Blockstream Markets Weekly — Nov 19, 2021

BMN wraps up tranche 7, El Salvador connects volcanoes to Blockstream satellites, Fidelity becomes Canada’s first insto focused BTC custodian, Australia's biggest bank doesn’t want to get left behind, Mt Gox repayment gets final approval…was that the dip?

By Jesse Knutson

Uncorrelated

Bitcoin is on pace for its worst weekly drop in more than six months.

Declines this week looked to be driven by continued deleveraging and perhaps also exacerbated by media reports of future Mt Gox Bitcoin distributions as a potential overhang.

Stonks hit their 66th all-time high of 2021, the second-biggest number of annual records ever — only behind 1995.

Interestingly, Bitcoin’s correction this week and continued gains in stonks has almost completely eroded Bitcoin's positive correlation with Nasdaq futures which has persisted since 1H20.

Unlike traditional markets, Bitcoin is able to self-correct excessive greed without liquidity injections, circuit breakers, or bailouts. Long term, I think we probably want Bitcoin to be less correlated with traditional assets.

Volcanoes, miners, and satellites

News flow was a bit thinner this week with much of the commentary focused on price action.

Top stories this week included Blockstream’s Mining Note wrapping up another successful tranche, El Salvador’s Bitcoin volcanoes integrating with the Blockstream satellite network, Marathon raising $500M of debt to buy BTC and mining machines, Fidelity becoming Canada’s first institutional BTC custodian, India looking to pave the way for Bitcoin to become a regulated asset, and concerns that the Mount Gox Bitcoin repayment could be an overhang for BTC price appreciation.

Fund flows and liquidations

Fund flows continue to look constructive despite this week’s drop in price.

Coinshares fund flows report reported the 13th consecutive week of inflows into digital asset investment products last week. Bitcoin continued to lead with another $97m of inflows pushing the total AUM of Bitcoin investment products to a record $56B.

Canada’s Purpose Bitcoin ETF also saw continued inflows with BTC under management gaining to a record high of 24,344 mid-week.

Liquidations were again harsh this week with ~ $600M of positions closed out since Monday.

Are we there yet?

I think we’re probably getting pretty close.

Bitcoin is now down ~ 16% over the previous ten days. Year-to-date, that’s typically been about the range where Bitcoin starts to find its feet again. Sentiment indicators are also starting to get buried pretty deep in fear territory and aggregate funding rates have drifted down to the bottom end of the year-to-date range.

In terms of support, I think you can probably draw a number of trend lines that point to support around the $56,000 level. We probably need to hold on to that level to avoid setting lower lows on a number of timeframes and the chart just starting to get a little bit unloveable.

The current market setup also looks tentatively similar to how the previous volatility squeeze played out; an initial rip higher, a steep correction, sideways trading followed by another rip.

It’s also worth pointing out that next Friday is the monthly options expiry. Over the course of the past year, this has often been an inflection point for the market. Most expiries have been preceded by corrections and followed by gains.

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Bitcoin markets news

BMN completes tranche 7, passes 2 BTC per note

  • Tranche seven adds another ~ $3M of BMN1 tokens issued to a total of 82 investors. Brings the total amount of BMN issued to just under $40M
  • This week the BMN1 also passed the 2 BTC per BMN1 mark
  • The BMN has only been mining for 136 days and still has 960 days to mine more Bitcoin

Blockstream Satellite beams Bitcoin to El Salvador’s volcanoes

  • El Salvador’s Geothermal energy generation and Bitcoin mining facility installed a Blockstream Satellite
  • The Blockstream Satellite network broadcasts the Bitcoin blockchain around the world 24/7 for free, protecting against network interruptions and providing areas without reliable internet connections with the opportunity to use Bitcoin

Commonwealth Bank of Australia CEO: being left out is a risk

  • Revealed Friday, that they had bought a small stake in cryptocurrency exchange Gemini and is partnering with them on crypto custody for the bank's clients

“We see risks in participating, but we see bigger risks in not participating”

Marathon to raise $500M of debt, use funds to buy the dip

  • Sounds like a familiar strategy
  • Marathon Digital plans to offer to qualified institutional buyers $500 million of convertible senior notes due 2026, it said in a statement. Initial purchasers will have the option to buy an additional $75 million principal amount of notes, and investors would be able to convert the notes to common stock in certain circumstances and during specified periods

