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The Bitcoin Economic Calendar:
Week of Monday August 30th to Sunday September 5th.
Interest Rate Announcement:
As of September 1st, 2021, the interest rate for BTC Savings Accounts will continue to be 6.1% APY for balances up to 2 BTC, and 2.25% APY for any balance over 2 BTC.
For USDC Savings Accounts, the September interest rate will be increased to 9.0% APY on your full USDC balance (no tiers), up from August’s rate of 8.5% APY.
Market Commentary:
Bitcoin: After 5 weeks of gains, bitcoin closed its first weekly loss, closing down -1% at $48,808. The drop was very moderate considering that it is up 55% in the 5 weeks prior.
From a technical standpoint, the close above $48,800 is positive as there is a rather well-defined range of resistance between $48,800 and $50,800.
On Tuesday, Michael Saylor announced that Microstrategy had purchased an additional 3,907 bitcoins for ~177 million in cash at an average price of $45,294 per btc. As of last week, the company holds 108,992 bitcoins equivalent to $2.918 billion. They have purchased them at an average price of $26,769.
While not as large as some of the earlier purchases, it is a significant deployment of capital and a signal to other institutions that current price levels are not “too high”.
On Wednesday news broke that Morgan Stanley holds 928,051 shares of Grayscale Bitcoin Trust - equivalent to ~$36 Million, across more than 30 portfolios. In June, Morgan Stanley disclosed it held 28,289 shares of GBTC through their Opportunity fund. This means that their exposure to bitcoin has increased by 33X in the last 3 months.
In other “Big Bank & Bitcoin” news, JP Morgan disclosed owning 62,589 shares in Coinbase as of June 30th. At current prices, that equates to a $16 Million investment in Coinbase.
Billionaire Bill Miller’s fund also reported holding 1.5 Million shares of GBTC - worth about $60 Million.
The trend here is clear - billionaires and banks don’t want to be left behind.
Another interesting note came courtesy of Bloomberg analyst Eric Balchunas, who said on Wednesday that “there's pretty solid evidence for an Oct or perhaps Nov launch” in reference to a bitcoin futures ETF.
As we mentioned last week, the SEC is looking “more favourably” at futures-based ETF applications.
The issuer that submitted the first application for a futures-based ETF (and therefore has the highest chance of getting its approval) is Valkyrie. The group may not be the most well known in the industry, but it is run by a team with a lot of experience. Best of luck to Leah and Steve, and hope to see their product listed soon!
There are also important implications here for the Greyscale Bitcoin trust. The fund is still trading at a double-digit discount to the net value of the underlying bitcoin that it holds.
Grayscale has publicly announced plans to turn GBTC into an ETF. When this happens, the thesis is that the units of the fund should trade at “par value” to the underlying shares of the fund. However, having ETF alternatives in the market may delay GBTC reaching parity. This means that original investors that exchanged bitcoin into units looking to sell them at a premium, will now have to wait even longer just to get their money back. The alternative is to get out now and crystallize a double-digit loss when they were expecting a profit.
New investors in the fund, like Morgan Stanley et al, are basically buying bitcoin at a discount and have a long time horizon to ride the wave to price parity.
Lastly, there were some leaked pages out of a Fidelity report on bitcoin last week, which had an interesting chart showing bitcoin adoption relative to other recent technologies.
As the chart displays, there are some astounding similarities between the adoption curve of bitcoin addresses with a balance, and active BTC addresses, compared to those of broadband internet subscriptions, and mobile phone subscriptions. Food for thought.
We’ll take a look at what the futures and options market for bitcoin are showing in our What’s Ahead section later today.
S&P 500: The S&P 500 zipped to a fresh all-time high, finishing Friday’s session up +1.56% at 4,511. The Nasdaq also reached a new all-time high, finishing +2.26% higher. The biggest winner was the Russell 2,000, up +5.56% - however, the Russell 2,000 looks to be range-bound and has not shown signs of confirmation to the upside.
As highlighted in last week’s issue, Jerome Powell’s speech last Friday had a big impact on the markets.
While Fed officials decidedly signalled that the tapering of the bond purchase program should start “sometime this year”, Powell’s comments appeased markets by suggesting that the benchmark overnight interest rate will not be rising anytime soon.
Goldman Sachs predicts that the Fed will start cutting purchases by $15 Billion per meeting, made up of $10 Billion cuts to U.S. treasury purchases and $5 Billion in cuts to Mortgage Backed Securities purchases. For context, the Fed has 3 meetings left this year - September, November and December.
Powell’s statements on Friday coincided with higher than expected inflation data out of the U.S. The Personal Consumption Index reading from July came out at 4.2% - higher than June’s 4%. This is 2X the Fed’s 2% inflation target.
Additionally, the home sales data last week showed that there were 700,000 new homes sold in July, higher than June’s 676,000.
The mean price for new homes was 18.4% higher than July last year.
And lastly, there are virtually no new homes being sold, in the entire U.S., for less than $200,000.
All this data sounds alarming. And based on Powell’s comments on Friday, one would expect that bond yields would be rising.
They did not.
Yields on the 10-year and 30-year U.S. treasury bonds came down on Friday, -2.23% and -1.18% respectively.
The market seems to be agreeing with the Fed’s transitory inflation view, and pricing low inflation pressures beyond the next 2 years.
