Blockstream Markets Weekly — June 4, 2021
Bloomberg reiterates $100K 2021 price target, Guggenheim launches BTC fund, Standard Chartered & OSL team up on new trading platform, Marathon gives up on compliant mining, Blackrock warns on inflation and Bitcoin price prepares to run the gauntlet
By Jesse Knutson
What’s happening in the markets?
Herd immunity
Bitcoin looks on pace to end the week little changed — though on the bottom end of the week’s range. Price this week saw a string of higher lows and looked set to take a crack at $40,000 resistance before getting pulled lower by more cryptic tweets from Elon Musk.
It’s not surprising, therefore, to see that Elon’s positive:negative mention ratio on Twitter fell to a record low this week. More downside there yet to come I would imagine.
The pullback this time was relatively muted, though, which is somewhat reminiscent of the decreasing impact ETF rejections and China bans had on the market in the previous cycle. Eventually, the market will develop immunity to Elon’s Twitter account.
Equities ended up off the week’s lows on reports that the Biden administration may cut its proposed 28% corporate tax hike to 15%. I think that there’s a bit of concern around a potential tech pullback, but if equities can continue to plow higher it is undoubtedly good for Bitcoin.
A stronger USD saw the gold rally take a pause and could possibly help fuel a bit of fund flow mean reversion in Bitcoin’s favor, especially given last month’s -35% drop and another big rip in meme stocks.
$100,000 more likely than $20,000
Headlines were a mixed bag this week with Bloomberg Intelligence reiterating a $100,000 2021 price target, Guggenheim launching a new Bitcoin fund, Standard Chartered and OSL teaming up to launch a European trading platform, Marathon giving up on OFAC compliant mining, and the CEO of Blackrock highlighting that investors are not prepared for inflation spikes.
Revenge of the memes
The Reddit traders behind the GME rally earlier this year we’re back at it again driving a massive ~ 500% rally in AMC over the previous ten days. Amazingly, AMC was also the most actively traded stock in the US for multiple days this week.
The SoFi Social 50 ETF (SYFY) looks to be a pretty good way to track this phenomenon. Its top holdings at the moment consist of AMC, GME, and Tesla and seem to have morphed into a meme ETF.
SYFY has had a pretty good correlation with Bitcoin for much of the year. I wonder if the recent rip higher might see some spillover into Bitcoin.
Bitcoin’s time to shine
With tech stocks having a bit of a wobble this week, I think there’s quite a bit of concern for how that could play out for Bitcoin. Tech stocks are seen as particularly vulnerable if inflation drives up yields and discounts the value of future cash flows and I think Bitcoin is seen by many as a canary in the coal mine for broader market risk sentiment.
Bitcoin has been pretty strongly correlated with stocks for most of the past 12 months. Rising equities should keep Bitcoin trending up, but if the stock market drops, the unprecedented fiscal and monetary stimulus of the past few quarters may help boost the Bitcoin investment thesis.
After the Fed’s largest weekly purchase of US Treasuries in almost six months and its balance sheet tracking to hit $9T by the end of the year, the Bitcoin investment thesis should continue to garner investor attention. It’s really Bitcoin’s time to shine.
Running the gauntlet
Technically, I think Bitcoin still needs to digest the damage wrought on the chart in May.
To me, the string of higher lows looks like the chart wants to break above the $40,000 level, but it could really go either way.
Between the current price and $50k, there’s a gauntlet of moving averages and lines of resistance that Bitcoin has to get through. Getting above the 200-day moving average of ~$41,000 would do a lot to improve sentiment.
As Bloomberg Intelligence points out in its June Crypto Report, after the latest round of China news and a massive sector-wide deleveraging, Bitcoin is looking cheaper, greener, and stronger than it has in months.
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Bitcoin markets news
Bloomberg Intelligence: $100,000 more likely than $20,000
- Bloomberg thinks that continued price appreciations is more likely in ‘21:
“Bitcoin is more likely to resume appreciating toward $100,000 resistance rather than sustaining below $20,000.”
- The report also sees the US beat China in the ‘digital [currency] cold war’ as evidenced by the dominance of US-denominated stablecoins like USDT and that this will also bolster USD dominance
- And says that a Bitcoin ETF is just a matter of time
New Guggenheim fund seeks exposure to Bitcoin
- Guggenheim has $315B under management
- From the filing, it looks like the fund will seek Bitcoin exposure through futures and derivatives (looks like the contango trade still has legs!)
