Blockstream Markets Weekly — April 23, 2021
Biden eyes tax hike, Morgan Stanley and China’s PBOC say BTC is an investable asset, Square / Ark say Bitcoin is good for green energy, Rothschild Investment reveals Kraken stake, Venmo opens BTC to 70M users…and a bit of volatility to close the week out
By Jesse Knutson
What’s happening in the markets?
The taxman cometh
Bitcoin is tracking a -12% drop this week, on pace for one of the worst weeks of the year and its first significant drop below the 50-day moving average this cycle.
Bitcoin declines followed a sharp sell-off in equities on reports that the Biden administration was considering a sharp tax increase on capital gains. Wealthy individuals could possibly see their capital gains taxes nearly doubled. Lots of rumors also of aggressive capital gains taxes in the works for Bitcoin and digital assets.
Given record equity valuations and Bitcoin’s seven-month win streak, the news was a reason for investors to take some money off the table. Equity futures look to have calmed a bit now. I’m sure there will be aggressive lobbying from investment firms over the next couple of days, so we’ll have to see how the details of Biden’s tax plan shake out next week.
With record fiscal and monetary stimulus from governments around the world, I think we should probably expect to see an uptick in government efforts to replenish their coffers.
The price is the story
News flow was much slower this week with Bitcoin dropping solidly through the 50-day moving average for the first time this cycle and most of the commentary this week focused on price action.
Top stories this week included Morgan Stanley saying Bitcoin is a store of value and China’s Central Bank calling it an “investment alternative”, Square and ARK questioning the mainstream view on Bitcoin energy consumption, Ark doubling down on its Coinbase investment with an additional $64M purchase this week, Rothschild Investment Trust announcing a stake in Kraken and Venmo allowing its 70 million users to buy, sell and hold Bitcoin.
Coinbase and China flip
There were a couple of interesting flips this week, including Coinbase announcing upcoming support for USDT and China’s deputy governor of the People’s Bank of China (PBOC) calling Bitcoin an “investment alternative.”
China’s view on Bitcoin has gone back and forth over the years with several waves of crackdowns on miners and exchanges. The more progressive stance is interesting given Peter Theil’s recent comments expressing concern that Bitcoin could help China chip away at USD reserve currency status.
Coinbase’s Tether announcement is also interesting. Coinbase is probably the last major global exchange to support USDT trading. I think this is probably due to concerns that Tether trading would cannibalize demand for their own USD Coin, USDC, and also because of perceived regulatory risk around Tether.
Following Tether’s settlement with the New York Attorney General last month, regulatory risk looks to have largely been put to rest.
I think this is also a recognition of how dominant Tether is in the stablecoin space and how important Tether liquidity is for exchanges competing globally. Tether now has just shy of US$50B AUM and accounts for 92% of stablecoin volume.
Is that it, are we done?
This week’s sell-off was the most aggressive since the March 2020 liquidation cascade when Bitcoin dropped below $4,000. Sentiment has turned abruptly and with BTC hovering around the 100-day moving average, the charts don’t look great.
However, with weekly options expiry today, monthly options expiry next week, the first sub 30 RSI reading in more than a year, and $6B in liquidations over the past seven days, I think there’s probably a good chance we see a bit of a relief bounce next week.
That said, it looks like we’re still on pace to finish down for the month. After seven months of consecutive gains, this is probably to be expected and likely necessary to support further gains in the mid to long term.
I think the next couple of weeks are important for Bitcoin’s mid-term outlook. It will be hard to be constructive from a technical perspective if Bitcoin can’t quickly recover back above the 50-day moving average.
Longer-term, reasons for optimism include Bitcoin’s increasing scarcity and low on-exchange balances. After gaining to a stock-to-flow multiple of 1.7, this week’s pullback now puts us back in line with the stock-to-flow model. The current stock-to-flow implied fair value price is $47,573. Despite inflows this week, exchange balances are still at the extreme bottom end of the historic range with < 13% of Bitcoin sitting on exchanges. Longer-term these are both price positive.
