Blockstream Markets Weekly — June 11, 2021
El Salvador adopts BTC, India may formalize BTC as an asset class, Square & Blockstream team up on BTC solar farm, Senator Warren calls for a crypto crackdown, JPM says Tether is an investment giant, Invesco makes new ETF application and long term holders buy the dip
By Jesse Knutson
What’s happening in the markets?
Nothing to see here
Bitcoin is on track to squeak out its third weekly win in a row as consolidation continues and the strength of the recent downtrend begins to ebb.
Stonks pushed higher and gold was flat despite hotter than expected inflation data. The consumer price index came in +5% YoY, the biggest increase since 2008 while core inflation gained by the most in almost three decades.
The reaction by markets implies an acceptance of the Fed’s narrative that price increases are due primarily to a reopening of the economy and will likely be transitory. Meaning that tightening is still a ways off and that the ultra-accommodative monetary policy will continue for some time yet. Number go up.
The first domino
Sentiment this week was bolstered by a pick-up in positive headlines.
The top story this week was unquestionably El Salvador becoming the first country to accept Bitcoin as legal tender which was quickly followed by support from policymakers across Latin America and reports that India may move to formalize BTC as an asset class.
Following up on the ESG themed mining news of the previous few weeks, Square and Blockstream announced a partnership to develop a solar-powered BTC mining facility in the United States.
In corporate news, MicroStrategy continued to buy the dip financed with a new $500M debt issuance, while Singapore’s sovereign wealth fund put $70M into crypto trading platform OSL’s parent company and the Financial Times revealed that Tether is an investment giant on par with Vanguard and BlackRock.
Against the lava flow
In a week when El Salvador became the first country to adopt Bitcoin as legal tender and was even exploring volcano-powered Bitcoin mining, policymakers in the US were advocating the opposite approach.
Senator Elizabeth Warren and Dr. Darrell Duffie told a Senate subcommittee hearing that Bitcoin needs more regulation and possibly even a full ban on USD convertibility.
I think this still a very fringe view that would be very costly politically to enforce. MMT and the destruction of the dollar are slightly abstract concepts, but closing a pleb’s Robinhood account hits very close to home.
Coinbase has close to 60 million verified users. The Wallstreetbets subreddit has 10.5 million followers. Politically, I think draconian Bitcoin rules would be very unpopular.
Smart Money
Technically, I think the charts are starting to look slightly more constructive.
Between the current price and $50k, there’s still a gauntlet of moving averages and lines of resistance that Bitcoin has to get through. We’ll also likely see the 50-day moving average drop through the 200-day moving average in the next couple of weeks.
That said, the strength of the downtrend we’ve been in for the past four weeks is starting to ebb, and closing three days in a row above the 20-day moving average is definitely a good sign.
It’s interesting also to see how aggressively long-term holders have been buying into this dip. Over the past 30 days, long-term holders have net bought more than 300,000 BTC.
With Bitcoin spending most of the past three weeks between $30,000 and $40,000, volatility has also come in a lot. That probably continues for some time yet, but as volatility decreases and price winds tighter, I think it increases the likelihood that we see another big price move in the coming weeks.
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Bitcoin markets news
Square, Blockstream partner on solar-powered BTC mining facility
- Square will invest $5M to build a solar-powered mining facility at a Blockstream site in the US. Square Tweeted that Blockstream and Square will create a
“… a public-facing dashboard to serve as a transparent case study for renewable energy and bitcoin mining. As we continue to explore the synergies between the two, we’re excited to share our ongoing learnings and real-world data points…”
- CEO Jack Dorsey also announced the company is considering plans to build its own hardware wallet
El Salvador becomes the first country to accept BTC as legal tender
- The law, proposed by President Nayib Bukele, was passed by a congressional supermajority of 62 out of 84 votes
- The USD has been El Salvador’s official legal tender since 2001. The new law allows Bitcoin to directly compete with the USD in El Salvador
- El Salvador has assembled Bitcoin leaders across the world to help build a new financial ecosystem with Bitcoin as the base layer
- Adam Back, CEO of Blockstream, said Blockstream plans to contribute technologies like Liquid and satellite infrastructure to make El Salvador a model for the world
“It was an inevitability, but here already: the first country on track to make bitcoin legal tender. Another milestone for Bitcoin and El Salvador. We’re pleased to help El Salvador on its journey towards adoption of the Bitcoin Standard”
IMF sees legal, economic issues with El Salvador Bitcoin move
- I couldn’t find much detail on exactly what those concerns are, but a Bloomberg article did note that El Salvador’s bonds tanked relative to emerging markets peers this week. This raises yields and makes their cost of debt more expensive.
