Blockstream Markets Weekly — May 14, 2021

Elon flips, inflation smashes expectations, retail pukes, Druckenmiller says USD may lose reserve status, Bain Capital likes Bitcoin over gold, GBTC drops to 20% discount, Tether details backing…and MicroStrategy BTFD

By Jesse Knutson

What’s happening in the markets?

Elon flips

Bitcoin on pace to snap a two-week win streak and end towards the bottom of the biggest weekly drop in 11 weeks.

A suspension of Tesla’s Bitcoin vehicle purchasing program triggered an aggressive retail sell-off and sent the Bitcoin fear and greed sentiment index to its lowest level since April of last year.

Global equities had a rough go as well, but look to be bouncing into the end of the week with hints of better US labor market data offsetting a much worse-than-expected inflation print and Asian equities narrowing losses for the week by about 1%.

Silver linings

Non-Elon headlines this week included, titan of finance Stanley Druckenmiller commenting that the USD could lose reserve currency status and that BTC would be tough to displace, Bain Capital explaining why Bitcoin is a better store of value than gold, Bloomberg Intelligence’s ETF analyst optimistic on ETF approval, MicroStrategy buying the dip and bringing total Bitcoin holdings to 91,850, and Moneygram announcing plans to allow Bitcoin buying at thousands of retail locations.

Inflation angst

The US printed a +4.2% YoY rise in CPI for April, up from +2.6% YoY in March.

This looks to have completely blindsided economists, not only did it top median expectations of 3.6% but was significantly higher than even the highest estimate of 3.9% (of 47 estimates on Bloomberg).

Lyn Alden thinks we’re probably in for more of the same next month. The Federal Reserve will probably continue to talk down inflation as transitory, but I think this could be a theme that sticks with markets for some time to come.

That’s probably positive for Bitcoin in the mid to long term.

The rise of meme investing

I listened to a podcast this week with Mike Green of Simplify Asset Management. In it, Mike mentioned the idea of convexity of income and how investors are being pushed into high-risk investments to offset diminished labor prospects.

The long period of low-interest rates and record fiscal stimulus that has killed the value investor and driven global equities, regardless of the underlying fundamentals, to record highs is probably the root of the problem.

I think this is why Elon Musk’s trolling resonates with the masses. People increasingly need to roll the dice to get ahead. That feels like it could end badly.

Retail capitulation

Selling this week looked like a massive shakeout of retail money.

Despite the fear and greed sentiment index falling to its lowest level since April of last year, Coinbase is showing a net outflow of Bitcoin for the week. I think this probably indicates that institutional money is still on the bid and moving Bitcoin into cold storage.

This is probably the most important difference between this cycle and previous cycles, institutional investors look to be absorbing a lot of the downward volatility. As Glassnode highlighted previously,

“Generally, since mid-December 2020, retail seems to be the main driver of the rally, whereas institutions are buying up the dips, creating the new support levels on the way up”

At the same time, inflows of stablecoins to exchanges hit a two-year high yesterday so there’s plenty of dry powder on the sidelines.

Technically, the fact that we are holding the 20-week moving average and the positive volume divergence playing out are both positive signs, but I think we really need to see Bitcoin regain its footing north of the 50-day moving average (~$57,000) before we can regain confidence in the mid-term trend.

📬 Register your email to receive Blockstream Markets Weekly delivered straight to your inbox. 📬

Bitcoin markets news

Tesla backtracks on Bitcoin over perceived climate concerns

  • Tesla announced this week that it had suspended vehicle purchases using Bitcoin due to concerns about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions
  • This is a tough one to understand, the trend is going in the other direction, with green energy accounting for a larger percentage of global hashrate than it ever has before
  • Tesla previously announced that it had acquired $1.5B of Bitcoin. One would think that would require enough due diligence to have a better understanding of the power consumption breakdown

US inflation exceeds expectations at 4.2% in April

  • Looks like this completely blindsided economists, not only did it top median expectations of 3.6% but was significantly higher than even the highest estimate of 3.9% (of 47 estimates on Bloomberg)

Druckenmiller: USD may lose reserve status, BTC tough to displace

  • Says that the expected $2.5T of stimulus post a recovery in retail sales and vaccine rollout is the most radical disconnect between government stimulus efforts and the economy in history

“If we’re going to monetize our debt and we’re going to enable more and more of this spending, that’s why I’m worried now for the first time that within 15 years we lose reserve currency status and of course all the unbelievable benefits that have accrued with it”

“It’s going to be very hard to unseat Bitcoin as a store of value asset because it has a 14-year brand, it’s been around long enough, and obviously, there’s a finite supply”

Moneygram to allow Bitcoin buying at retail locations

  • Has partnered with cryptocurrency exchange and bitcoin ATM operator Coinme
  • Customers can now purchase bitcoin with cash from its thousands of physical locations

Tether details backing, Financial Times not impressed

  • This article is pretty snarky, but it’s kind of funny to see how upset journalists from the Financial Times and Bloomberg get over Tether
  • Tether now has a total of US$58B AUM. Of that, ~76% is backed by cash and cash equivalents. Of that, 65% is commercial paper and only 3.87% is cash.
  • I think this indicates how difficult banking, at scale, is for many parts of the Bitcoin ecosystem.
  • Traders don’t appear to be nearly as jittery about Tether as journalists are.

