Blockstream Markets Weekly — April 9, 2021

Bloomberg says Bitcoin is the primary anti-fiat asset and issues $400k target price, Coinbase smashes earnings expectations, Kraken reports record 1Q21, $3.1B State Street gears up for Bitcoin trading, MSTR boosts BTC holdings to 91,579, JP Morgan and Goldman Sachs warn of incoming Bitcoin regulation and Korean retail pumps domestic Bitcoin prices to new ATHs

By Jesse Knutson

What’s happening in the markets?

The anti-fiat asset

Bitcoin is on pace to finish the week modestly lower, erasing about half of last week’s +4% gain as consolidation continues.

News flow remained positive with Bloomberg saying that Bitcoin has largely displaced gold as the ‘anti-fiat’ asset and issuing a new research report with a $400,000 price target, Coinbase smashing analyst expectations ahead of next week’s market debut, Kraken reporting record 1Q21 trading volumes, $3.1B dollar State Street gearing up to start Bitcoin trading, Microstrategy adding another $15M of Bitcoin and South Korean retail pumping domestic Bitcoin prices to just shy of the $70,000 mark.

Major exchanges saw a total of 16k worth of Bitcoin outflows this week. I think this is probably a good sign and indicates that institutions are back on the bid. Volatility continued to thin out and is now at the lowest level in four months. I think that likely suggests that we’re probably due for a significant price move in the near term.

Regulators mount up!

One of the key themes this week was the possibility of increased regulatory scrutiny over Bitcoin and digital assets.

Last week, Janet Yellen, committed to using the full power of the U.S. federal government to address climate change and to fight global poverty. This week, Jamie Dimon of JP Morgan, highlighted in his shareholder letter that large corporations need to become policymakers. These comments seem to mark a desire to expand the mandates of both the Treasury and corporate America beyond their historic norms.

What could go wrong?

Jamie Dimon also highlighted in his investor letter that regulations around Bitcoin and shadow banking were among some of the most serious emerging issues that need to be dealt with. Likewise, the CEO of Goldman Sachs said this week that he expects a big evolution in Bitcoin regulation.

I think investors have to expect this. With debt to GDP at record highs across Western economies, regulators are going to be increasingly keen to boost tax revenues and weaken the ability of investors to opt out of the legacy financial system.

Bitcoin is getting too big to ignore.

A more onerous regulatory environment could certainly hamstring Bitcoin price appreciation in the near term. Long-term, though, I think it will also highlight how unique Bitcoin’s core characteristics of censorship resistance and fixed supply are.

If you can’t beat them, buy them (if you can)

I think that many major players from the legacy banking system probably thought that if client interest in Bitcoin ever became significant, they could simply go out and buy a few platforms to add to their arsenals.

Judging by Coinbase’s financials released this week, that plan is probably not possible anymore. Coinbase’s 1Q21 revenue came in at $1.8B, +842% YoY and 1Q21 net income may have been as high as $800M, +2,400 YoY.

Coinbase is scheduled to list on the Nasdaq next week under the ticker COIN. Its listing valuation is expected to be somewhere between $68B and $100B. At the top end, that would put it roughly at the same size as Goldman Sachs.

Banks are getting pinched from every side and are probably at risk of being completely left in the dust as Bitcoin goes mainstream. Bitcoin’s biggest players are already a bite too big for them to swallow.

A coiled spring

Eyeballing the Bitcoin price chart, I think it looks pretty positive.

As highlighted last week, volatility has come down significantly in the previous few weeks. Bollinger bandwidth is now at the lowest level in four months. Typically, drops in volatility foreshadow big incoming price moves.

Price is also consolidating in an ever-tightening range between resistance at around the $60,000 level and an ascending year-to-date trendline. To me, that looks like a coiled spring waiting to break higher. Bloomberg’s call for a 2Q21 breach above $60,000 and a move toward $80,000 is probably a good one.

Based on exchange trading volume and on-chain transactions, support should be in the $47,000 to $50,000 range.