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Bitcoin markets news
- Morgan Stanley’s chief economist Chetan Ahya says that Central Bank Digital Currencies are not a threat to more decentralized crypto alternatives
- It is a bit annoying when bank research uses the terms Bitcoin and Cryptocurrency interchangeably
“Investors’ interest in cryptocurrencies has risen alongside the unprecedented monetary and fiscal policy response to the pandemic”
- I think this probably is an acknowledgment of how dominant USDT is in the stablecoin space and probably something they need to do to remain competitive on a global stage
- It’s also a massive recognition of USDT and shows that they are comfortable with Tether’s risk, compliance and banking practices
- Total tax rates for New Yorkers, Californians could top 50%
- The article says that funds from the tax will be used to address ‘long-standing inequality’
- Details are expected to be released next week
- Ark Invest and Square outlines the opportunity presented by Bitcoin to spur more use of renewable energy
“Bitcoin miners are unique energy buyers in that they offer highly flexible and easily interruptible load, provide a payout in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection…”
- Note that the Blockstream Sattelite Network allows us to operate our modular mining units anywhere on the planet with a high degree of reliability in very remote areas
- ARK Investment followed up on a $350M purchase last week with an additional $64M purchase this week
- Trade looks to be largely funded by Tesla sells. ARK sold $99M this week and $178M last week
- Mizuho analyst Dan Dolev says that Coinbase will suffer from commission compression:
“Over time, COIN’s fees may face downward pressure from competing platforms following the footsteps of zero-commission stock trading, because platforms like PayPal and Cash App primarily use crypto trading products as engagement tools…In contrast, COIN relies on commissions for the vast majority of its revenue.”
- RIT Capital is a U.K.-based investment with a market cap of $5.3B
- Article references an April 12 investor note
- The note also mentions that Kraken is considering going public via direct listing in 2022
- Previous reports have suggested that Kraken’s current valuation may be as high as $20B
- High fees are driving more Tether allocations off of ERC 20
- Tron USDT balances are now actually higher than Ethereum’s total
- Expect to see more USDT swapped to Liquid in the coming months
- 3iQ has received regulatory clearance for the dual listing of its bitcoin ETF on Nasdaq Dubai
- Plans to raise $200M plus from Dubai listing
- Venmo has 70 million users
- Probably only a matter of time before Google and Apple follow suit
- Marks a significant shift in tone from China
- China has a long history of Bitcoin bans
- This is a pretty big hire for the industry
- Hopefully a positive in terms of pushing for positive industry regulationCharts
- Exchange Bitcoin inflows this week skewed heavily towards users with higher Chinese participation; Binance, Huobi and Bitifnex
- US institutionals look pretty back foot; Coinbase saw modest inflows this week while Kraken saw small outflows
- Selling looks skewed towards Asian retail
Chart credit Viewbase
24 Hour exchange inflows set new YTD high, but are still just a blip
- Exchanges saw a net inflow of 20,370 Bitcoin over the past 24 hours
- This is the second-highest inflow ever (surpassed only the March crash last year)
- Exchange balances overall remain very low
Chart credit Lex Moskovski
Total $6B of long liquidations this week
- Big deleveraging this week, led by a ~$5B of long liquidations over the previous weekend
Chart credit Bybt.com
RSI and 50-day Z Score signal most oversold since March 2020 crash
- Bitcoin fell below a 30 RSI today for the first time since the March 2020 liquidation cascade that saw price fall to below $3,800
- Price is also now trading ~ -2.5 standard deviations below the 50-day moving average. This is also the lowest reading since the March 2020 crash. Should imply some sort of near-term mean reversion
Inflation. Bloomberg Agriculture Spot Index
- Bloomberg’s Agriculture Spot Index at the highest level since 2013
Chart credit The Daily Shot
Tether dominates stablecoins
- USDT currently accounts for 92.2% of stablecoin trading volume and 69% of market cap
- It’s clear to see why a commission-based business like Coinbase needs to support USDT trading to remain competitive with global peers
Chart credit Stablecoins War
Can Bitcoin rally post options expiry?
- Over the last eight months, Bitcoin has tended to trade up off the monthly options expiry
- The last three months have seen selling into the days leading up to the expiry
- Declines may have been skewed early, though, with this week’s sell-off. With Bitcoin now below the 50-day moving average, the whole dynamic might be off. Will have to see how it plays out.