“Marathon intends to use the net proceeds from the offering for general corporate purposes, including the acquisition of bitcoin or bitcoin mining machines”

  • Keeping Bitcoin on your balance sheet is a clear trend developing in the mining space and investors look to be rewarding bigger Bitcoin hordes with richer valuations

Hillary Clinton: BTC could destabilize nations erode USD

  • Sounds like she both understands and doesn’t understand Bitcoin at the same time

“One more area that I hope nation-states start paying greater attention to is the rise of cryptocurrency because what looks like a very interesting and somewhat exotic effort to literally mine new coins in order to trade with them has the potential for undermining currencies, for undermining the role of the dollar as the reserve currency, for destabilizing nations, perhaps starting with small ones but going much larger”

Fidelity becomes Canada’s first institutional BTC custodian

  • Fidelity will launch its service in the form of a bitcoin trading and custody platform catered to institutional investors
  • The move paves the way for more Canadian institutions to invest in bitcoin, including pension funds, portfolio managers, mutual funds, and ETFs

Mt Gox Bitcoin repayment gets final approval from the trustee

  • This means that as much as $8.5B of Bitcoin will eventually be distributed in addition to BCH (lol) and cash
  • As of Sep 2019, the trustee held a trove of 141,686 BTC (and presumably an equal amount of BCH)
  • Mt Gox collapsed in 2014 after losing 850,000 BTC valued at around $500M at the time (~$51B at today’s prices)
  • Some debate on how immediate the market impact will be given reports that the coins might not be distributed until 2023

India wants Bitcoin to be an asset, not competition for the INR

  • The government plans to present a crypto regulation bill in the parliament’s winter session, details of which are being finalized
  • It seems like India is in a perpetual state of drafting, but never finishing crypto regulation
  • Will likely see Bitcoin regulated as an asset, but not recognized as a payment method

Square will support Bitcoin Taproot addresses by December

  • Cash App users will be able to send bitcoin to Taproot-enabled wallets by December 1, 2021
  • Taproot went live on the Bitcoin network on November 14 at block 709,632
  • Over time, users may benefit from the upgrade’s enhanced privacy features, reduced transaction fees, and better smart contracts

US Department of Justice is selling $56M of Bitcoin

  • DOJ is selling $56 million worth of cryptocurrency seized from BitConnect’s top promoter. It’s unclear whether this is all Bitcoin or not
  • The proceeds from the sale will be put toward paying back victims of the BitConnect scam
  • In 2017, BitConnect’s founder and its promoters scammed investors out of $2B

Former Citi CEO: All financial institutions will trade crypto

  • Former Citi CEO, Vikram Pandi, thinks that all financial institutions will eventually be pulled into crypto asset trading. He’s probably right, but his vision of the future is probably a bit different than that hoped for by most Bitcoiners:

“ …a central bank ditial currency, which is available to you and me, and eery other retail participant in the world…”

Charts

Peak fear

  • The Fear & Greed Index is buried pretty deep on the fear side at the moment and is now not that far off the lows seen last September
  • The last drop in fear and greed bottomed right around the September 2021 rally

Chart credit: Fear & Greed Index

Bitcoin price action after retaking all-time high

  • The halving cycle makes Bitcoin very cyclical, similar patterns and market reactions feel like they get recycled regularly. That said, not every cycle looks completely the same
  • Still kind of a fun reference point to keep in the back of your head

Chart credit: TechDev

USD/TRY goes parabolic

  • The Turkish Lira hit 11 against the US dollar for the first time in history after being devalued by more than 30 percent this year
  • Inflation is scary

Blockstream’s Mining Note passes 2 BTC mined per BMN

  • Bitcoins mined by the 2,000 TH backing each BMN broke above the 2 BTC mark
  • The BMN has only been mining for 136 days and has another 960 days until maturity

Chart credit: BMN Dashboard

Groundhog day?

  • The pattern in the top panel looks — to me — a bit reminiscent of the previous volatility squeeze that kicked off in early September
  • The bottom panel shows Bitcoin’s 10 day % change (ROC) which is at a level that has previously often foreshadowed bounces

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

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