Blockstream Markets Weekly — June 25, 2021
Paraguay eyes BTC as legal tender, El Salvador to distribute $30 of BTC to citizens, Citibank launches BTC unit, Cathie Wood buys the dip, new ETFs launch in Brazil and the Middle East, Sichuan turns up the heat on miners, and Elon agrees to Bitcoin talk with Jack
By Jesse Knutson
What’s happening in the markets?
Buy the dip
Bitcoin is on pace to finish down for the second week in a row though up off the week’s lows after a brief drop below the $30,000 mark.
Trading was a bit more interesting this week after a month and a half of consolidation and generally declining volatility. The mid-week price drop was followed by a quick 18% rebound and rally back above the $34,000 mark.
Stonks provided a bit of tailwind for Bitcoin, with global equities on pace for the best week since April and the S&P and Nasdaq both hitting new highs. Stonks were helped by indications that policymakers would green light Biden administration plans to pump trillions more into infrastructure spending.
ETFs and Legal Tender
News flow this week was decidedly more positive with reports that Paraguay could become the second country to make Bitcoin legal tender, El Salvador announcing plans to distribute $30 of BTC to all adults, the NYC mayoral front runner calling for New York to become a Bitcoin hub, Citibank reportedly launching a new Bitcoin unit within its wealth management business, Cathie Wood adding a million shares of GBTC (as JPM turns negative post lockup), new Bitcoin ETFs launched in Brazil and the Middle East and Elon agreeing to a Bitcoin talk with Jack Dorsey.
One of the big themes of the past few weeks is a growing number of cities, states, and countries turning to Bitcoin as a driver of economic growth and innovation.
Last week Miami was pitching clean, abundant, nuclear energy to miners displaced by new Chinese regulations. This week we saw the leading candidate for the New York City mayoral contest declare that the global hub of the legacy financial system now also wants to be a Bitcoin center.
Earlier this month, the Texas Department of Banking announced that it wanted to stay ahead of the digital asset boom, and that regulated banks would be able to custody digital assets.
Smaller countries with young populations and proximity to the United States are looking to Bitcoin as a driver of capital market growth. There’s a massive opportunity for digitalization of capital markets. It’s not impossible for countries like Paraguay and El Salvador to become the Hong Kongs and Singapores of new, digital capital markets.
The miner crackdown in China is turning out to be more than a minor crackdown. While the migration of hashrate out of China is a long-term trend that’s been playing out for several years, I think the scale and speed of the recent crackdown probably took most of the industry by surprise. Certainly most of those outside of China.
I wonder how broadly the crackdown was telegraphed amongst Chinese insiders, though, and if this is a possible explanation for Bitcoin’s decoupling with other risk assets in early May.
In total, Bitcoin has now spent 70 days trading between $30,000 and $40,000. Price has spent more time at this level than any other $10,000 spread since breaking above $20,000.
Today was the expiry for quarterly and monthly Bitcoin futures and options, which might provide a bit of a reset and push us out of consolidation mode. Over the last nine months, the last Friday of every month (monthly futures/options expiry) seems to have offered a pretty attractive entry point.
Technical indicators are slowly starting to improve and the Bitcoin fear and greed sentiment gauge, though still dismal, has improved to a ~ two-week high.
While price is still clearly struggling to regain its footing, it’s hard to be too bearish when cities, states, and countries across the world are looking to Bitcoin as a driver of economic growth.
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Bitcoin markets news
- Panel discussion with Blockstream CEO Adam Back and Cipher Mining CEO Tyler Page
- Some great insights from two of North America‘s leading Bitcoin miners
- The bill, if passed will position Paraguay as the second country to embrace Bitcoin as legal tender after El Salvador
- Paraguay is one of the most dollarized economies in the region
- With 8,810 MW of hydro capacity installed, the 2nd largest hydropower plant in the world, and the lowest commercial price of electricity in the region, Paraguay could be a big deal for mining
- A country with a population of just over 5 million people and a GDP 1% the size of the US just lapped the G7 on stimulus distribution technology
“The wallet app will even work anywhere with a cell connection, and you won’t have to have a cell plan for the app”
- Citigroup has launched a digital asset unit under its wealth management division
- In March, Citibank said
“ Bitcoin could become the currency of choice for international trade”
- The funds will be used for everything from early-seed rounds to later-stage startups
- The fund looks a bit crypto heavy and Bitcoin light
“overseas mining sites are not built overnight, and selling pressure is huge in the secondary market”
- I wonder also, though, if this is a convenient way to allow chip capacity allocation to catch up to a backlog of orders. I‘ve heard that TSMC gave no 7nm allocation to miners in 4Q20 and 1Q21
- NY has a checkered history with Bitcoin from the New York Bit License to a very active NYAG
- I don’t think Bitcoin companies are going to be in a hurry to move to NYC
- Ark Invest’s Next Generation Internet ETF bought 697,996 shares of the Grayscale Bitcoin Trust mid this week. Later in the week, Ark topped it up to a total of 1,000,000 GBTC shares and 215,000 Coinbase shares.
