Blockstream Markets Weekly — May 28, 2021
Dalio likes Bitcoin over bonds, Goldman Sachs sees BTC as a new asset class, Cathie Wood thinks BTC can’t be stopped, Carl Ichan hints at a billion-dollar investment, and PayPal promises to loosen controls while Inner Mongolia and Iran crackdown on miners
By Jesse Knutson
What’s happening in the markets?
Bitcoin is tracking to end the week +7% bouncing after last week’s -25% drop.
Risk sentiment looked a bit better in markets as Covid infections slid to a near one-year low, unemployment claims fell the fourth week in a row and the Biden administration continued to firehose capital into the system with a newly proposed $6T 2022 budget.
The USD looked to regain its footing a bit as stocks inched towards previous highs. Gold had a bit of a wobble after breaking above the $1,900 mark for the first time in five months.
Overall, it looks like a fairly good backdrop for Bitcoin going into next week.
After last week’s 25% drop, $12B in forced sells, the liquidation of almost 900,000 traders, and a string of dismal regulatory news, I think it’s fairly impressive how the Bitcoin ecosystem as a whole has faired.
This was a pretty intense stress test that all major platforms (except for those that seem to suffer predictable outages around volatility) passed with little to no injury.
No bailouts, stimulus, interest rate cuts, or emergency interventions were required.
One can only imagine the carnage that would be wrought if major US equity indexes saw a similar weekly drop.
Banking on Bitcoin
Bitcoin sentiment showed signs of improvement this week as price stabalized, the fear and greed index bounced off of last week’s 13 month low, and comments from several big names in finance helped drive more constructive press.
Positive headlines this week included Ray Dalio saying he prefers Bitcoin to bonds, Goldman Sachs calling Bitcoin a new asset class and reporting significant institutional interest, Cathie Wood saying it is impossible to shut Bitcoin down and Carl Ichan hinting at a billion-dollar investment in the space.
A miner problem
The mining industry remained in focus as hashrate dipped and reports that Iran would ban Bitcoin mining for five months, Inner Mongolia would step up efforts to curb mining and a new North American Bitcoin mining council sought to address recent ESG criticisms.
Speaking at Consensus 2021, Michael Saylor said that the Bitcoin Mining Council was formed to help shape the narrative around Bitcoin’s energy use.
The ESG trend in North America is strong. Even the Secretary of the Treasury has vowed to employ the ‘full power’ of the US government to tackle climate change.
Perhaps an organized approach is required to counter the misinformation, but closed-door meetings run a bit contrary to Bitcoin’s open-source nature. It’s easy to see how in the current environment an industry association could slide into an ESG regulatory regime that could, at its extreme, threaten Bitcoin’s fungibility.
Lather, Rinse, Repeat
Despite having rallied as much as 36% off of last week’s low, Bitcoin is still very much digesting the technical damage wrought over the previous two weeks.
The technicals still don’t look great.
The 200-day moving average of ~ $41,000 remains the first main line of resistance, above that $45,000-$50,000 still looks like a challenge, and we’ll also likely see the 20-day moving average fall through the 200-day next week.
That said, if you zoom out a bit, the price action this cycle looks remarkably in line with previous cycles and might imply that we are in for a period of consolidation until we reaccelerate into the end of the year.
Options expiry today was pretty tame with price dropping $28,000 over the previous two weeks and open interest halving to just north of $6B. Historically, though the last Friday of every month has been a pretty good entry point for nine months running.
We’ll have to see if these patterns can repeat themselves.
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Bitcoin markets news
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- Joe Biden will seek $6 trillion in U.S. federal spending for the 2022 fiscal year, rising to $8.2 trillion by 2031
- Will pay for his agenda through increased taxes on corporations and high earners (which will be applied retroactively).
