implied average price of $19,518
- MicroStrategy’s 2Q report stated that:
“We continue to be pleased by the results of the implementation of our digital asset strategy. Our latest capital raise allowed us to expand our digital holdings, which now exceed 105,000 Bitcoins. Going forward, we intend to continue to deploy additional capital into our digital asset strategy.”
$7B Horizon Kinetics allocates 10% of the fund to GBTC
- As of June 30, Horizon’s Paradigm fund held a 5.8% allocation to GBTC (up from 1% in 2016), making Bitcoin exposure effectively its second-largest holding
- Paradigm’s GBTC exposure has reportedly increased to 10%
Senator Elizabeth Warren is worried about shadowy super-coders
- At a Senate Banking Committee panel on digital assets this week, Senator Elizabeth Warren commented that
“Instead of leaving our system, our financial system at the whims of giant banks crypto puts the system at the whims of some shadowy, faceless group of super coders and miners, which doesn’t sound better to me”
Charts
Bitcoin and Gold, different players on the same team
- Jurrien Timmer, Fidelity’s Director of Global Macro, highlights how Bitcoin’s recent price action looks very similar to gold in the 1970s
- He highlights that Bitcoin’s recent 50% correction could be just a bump in the road and how Bitcoin and Gold look like different players on the same team
Chart credit: Jurrien Timmer
Global crypto market increases to 221M users
- Impressive 108% YTD growth, but the number is still very small when put in the context of the 6.648B smartphone users expected by 2022
- Early days still, I think
Chart credit: crypto.com
Low quality, super high betas surge in May/June
- I think this is an interesting way to look at Bitcoin dominance, YTD Bitcoin has averaged > 60% of global crypto owners
- It would be interesting to have USDT split out from the other category. USDT could easily account for half of the other
- Nonetheless, a spike in ‘other’ is probably (and indeed was) a big red flag for irrational retail exuberance
Chart credit: crypto.com
Sentiment recovers
- The Bitcoin sentiment index recovered from several weeks of ‘extreme fear’ to post its first ‘neutral’ reading since mid-May
Chart credit: Crypto Fear & Greed
GBTC discount shrinks
- Eric Balchunas, a senior ETF analyst at Bloomberg, highlighted how the GBTC discount has shrunk this week despite the launch of ProFund’s Bitcoin Mutual Fund
- I think this points to a general rebound in retail sentiment
Chart credit: Eric Balchunas
Exchange Bitcoin balances drop to the lowest level since 2018
- This sort of data has been prone to some confusion due to internal transfers at exchanges but looks to be pretty broad-based across platforms
- Kraken, Coinbase, Binance, and Bitfinex have all shown pretty large BTC net outflows over the past 7 days
- Low on exchange supply should be price positive
Chart credit: Will Clemente