Bain Capital: Bitcoin is a more efficient store of value than gold

  • Bloomberg has the headline of this story as “hard to see Bitcoin as viable currency: Bain Capital”, but I think the buried lead here is that another titan of finance sees it as a better version of gold
  • Says that Bitcoin is similar in many regards to gold, but still has a long way to go before it is accepted widely as a currency
  • Worries that if Bitcoin is accepted as currency it could trigger a reaction from regulators and policymakers

MicroStrategy BTFD

  • Fillings from MicroStrategy (MSTR) show that they again bought the dip
  • The company bought an additional 271 BTC at an average price of $55,387. This brings their total hoard to 91,850 BTC
  • You can see a good list of the Bitcoin treasuries of publically traded companies and funds at Bitcoin Treasuries

Bloomberg Intelligence’s ETF analyst optimistic on US ETF approval

  • It’s probably about time. The chart below shows that the GBTC hit a record -20% discount to NAV this week

“First is the institutional adoption of crypto is much greater, the money centers are getting involved. Second, you have the intense growth of ‘default’ crypto products like GBTC which are not ideal for retail investors and the SEC knows this. Finally, there’s been a torrent of launches up in Canada which have worked fine and seen a lot of action. Canada has a history of being like six months to a year ahead of the U.S. Last but not least, [Gary] Gensler coming in as chair. He gets crypto, taught classes at MIT on it, albeit he does have some concerns.”

TSMC not impacted by nationwide power outage

  • Some concern initially that the already tight supply of global semiconductors could get worse especially after a fire at a chip plant in Japan and blackouts in Texas
  • TSMC production said to be unimpacted, though
  • Have heard reports that UMC suffered minor disruptions
  • Really shows, though, that given how tight the semi industry is at the moment, a major natural disaster in Taiwan could have a profound impact on markets globally

Century-old investment bank Cowen to enter Bitcoin custody space

  • Promises institutional-grade custody for Bitcoin and other digital assets

“The demand is clearly here….we’re going to be able to help a lot of our institutional clients get over the hup and start trading digital assets in the not-too-distant future”

Charts

Economists blindsided by inflation

  • Looks like this completely blindsided economists, not only did it top median expectations of 3.6% but was significantly higher than even the highest estimate of 3.9% (of 47 estimates on Bloomberg)

Chart credit Jack Farley

Inflation angst

  • This week’s much worse than expected inflation print saw global equities post their steepest drop in 11 weeks
  • Not surprising to see Bitcoin get caught in the downdraft

Chart credit Bloomberg

Scared?

  • The Crypto Fear and Greed sentiment index made its lowest print this week since April of last year
  • Personally, I feel that the liquidation cascade driven sell-off of March/April of 2020 was much scarier than Elon Musk flip-flopping on Bitcoin
  • Worth noting that while this indicator is called ‘crypto’ fear and greed the methodology looks like it’s exclusively Bitcoin focused

Chart credit Crypto Fear and Greed

Coinbase outflows

  • Coinbase is seen as dominating trading with large, US institutional
  • Significant outflows probably imply that US institutional investors are buying and sending coins to cold storage.

Chart credit Viewbase

Reload

  • Stablecoin inflows across exchanges hit a two year high this week as investors reloaded accounts, presumably to buy the dip

Chart credit CryptoQuant

GBTC discount widens to record -20%

  • As Bloomberg Intelligence’s ETF analyst, Eric Balchunas highlights

“If you bought it during Dec rally you are lagging the price of bitcoin by 100 percentage points”

  • Probably time to retire this thing and approve an ETF

Chart credit Eric Balchunas

The most concise roundup of Bitcoin market action in the industry.

Subscribe through Medium, or register your email to receive the latest updates directly to your inbox. You can unsubscribe at any time.

And don’t forget to leave some applause! 👏👏👏

--

--

--

The most important updates to hit the Bitcoin markets, including the latest price action, market-moving news, and chart analysis. Register to have Blockstream Markets Weekly delivered direct to your inbox each week.

Recommended from Medium

Merging DeFi and NFT in Connection with Mogul

What makes an NFT valuable?

The statistics of Bitcoin price

$MAGIC Mines, the PixaRealm and metaverse-ready NFTs: A look at the Pixa 2022 (proposed) roadmap.

MATIC NETWORK SPOTLIGHT WITH UBONG EPHRAIM — TERRA VIRTUA

Bitcloud Pro Project Monthly Report

$1.7B was Stolen from Cryptocurrency Exchanges Last Year

How Do I Deposit Crypto On Huobi Global?

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Blockstream

Blockstream

Blockstream is the global leader in Bitcoin & blockchain technology, making financial markets more efficient by reducing reliance on trust.

More from Medium

Bitcoin history as a Cryptowave

Blockstream Markets Weekly — Jan 14, 2022

Crypto vs environment