Blockstream Markets Weekly — Nov 26, 2021

El Salvador announces $1B tokenized sovereign debt issuance with Blockstream and Bitfinex, Morgan Stanley funds add to BTC positions, Cathie Wood is still a net buyer of Bitcoin, and price gets hammered as options expiry triggers another ~ $173M in liquidations and covid worries spook markets

By Jesse Knutson

Black Friday Liquidation Sale

Bitcoin is on pace to follow up on last week’s -10% drop with another -8% this week.

Monthly options expiry on Deribit looked to have marked the start of the drop pretty spot on and soon sparked another round of deleveraging with 12-hour Bitcoin liquidations spiking to $173 million.

A wobble in risk assets and gains in the USD and gold helped to fan the flames a bit following reports of a new covid variant. The JPY posted its best single-day gain in almost two years as Asian and European stonks slid.

Declines this week put Bitcoin on pace for a -13% drop in November, the worst monthly loss since May’s -35%.

El Salvador, El Salvador, El Salvador

News flow was a bit slow this week with El Salvador dominating headlines after announcing a partnership with Blockstream and Bitfinex to issue $1B of sovereign debt on the Liquid Network.

Outside of that we also had filings from Morgan Stanley funds showing increasing Bitcoin exposure, Cathie Wood’s ARK still a net buyer of Bitcoin, and Bitcoin extending gains on Paypal with a 2021 quarterly average of $489M in transactions.

STO Eruption

El Salvador announced this week that they intend to work with Bitfinex to develop a digital asset and regulatory framework and with Blockstream to issue $1B worth of sovereign debt tokens on the liquid network.

Bloomberg, however, wasn’t that impressed.

I would say that from the perspective of traditional, mainstream institutional investors Bloomberg is glossing over a lot of friction points. Mandate and regulatory restrictions have frustrated a lot of institutional demand for Bitcoin. We can see that in the persistently high valuations of listed Bitcoin miners, the blowout launches of ETFs in Australia, Canada, and the US, and the ability of Microstrategy to continue to issue debt to buy Bitcoin.

For institutional investors, EBB1 offers bitcoin price exposure in a low(er) volatility wrapper. While I don’t think traditional institutional investors will be the bulk of initial allocations, I think that — eventually — this type of product will be attractive to fixed-income investors that have already been pushed out of their traditional comfort zone in an effort to find yield.

For Bitcoin investors, there’s probably even greater demand. USDC and USDT have a combined AUM well north of $100B. There’s clearly a massive amount of demand for low volatility, low friction assets — especially assets that can generate yield — and I think a base 6.5% yield is competitive and probably much less volatile than many crypto lending rates.

The risk profile of emerging market debt is also arguably better than a lot of other ways investors currently store value in the digital asset space.

Most importantly, the Bitcoin component may actually reduce default risk, if we can get it secured with an offshore custodian and dribbled out after the initial five-year lock-up.

Christmas Wishes

Fund flows remained positive despite last week’s dip with Bitcoin investment products seeing another $114M of inflows over the previous week and the Purpose Bitcoin ETF setting a new ATH of 24,630 BTC under management.

Eyeballing the weekly log chart, price looks to be constricting into the narrow end of an ascending triangle and I think we’ll probably see a pretty significant move in the next two or three weeks.

Seasonality offers a glimmer of hope after two weeks of steep declines. While November is tracking a ~ 13% drop, December has typically been one of Bitcoin’s strongest months. Bitcoin has ended December higher four of the previous six years for a median MoM gain of +20%.

Price has been hit hard in November, but monthly options expiry often act as inflection points for price. With another round of liquidations and expiry resetting the market, I would expect to see a bit of mean reversion over the next week or two — especially if policymakers and central bankers decide to give markets another covid booster shot.

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Bitcoin markets news

El Salvador to issue $1B of Bitcoin Bonds on the Liquid Network

Is a giant whale wallet buying the dip?

  • Over the past two weeks, Bitcoin’s third-largest wallet has accumulated a total of 6,665 BTC (US$375)
  • The wallet reportedly has the highest balance since the $30,000 level
  • Judging by the price action today, probably more likely that it was an exchange wallet

Hillary Clinton worried crypto manipulated by China, Russia

  • It’s interesting that she’s both worried about ‘crypto’ as a threat to the USD’s reserve currency status, but also clearly has no idea what she’s talking about

Cathie Wood’s ARK remains a net buyer of Bitcoin

  • Wood thinks that the long-term economic trend is toward deflation, not inflation. But sees Bitcoin as an important asset class that offers

“protection against the confiscation of wealth other than inflation…we have been a net buyer and we pick our spots. Over time we pick our spots we do not buy on spikes”

Morgan Stanley funds add to Bitcoin exposure

  • Regulator filings show that two Morgan Stanley funds added more ~ $120M of GBTC shares in 3Q21
  • Will be interesting to see how much, if any, of their GBTC position has shifted towards futures-backed ETFs in 4Q21.

Bitcoin overtakes Paypal, on pace to outstrip Mastercard

  • The Bitcoin network has processed an estimated average of $489 billion per quarter in 2021
  • PayPal processed an average of $302B per quarter in 2021, the Mastercard network processed $1.8 trillion per quarter or 260% more, and the Visa network processed an average of $3.2 trillion per quarter, or 540% more


Bitcoin seasonality

  • November down ~ 13% MoM, but December has typically been an up month for Bitcoin
  • Bitcoin has posted monthly gains four of the previous six years
  • The median December gain is 20%. If we add that onto the current price, it could put us back around ATHs by the end of the year

Options expiry?

  • Sell off looks to have really accelerated around today’s monthly options expiry
  • Monthly options expire happen 8:00 UTC on the last Friday of every month

Bitcoin ascending triangle

  • Saw this first pointed out by Alistair Milne
  • The weekly log chart looks like a pretty clear ascending triangle

Bitcoin held by short-term holders is still very low

  • Bitcoin held by short-term holders is currently < 3 million BTC, the extreme bottom end of the historic range
  • I believe Glassnode defines short term holders as coins that have moved at least once in the last 155 days
  • I added green circles onto the price graph below to highlight how these drops in short-term holder balances match up with price dips

Chart credit: Glassnode

Bitcoin processes more transactions than Paypal

  • The Bitcoin network has processed an estimated average of $489 billion per quarter in 2021 vs $302B from Paypal
  • Bitcoin needs to grow ~ 4–8x to catch up with Mastercard and Visa

Chart credit: BlockData

$173 Million Liquidated

  • Total liquidations over the last 12 hours are now up to ~ $173M
  • Will probably end up being the biggest round of deleveraging in several months

Chart credit: Bybt

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