- In December, CIO Scott Minerd said Bitcoin had a fair value of $400,000
Ron Paul: BTC should be legal money, compete with the USD
- Highlighted new legislation that would allow for the Federal Reserve to be audited and would abolish legal tender laws
- This would legalize completion with the USD
- Paul said that Bitcoin’s success could be its undoing if authorities implemented policies to make it infeasible to buy Bitcoin as President Roosevelt did with gold
Standard Chartered, OSL to launch European crypto platform
- Will target institutional investors in the UK and Europe
- The new exchange will be created by a joint venture between SC Ventures, the bank’s innovation arm, and BC Technology Group (0863.HK), which operates Hong Kong-licensed cryptocurrency exchange OSL
- OSL is a pretty big player in the Asian OTC, lending, and custody markets
Mining rig maker Canaan sees 1Q201 revenue +500% YoY
- Canaan reportedly shipped 2M TH of hardware +122% YoY
- Total revenue came in at US$68M
- The company also argued against board stroke mining bans
“…miners prefer regions with low electricity prices that indicate oversupply, and likely energy waste…Bitcoin miners also help create jobs in impoverished regions and contribute to fiscal coffers…”
Marathon ditches OFAC compliant mining plan
- It’s a pretty high profile about-face after announcing plans to censor transactions affiliated with sanctioned entities just three weeks ago
- Censorship resistance is one of the core characteristics of Bitcoin and the efforts of a miner to dig a regulatory moat that, in the extreme, could threaten Bitcoin’s fungibility drew a lot of criticism
JPM posts job for a crypto risk manager
- It wasn’t long ago that a crypto savvy risk manager would have been considered an oxymoron
- Indicates a deepening interest in the space from traditional players
Biden wants global data on Bitcoin traders
- The US wants to require the collection of data on foreign crypto traders active on US exchanges to bolster cooperation on a broader, international crackdown on ‘tax evasion’
- Looks like they want to swap information with other countries to crack down on anyone trading overseas and not paying US taxes
Blackrock CEO says investors are sleeping on inflation spike
- Larry Fink, who runs the world’s largest asset manager, says that central banks may need to rethink their policies if higher prices become a problem
“…most people haven’t had a forty-plus year career, and they’ve only seen declining inflation over the last 30-plus years…so this is going to be a pretty big shock…”
ECB: lack of digital currency could mean loss of control
- Countries that don’t introduce digital versions of their currencies may face threats to their financial systems and monetary autonomy
- These countries could end up being reliant on a small number of dominant payment-service providers, including foreign tech giants (sounds like a shot at Facebook)
Google to lift the ban on crypto exchanges and wallets
- Will allow advertising (directed at US investors) from exchanges and wallets that have registered with FinCEN
- Google had previously banned crypto ads in 2017
Sichuan energy meeting offers a glimmer of hope for BTC miners
- The meeting was hosted by the provincial power regulator, as well as the regional branch of the State Grid Corporation of China — the national power supplier — and the region’s energy investment bureau
- Speakers reportedly noted that Sichuan is rich in hydropower resources and that many power providers are not currently operating at full capacity
- Sounds like miners might be able to find a bit of wiggle room
Charts
Revenge of the memes
- The chart below plots BTC (orange) vs the SoFi Social 50 ETF (red)
- The SoFi Social 50 ETF is also known as the ‘meme ETF’ given its top three constituents are AMC, GME, and Tesla
- I wonder if we will see some of this money rotate back into BTC
The circle of life
- I think this is a great chart
- Given Bitcoin’s long term uptrend (which could probably be overlaid for an even better chart), the chart below shows long-term holders dribbling out Bitcoin at higher prices and coming back into the market to reacquire at lower prices
- It’s worth noting that every cycle will also mint a new generation of long-term holders as well
Chart credit: Yann & Jan
A tale of two systems
- Bloomberg Intelligence’s June report highlights the dichotomy of Bitcoin’s annual mining supply dropping below 1% by 2025, vs. rapidly rising U.S. debt
“Typically, such a backdrop would be ideal for advancing the dollar price of gold, but the old-world reserve asset is being replaced by the digital upstart. We see little to stop this trend and expect it to accelerate.”
Source Bloomberg Intelligence
Low volatility supportive of further upside
- BI highlights that Bitcoin’s volatility relative to the volatility of most other major asset classes bottomed out at a record low in 2020
- BI thinks implies strong support above the $20,000 level and supportive of gains up to the $100,000 range
Source Bloomberg Intelligence
Elon swarmed by toxic cyber hornets
- In January, tweets showing positive Elon Musk sentiment were marginally ahead of those showing negative sentiment
- In May, while tweets about Musk that were neutral in sentiment remained the largest by percentage at about 66%, negative tweets had increased to 19.2%, and positive tweets at fallen to just 14.9%
- The report says that positive:negative ratio is the lowest ever
- Feels like this is only going to go one way…
Chart credit Yahoo Finance
When taper, sir?
- Tapering looks a long ways off yet after the Fed’s largest weekly purchase of US Treasuries in almost six months
Chart credit Octavia Costa
Money printer goes Brrrrr…..
- The balance sheet of the Federal Reserve continued to go expand
- Now up to a new all-time high of $7.94T
- Fed’s balance sheet is now up to 36% of GDP vs ECB’s 77% and BoJ’s 134%
Chart credit Holger Zschaepitzr