What does this mean? It means that the Fed still wants to let the economy “run”. It does not want to disturb markets until it is closer to full employment. They will likely start tapering their purchases on the later part of the bond curve (10-30 year bonds), where demand seems to be deep at the moment. If executed as intended, this should lead to a very “soft landing” to their purchase program.
Whether they can raise short-term rates after tapering the purchases on the long end of the curve remains to be seen.
Gold: Gold had a very positive week, finishing higher by +2.01% at $1,816/oz.
Most of the gains came on Friday after Powell’s comments - helping gold rise +1.36% for the day. It was gold’s highest weekly close in more than 70 days.
The dollar finished the week lower by -0.83%, which is generally a catalyst for both gold (and most markets).
As geopolitical tensions continue and the Fed let’s short-term inflation run higher, real return on U.S. bonds will remain under pressure. Generally, this environment is good for gold.
DeFi: The DeFi index finished down -3.87% - worse than ethereum’s performance at -0.50% at $3,225. Pressure in most layer 1 and 2 crypto assets could be partially attributed to the rise of NFTs - as people look to take profits in bitcoin, ether and DeFi tokens to indulge in art.
Among the news this week in the DeFi space was the disclosed bug in the ethereum network, which led to a fork in the chain.
In summary, there was an upgrade sent to ethereum nodes to patch a bug. For a while, 54% of nodes were running on the old version of the Geth client. Since the “new” version of the software did not allow nodes running the “old’ version of the software to access the main network, the miners continued to contribute their hashrate to the longest chain. Therefore, although there were less than 50% of nodes running with the new software, they maintained the support of most miners by always controlling the longest chain (they blocked the vulnerable nodes out until they upgraded). This resulted in the chain split not having major consequences.
While the news did not help ethereum’s price action, one of its competitors did seem to benefit. Solana, a smart contract network that has been gaining popularity lately for its fast transactions and low fees, saw its token price increase by almost 30% during the week.
Visa also made waves last week by jumping into the NFT scene and buying a “CryptoPunk”.
Strategically, it was a very interesting move, as Visa garnered tremendous publicity and media attention by simply purchasing an asset.
By doing so, it triggered a market rush into the asset itself, and made the price of its own investment rise.
From this perspective , this could be Visa’s best performing marketing “expense”. And Visa is not the only one doing this.
NBA superstar Stephen Curry also bought an NFT last week - a Bored Ape. The choice was interesting as it seems to be an “up and coming” community within NFTs.
The trend for big brands to “purchase and legitimize” NFT communities is heating up - and we should continue to see examples in the coming weeks, until we reach saturation.
One last fascinating insight from the NFT market in the last few weeks is that the growth of USDC and other stablecoins has plateaued since August 10th.
The connection here could be that as NFTs get closer to real-world artists and more mainstream participants, many of these will monetize back to the “real world”, exchanging USDC for dollars, and therefore neutralizing growth.
Difficulty Commentary: Hashrate continues to pour into the network. Last week’s difficulty adjustment brought difficulty up by +13% to 17.62 THs. For context, that’s where we were around July of last year.
The mempool continues to remain eerily quiet even in light of the volatility. This is a great thing for on-chain transaction speed and cost.
What's ahead for the week:
As we’ve covered here recently, there are growing market signals that point to a shift in composition of bitcoin derivative collateral. While this sounds complicated, it means that investors are choosing to collateralize their bitcoin trades with stablecoins, rather than with bitcoin.
Where is this evident? A few places:
For one, as we just saw in our mining difficulty section, there is less and less demand for on-chain blockspace. Fees have remained low despite market volatility. This is a huge signal. Naturally, large investors are incentivized to move bitcoin quickly, therefore they bid-up on chain fees to move collateral across exchanges. Lower fees means less competition for next-block confirmations.
Second, we are seeing shallower dips in price. For context, it was a ~70% drop in price from the top to the bottom of the 2017-2018 rally. So far in the 2021 cycle, we have seen that bitcoin found support after a ~55% drop. By the same token, price seems to be moving at a higher velocity to the upside, as stablecoin collateral has a buffering effect on the way down, but accelerates short-liquidations on the way up.
One last word on bitcoin futures - the big boys are gearing up to trade in the CME. Citi announced last week that it is getting ready to start trading bitcoin futures. As these groups enter, look for implied yields to get squashed even further.
A few words on the U.S. regulatory landscape:
It is looking less and less likely that the proposed crypto regulation in the U.S. will have any changes made to it. A deal in the House last week eliminates the possibilities of any amendments to the infrastructure bill.
While this is not a deal-breaker, it is certainly a setback. It is much easier to get laws amended before they pass than after the fact. All is not lost, however. As we’ve said here - the laws won’t come into effect until 2023, and a lot can happen in 2 years.
As always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:
Monday:
Canaan Inc. - Publicly traded Bitcoin mining manufacturer, reports earnings.
Friday:
8.30 AM EST - U.S. Unemployment Rate
It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account @hodlwithLedn
Canadian Central Banking Updates:
Current Target Interest Rate: 0.00 - 0.25%
Current Overnight Money Market Rate: 0.23%
Source: https://www.bankofcanada.ca/rates/
U.S. Central Banking Updates:
Current Fed Interest Target Rate: 0.00 - 0.25%
Current Effective Federal Funds Rate: 0.09%
Source: https://apps.newyorkfed.org/markets/autorates/fed%20funds
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