- Wood has reiterated her long-term $500,000 price target for bitcoin and believes the recent environmental concerns surrounding Bitcoin mining are “misguided”
- I don’t see how this can negatively impact Bitcoin, maybe in terms of sentiment
- I think, outside of Cathie Wood, the bulk of institutional interest in the GBTC was small to mid-sized hedge funds trying to arb the premium
- That’s gone south in a big way with the historic 10% to 20% premium flipping to a -10% to -20% discount since the end of February. Surprised we haven’t had any fund blowups around this
- Bitcoin ETF’s are now listed in Canada, South America, and the Middle East
- Unclear whether it’s the largest crypto hack in history or the biggest exit scam of all time, either way, it’s not good for investors
- South Africa was also home to what Chainalysis called the biggest crypto scam of 2020, which resulted in the loss of $1.2B of digital assets
- Highlights the importance of digital asset self custody
- Canadian digital-asset manager 3iQ’s Bitcoin ETF gained +10% on the first day of trading on Nasdaq Dubai on Wednesday
- Korea’s financial regulator has set a deadline for Korean exchanges to partner with local banks to open clients’ real-name accounts
- Banks, though, are resisting partnerships with several smaller exchanges for fear of being exposed to money laundering and other financial crimes.
- The South Korean government is also planning to impose a new income tax on cryptocurrency transactions
- 26 firms that had been inspected and reported as a potential cryptocurrency mining enterprise
- Power providers were notified to immediately stop supplying power to crypto mining projects they have detected
- The article suggests that 90% of China’s hashrate has already been shut down at least temporarily
- Compass Point’s Michael Del Grosso thinks Riot and Marathon are mining Bitcoin at a cost of production from $12,000 to $16,000
- Compass Point sees North America as a major beneficiary of China’s recent crackdown on Bitcoin mining
- I would highlight that Blockstream Mining Note allows individual investors exposure to similar North American mining economics
“We believe North American miners are well-positioned to benefit both from the lower global hashrate and the potential for increased availability of mining equipment”
- Due to Elon fatigue, this gets put at the bottom of the list
- Jack and Elon will have their sit down at an upcoming Bitcoin event
- Jack Dorsey, Cathie Wood, and Blockstream’s Adam Back are all featured speakers at the event which is focused on driving institutional adoption of Bitcoin
Bitcoin sentiment improving
- Bitcoin sentiment looks to be slowly improving from dismal to slightly less dismal
- Currently at a two week high after being buried in ‘extreme fear’
Chart credit: Fear and Greed
Net new entities hits multi-year high
- An interesting metric that points to a surge in new market participants following Bitcoin’s dip below the $30,000 mark
- Net new entities is defined as the difference between new entities and “disappearing” entities (addresses with a balance that has fallen to 0)
Chart credit: Cole Garner
Bitcoin liquid supply turns bullish
- Liquid supply is the amount of Bitcoin held by entities that have consistent inflows and outflows (a cold wallet would be an illiquid entity)
- I think this points to a decrease in overall supply, which should be price positive if demand remains the same
Chart credit: RJ Flores
Futures/options expiry tend to be price positive
- Over the last nine months, the last Friday of every month looks to be a pretty good entry point
Death of the death cross
- Lots of talk this week about the 50-day moving average falling below the 200-day moving average (a death cross)
- It’s a lagging indicator, though, and I think normally closer to signaling bottoms than additional downside. Since 2016, there have only been three death crosses. Two of the three were followed by gains in the weeks and months following the signal