- Puts the country on track for its highest sustained level of spending since World War II
- While the president can propose an annual budget for the U.S. government, it is up to Congress to approve spending bills
- Says that if Bitcoin continues to gain traction, it could out-compete government bonds for investor fund allocation
- Has previously said that the economics of bonds is stupid because they pay less than inflation
- In a recent report Mathew McDermott, GS Global Head of Digital Assets, says
“Bitcoin doesn’t behave as one would intuitively expect relative to other assets given the analogy to digital gold; to date, it’s tended to be more aligned with risk-on assets. But clients and beyond are largely treating it as a new asset class, which is notable–it’s not often that we get to witness the emergence of a new asset class… I see investor interest in crypto enduring; we’ve crossed the Rubicon in terms of institutional buy-in, and there is much greater value in the space than there was three or four years ago”
- A survey from Goldman Sachs’ Digital Asset team in early March reported that of the 280 clients surveyed, 40% have exposure in some form to cryptocurrencies, with 61% expecting their holdings to increase over the next 12 months
- She thinks that regulators will eventually become more friendly out of a desire to not miss out on the innovation being developed by the sector
“Bitcoin is already on its way and it’ll be impossible to shut it down”
- ETF applications from Fidelity and SkyBridge Capital are being reviewed by the SEC
- The SEC is also reviewing four other applications
- A decision on VanEck’s application is expected in June. That should set the tone for the others
- PayPal which opened to Bitcoin and other digital assets in October of last year currently doesn’t let users withdraw assets to third party wallets
- Hopefully, this is part of an evolution to allow users more control over their assets and won’t be subject to additional restrictions
- Blames Bitcoin mining for recent power outages
- Says 85% of mining is unlicensed
- Iran is thought to account for low to mid-single-digit % of Bitcoin’s overall hashrate
- Telcos and internet firms that are engaged in mining will see their business licenses revoked by regulators
- Also plans tougher energy-saving requirements for industrial parks, data centers and power plants that provide sites or electricity for miners
- Announced in March that it would end all mining projects as part of efforts to meet energy efficiency targets
- group included representatives from Argo Blockchain, Blockcap, Core Scientific, Galaxy Digital, Hive Blockchain Technologies, Hut 8 Mining, Marathon Digital Holdings, and Riot Blockchain
- It’s easy to see how this could slide into some form of ESG regulatory system and even threaten Bitcoin fungibility at the extreme end
- There’s a lot here for Bitcoiners not to like
- Said that ‘big’ for him could be a $1.5B investment
- Thinks that interest in alternative investments is surging because valuations in equities are crazy
- To me, the interview sounded like he wanted to get involved in the ecosystem and wasn’t necessarily alluding to a big Bitcoin investment
- Allocates more than $100B into research and development
- $52B is earmarked to foster domestic semi manufacturing
- TSMC recently lifted its full-year 2021 CAPEX to ~ $30B and has allocated $12B to build a 5NM fab in Arizona
2021 cycle vs 2013 cycle
- The pattern of the current cycle and that of 2013 is pretty uncanny
Source Raoul Pal
- From another angle, days after hitting the previous all-time high, the two previous cycles and the current one seem to line up very well
- The average duration of the previous bull markets was 280 days
- We are only 179 days into the current bull market
- The monthly options expiry this month was pretty tame gave all the steam let out of the market over the previous two weeks
- But…The last Friday of every month has been a pretty good entry point over the previous nine months
In it for the long haul
- Goldman Sachs recent “Crypto: A New Asset Class” has a number of interesting charts. I think this is one of them.
- Hodlers are mostly hodling. The actual supply in the market is quite low.
Chart credit Goldman Sachs Research
A little Bitcoin goes a long way
- Another good chart from Goldman Sachs highlights how a little bit of Bitcoin in a traditional 60/40 portfolio can offer quite a bit of alpha
Chart credit Goldman Sachs Research
Gold vs Bitcoin
- Gold looks to be having a bit of wobble around $1,900
- I wonder if we could already be seeing fund flows rotate from gold back into Bitcoin give the depth of the recent pullback