Blockstream Markets Weekly — July 9, 2021
$55B Marshall Wace prepares BTC fund, Square plans hardware wallet, exchanges pinched by regulators, China eyes stablecoins, volatility contracts, and mining profitability soars as the BMN kicks off mining
By Jesse Knutson
What’s happening in the markets?
Range bound
Bitcoin is on pace for the third decline of the past five weeks.
Traditional markets offered little in the way of direction for Bitcoin, cooling a bit on Delta variant-driven profit-taking after record highs last week.
Bitcoin’s consolidation completed the seventh consecutive week with price continuing to oscillate between the $32,000 and $36,000 levels. Given the duration of this consolidation, volatility has now fallen to pretty extreme levels.
I think this probably foreshadows a significant move in price in the coming week or so.
Mining and regulation
Despite headlines this week that $55B Marshall Wace is planning a new Bitcoin fund and that Square is making a Bitcoin hardware wallet most of the focus this week was on mining and regulation.
Top mining stories this week included the Blockstream Mining Note’s mining kickoff, reports that mining profitability could double after a record difficulty adjustment and indications that Texas is quickly becoming a Bitcoin mining hub.
On the regulatory front, there were signs that China may be shifting its attention to stablecoins and trading platforms while Binance responded to regulatory hurdles in multiple jurisdictions.
Hashrate bottoms
The seven-day average hashrate bounced off of lows set earlier in the week after the biggest downward difficulty adjustment in Bitcoin’s history. The recovery will likely be supported by another downward difficulty adjustment scheduled to take effect around July 18th.
Glassnode noted that difficulty indicators had turned price bullish this week (chart below). Historically, these signals have been driven by sharp price decreases and miner capitulation events, though, so the historic context is a little different than the current market situation.
That said, Glassnode also thinks that the profitability of miners with deployed hardware is probably somewhere around a record high. While current network mining profitability is roughly half of the previous peak (current $20-$30M/day vs a previous high of $50-$60M/day), the number of miners still mining has also dropped.
They also highlight how miner outflows have been trending down as improved profitability looks to have dramatically slowed the near-term propensity of miners to sell.
China crackdown
Price was pretty resilient, though, given another round of negative China press this week.
After forcing out the majority of their mining industry, driving the biggest downward difficulty adjustment in history, and making mining for non-China miners more profitable than ever, there were numerous reports this week indicating China’s resolve to expand the crackdown.
A software maker in Beijing was reportedly shuttered for facilitating digital asset transactions, there were reports of police visits after Binance logins, and indications that authorities were preparing to broaden interventions to include stablecoins. This looks, in part, like a broader China crackdown on tech, but I think is also probably an indication that authorities are preparing for a larger scale roll-out of the digital CNY.
The good news is that the market looks to have become largely desensitized to negative China news.
Tight bands
Bitcoin is starting to show some indications that we could be nearing a conclusion to almost 50 days of consolidation.
Volatility has fallen significantly over the past week and Bollinger Bandwidth is now down to the lowest level in more than 80 days. Historically, deep contractions in volatility have foreshadowed big price moves.
Several on-chain indicators seem to be turning bullish (exchange outflows and hashrate ribbons, for example), but I wonder if they are getting muddied somewhat by market conditions.
Exchange net outflows look to be largely Chinese-led, so might be less an indication of a low near-term propensity to sell and more a reflection of increased counter-party risk as China tightens the screws on trading platforms.
Regardless, though, I think the next couple of weeks will likely see an acceleration in market activity.
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Bitcoin markets news
Blockstream Mining Note goes live
- After completing a fully subscribed second tranche earlier in the week, BMN mining is now live. Capital raised now totals €6.6M ($7.8M USD) with just over 33 BMN issued
- The BMN is a tokenized version of Blockstream’s institutional mining services and is backed by 2,000 TH of mining power
- Check out the dashboard in the link above. Each BMN is currently pumping out ~ 0.01324 BTC every 24 hours. This may even improve somewhat with another downward difficulty adjustment projected in the coming weeks
Mining profitability could double after record difficulty adjustment
- BitOoda reported this week that the North American hash spread (the difference between bitcoin mining revenue per megawatt-hour and the cost of the needed power) has almost doubled to $449 from $225
- Miners may see similar profitability levels as in April, when bitcoin was trading at nearly double its current level, according to an analysis by Glassnode. While prices are much lower now, fewer miners are splitting the revenue
$55B Marshall Wace is planning a new Bitcoin fund
- Follows a long string of large hedge funds moving into Bitcoin including Brevan Howard, Point 72, and Tudor
After mining crackdown, China shifts its attention to stablecoins
- The article is in Chinese, but is short and can get the gist with Google Translate
- Deputy Governor of the Peoples Bank of China is quoted as saying:
“So-called stablecoins are speculative tools with potential risks that threaten financial security and social stability”
- This reads to me like an attempt to prep the market for a wider release of their Central Bank issued Digital Currency (CBDC)
- Most Chinese exchanges at the moment operate through a network of ‘OTC desks’ a strict crackdown on USDT and other stablecoins could have a big impact on global digital asset liquidity
- On the other hand, though, it highlights the importance of holding some assets outside of the system in BTC
Binance responds to regulatory pressure
- Binance had a string of negative regulatory headlines recently in jurisdictions including the Cayman Islands, the U.K., Thailand, and Singapore, among others
China shuts down software maker accused of illicit crypto trading
- China’s central bank has reportedly shut down Beijing Qudao Cultural Development following reports the company had facilitated crypto transactions via the software services it offered
- The central bank also warned that companies in Beijing are not permitted to encourage crypto trading in any way
Square is making a Bitcoin hardware wallet
- The company’s hardware lead, Jesse Dorogusker, announced on Thursday:
“We have decided to build a hardware wallet and service to make Bitcoin custody more mainstream”
Texas is quickly becoming a Bitcoin mining hub
- Article sites, recent and potential investments from Whinstone, Argo Blockchain, Bitmain, BIT Mining, and others
- Energy prices in Texas are probably amongst the lowest in the developed world and seem to be worth the curtailment given the amount of interest
Charts
Bollinger Band Squeeze?
- Volatility, as measured by Bollinger Bandwidth, fell to a ~ 80-day low this week. Historically, drops to this level have foreshadowed a mean reversion in volatility and a sharp move in price (could be either up or down)
- There haven’t been many recent Bollinger Band Width readings as low as the current one
Purpose Bitcoin ETF continues to set new highs
- Total BTC under management increased to 22,473 BTC this week
- Also interesting how it dominated inflows last week given Grayscale was flat and Coinshares and 3iQ saw outflows
Chart credit: Purpose Bitcoin ETF
Exchange net outflows flash first buy signal in months
- Looking at seven-day exchange flows on Viewbase, BTC outflows look to be led by Binance and other Chinese exchanges
- I wonder if this is also an indication of investor caution around negative regulatory headlines this week
Chart credit: Will Clemente
Miners are holding
- Miners are amongst some of the biggest Bitcoin bulls in the industry and I think many are very reluctant sellers
- With mining profitability at near-record levels and price still stuck in consolidation mode, I think many are cashed up and waiting for better price points
Chart credit: Glassnode
Mining profitability is still near record high
- Despite price being, ~ 50% off of April’s highs, with as much as half of their competition out of the market, Bitcoin mining is still near record high profitability for miners still in operation
Chart credit: Glassnode
Difficulty indicators turn bullish
- Glassnode noted this week that difficulty based indicators had turned price bullish this week
- Historically, these signals have been driven by sharp price decreases and miner capitulation events so the context is a little different than the current market situation
Chart credit: Glassnode