- At a time when economies around the world are clamoring for growth, this could be an interesting trend to watch especially in other dollarized economies like Ecuador and Panama
After El Salvador, India may move to formalize BTC as an asset class
- ‘Sources’ say that India will likely classify Bitcoin as a new asset class under regulation and oversight from the Securities and Exchange Board of India (SEBI)
- My own sources tell me that authorities are happy to allow investors to invest in Bitcoin as a kind of digital gold, but worry primarily about its ability to erode capital controls and don’t want it to challenge the INR in use as a currency
Invesco ETF application seeks a workaround to SEC’s BTC aversion
- About 85% of the Invesco Galaxy Blockchain Economy ETF and the Invesco Galaxy Crypto Economy ETF will be in crypto-linked equities. The balance of the portfolio will be in other trusts and funds that hold cryptocurrencies
- Seems like buying MiscroStrategy stock is a better pure-play on BTC
MicroStrategy upsizes bond issuance after $1.6B in interest
- The company originally planned to raise $400M but upsized the sale on the back of stronger than expected interest
- In a filing this week, the company also said that it would book a ~ $284M charge during its next earnings report due to losses related to Bitcoin price volatility. $284M is more than the company’s cumulative earnings since 2011
FBI exploits sloppy private key storage to reclaim ransomed BTC
- FBI reportedly executed a court order to seize private keys stored on a server in California to retrieve $2.3M in BTC ransomed from Colonial Pipeline
- Likewise, meatpacker JBS said recently that they paid $11 million in ransom
- Colonial, the operator of the largest fuel pipeline in the US, was forced to shut down last month after hackers shut down their financial networks and demanded a 75 BTC ransom
Latin America signals for Bitcoin, looks to follow El Salvador
- Policymakers in Panama, Brazil, Argentina, and Paraguay have signaled interest in following El Salvador on Bitcoin adoption and promised to put similar proposals before their national assemblies
US senator calls for a regulatory crackdown at congressional hearing
- U.S. Senator Elizabeth Warren criticized Bitcoin while saying that CBDCs show great promise
“Cryptocurrency has created opportunities to scam investors, assist criminals, and worsen the climate crisis…The threats posted by crypto show that Congress and federal regulators can’t continue to hide out, hoping that crypto will go away. It won’t. It’s time to confront these issues head-on.”
- Dr. Darrell Duffie a professor at Stanford University called to make Bitcoin criminal and non-convertible into local currency in the US and internationally
China’s Qinghai province has reportedly told miners to shut down
- Qinghai is the latest coal-based crypto mining hub that is set to eliminate the industry
- The press seems to be framing this from a pollution perspective, but I suspect the primary reason is power shortages driven in part by the Aussie coal ban
Wallet provider Ledger raises $380M
- Now valued at $1.5 billion, Ledger aims to add new products to its hardware and software wallet portfolio
- Ledger will use the $380 million for developing new products and adding decentralized finance solutions to Ledger Live, the company’s wallet software. The company is also looking to strengthen its Ledger Enterprise Solutions, a cloud-based digital asset custody service
Singapore’s sovereign wealth fund invests $70M in crypto exchange
- GIC has invested $70M into the parent company of OSL
- BC Group is listed in Hong Kong (0863.HK)
- In January, BC Group raised $90M and before that raised $20M from Fidelity International
Financial Times: Tether is a US investment giant
- Cites estimates from JP Morgan that see Tether as one of the largest investors in the US commercial paper market, putting it on par with Vanguard and BlackRock
- JP Morgan analysts say that the large commercial paper investments indicate that Tether is struggling to find a bank to take deposits (in size)
Charts
$40,000 here we come
- Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, says $40,000 is more likely than $20,000 at the moment
- His chart below highlights how dips below the 20-week moving average have signaled bottoms in the past
Chart credit: Mike McGlone
Real yields
- Real yields (10-year nominal yield adjusted for inflation) are at the lowest level since the ‘70s
- This should be positive for hard assets like gold and Bitcoin
Chart credit: Octavio Costa
It’s only transitory
- Whether the ‘it’s only transitory’ narrative proves to be right or not, the core CPI print was still the highest in 30 years
Chart credit: John Authers
Smart money is buying
- Long term holders have net bought +376,517 BTC over the last 30 days
Chart credit: Glassnode via Bitcoin Magazine
US house prices at a record high
- St Louis Fed’s US house price-to-rent ratio gains to a record high
- Wonder how much of this is pension funds chasing yield
Source Not Jim Cramer
