BTC & Stocks Slide Amidst Rate Spike
Diamond hands vs. paper hands.
Who the hell is selling their Bitcoin right now!? The recent run up to $58k might’ve been initiated by institutions but it was extended by an influx of new entrants. Institutions who choose to do the hard work and buy BTC is what we’ll refer to as diamond hands — they’re not going to panic sell. Average people who FOMO into Bitcoin without doing the hard work to understand what they’re buying typically do panic sell — paper hands.
The volatility this week stole the thunder from the tremendously bullish pieces of news for Bitcoin.
- Square bought $170 million worth of bitcoin
- MicroStrategy buys more than $1b in bitcoin
- One of the most significant existential threats to Bitcoin and the broader crypto market was lifted as Tether & Bitfinex finally reached a settlement with New York State AG
- Coinbase is officially going to become a publicly traded company via direct listing on Nasdaq
- Stone Ridge filed with the SEC to become first open-ended mutual fund to buy bitcoin
Then the dark horse, I mean the Treasury Secretary, Janet Yellen came through and stomped on the parade calling Bitcoin inefficient and highly speculative. Funnily enough, the Federal Reserve FedWire system was down Wednesday which impacted all ACH and wire related activities.
What we saw at the desk
This week was a rocky one. The euphoria from coming off all time highs mixed with Bitcoin holding strong above $50k quickly exhausted this week when it dipped down to the high $40s. Monday to Wednesday was manic at the desk but we were able to keep our heads above water (for the most part). We had large wires in from investors on the sidelines waiting for an entry point and the overwhelming majority of the action was certainly on the buy-side. That being said, we did have a good mix of some early adopters, traders, and some recent incumbents on the sell-side to a lesser extent.
February has been our best month by far. As of this morning we’ve facilitated over $65m in trades this month.
Why would a spike in the 10–year cause a market sell-off?
I mean, most of you reading this are sophisticated investors and probably expect a technical breakdown. However, I prefer the “For Dummies” explanation on nearly everything, so here’s my quick take.
A rise in 10-year bond yields signals that investors expect an increase in inflation. Inflation might come from all of the pent up demand being let loose because of vaccinations, reopening, and an increased money supply. So you might think that if inflation is set to rise, then shouldn’t stocks and other risk-on assets do well since the goal is to beat inflation? In short, higher interest rates should lead to stock valuations readjusting since cost of capital and cost of debt should increase. People will buy less goods because prices go up and it will also become more expensive for the company to produce the goods — not a great outcome for stocks.
With stock prices at record highs, there is little room for error. That being said, the Fed seems committed to keeping rates low and they obviously understand that the market is hanging on by a thread and my guess is that they won’t let it suffer too bad…but maybe times are changing and the Fed will refuse to intervene this time… lol.
Investors might be taking this modest rise in rates as a signal that the days of simply piling into the market leaders regardless of valuation may be drawing to a close. If that is the case, investors will have to look for alternative opportunities out there, which might look like shifting from growth (high valuation) stocks, to value (low valuation) stocks as well as incrementally more attractive bonds… and Bitcoin?
In the event we see more inflation, real rates are still going to be negative which is bullish for the planet’s favourite store of value. No, not the pet rock, Schiff… the digital version of gold.
In case you missed it…
- Square adds $170m in BTC to treasury https://www.cnbc.com/2021/02/23/square-buys-170-million-worth-of-bitcoin.html
- *Tether settlement https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal
- MicroStrategy buys more than $1b in BTC https://www.cnbc.com/2021/02/24/microstrategy-buys-more-than-1-billion-worth-of-bitcoin-adding-to-massive-holdings.html
- Coinbase valued above $100 billion, ahead of direct listing https://www.coindesk.com/coinbase-sec-form-s-1
- Stone Ridge filed with the SEC to become first open-ended mutual fund to buy BTC https://decrypt.co/59416/stone-ridge-adds-bitcoin-to-its-diversified-alternatives-fund
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Satstreet serves private Canadian clients including some of the largest Bitcoin mining operations, institutions, and high net worth individuals. Satstreet has raised initial funding from Round13 Capital and several prominent investors.