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Bitcoin markets news

Bloomberg: Bitcoin is displacing gold as an inflation hedge

  • Highlights how Bitcoin has displaced gold as the primary ‘anti-fiat’ asset
  • Says that Bitcoin is the reflation asset, meaning that Bitcoin has traded higher with bond yields and the belief that inflation is coming

Peter Theil warns Bitcoin could chip away at USD

  • Theil was a co-founder of Paypal
  • Described himself as ‘pro-Bitcoin maximalist’
  • Warned that China could be encouraging the growth of Bitcoin to chip away at USD reserve currency status
  • It’s hard to tell from the clip if this is a jibe at China, Bitcoin, the fiscal/monetary policies of the US, or all of the above

Coinbase earnings smash expectations ahead of IPO

  • Love them or hate them, Coinbase is making a lot of money and this has big implications for not only the Bitcoin space but also the whole financial services industry
  • 1Q21 revenue came in at $1.8B, net income came in at +2,400% YoY at ~ $800M

Kraken considering public listing after record 1Q21 trading volumes

  • My first thought on this is that banks are really getting squeezed on all ends. Kraken, like Coinbase, is looking to do a direct listing. Meaning banks get stuffed on fees.
  • Kraken reportedly has 6 million clients. It’s not clear if this means active users or verified users.
  • Coinbase, for comparison, has 6.1 million active users but a massive 56 million verified users

Bloomberg: Bitcoin could hit $400,000 this cycle

  • In the near-term, Bloomberg see $50,000 as a major line of support

“A more likely 2Q scenario is to breach $60,000 resistance and head toward $80,000. A backup toward $40,000 support is less likely, in our view”

  • Longer-term, the report thinks this cycle could top out at $400,000

“Bitcoin [is] on similar ground as the roughly 55x gain in 2013 and 15x in 2017. To reach price extremes akin to those years in 2021, the crypto would approach $400,000, based on the regression since the 2011 high”

Microstrategy buys more Bitcoin

  • Added another 253 Bitcoin for $15M in cash
  • Brings the Mircorstrategy war chest up to 91,579 Bitcoin at a total purchase price of $2.23 billion, and an average price of $24,311 per coin
  • They are definitely going to try and get up to an even 100,000

Fidelity, Coinbase team up to form Crypto Council for Innovation

  • Founding members include Fidelity, Coinbase, Paradigm and Square
  • Looks like the main purpose will be to lobby for friendly regulation
  • I think Bitcoiners tend to be very wary of these sort of industry groups given the history around the New York Agreement, Segwit2X and the BCH fork
  • Three out of four of the founding companies of the CCI coming out of San Francisco is probably not a great sign…what could go wrong?

Riot Blockchain buys 42,000 Bitmain miners

  • The total order size translates to about US$138M
  • The first batch of 3,500 S19j Antminers are to be delivered in November with additional monthly deliveries expected to continue through to October 2022
  • Miner prices have increased substantially from about $25/TH at the start of the year to ~ $100/TH now

Bitmain issues $15M IP suit against MicroBT

  • Yang Zuoxing was previously a senior employee at Bitmain
  • MicroBT has come from behind over the past few years and is likely now overtaken Bitmain as the leading producer of Bitcoin mining hardware

State Street may start crypto trading

  • State Street is one of the oldest banks in the US
  • Currently has $3.1T AUM
  • State Street’s Currenex trading technology arm is working with London-based Pure Digital

Is HSBC blocking investor access to Microstrategy?

  • A screenshot of an alleged message sent to a client read:

“Our records show that your HSBC InvestDirect account is holding MICROSTRATEGY INC-A — MSTR-US, a virtual currency product. While we will permit the holdings of MSTR-US to be held and/or sold/ transfer-out in your HSBC InvestDirect account, new purchases or transfers-in will not be allowed”

  • This will likely not be a shock to anyone that has previously banked with HSBC

Jamie Dimon: Bitcoin regulation is a serious issue

“There are serious emerging issues that need to be dealt with — and rather quickly [including] the growth of shadow banking [and] the legal and regulatory status of cryptocurrencies”

Goldman Sachs CEO: Big Evolution is coming to Bitcoin regulation

  • Goldman Sachs CEO David Solomon has said he expects a major transformation in how the US government regulates Bitcoin and other digital assets
  • This echoes comments from former SEC chairman Jay Clayton who recently said that the crypto regulatory environment is due for a “shake-up.”

South Korean capital controls are pumping the Kimchi premium

  • Media reports that Korean capital controls prevent foreign investors from arbitrating the BTC/KRW pair
  • Bitcoin has traded very close to $70,000 this week
  • Demand is reportedly being exacerbated by a low supply of Bitcoin on exchanges which are typically very domestically focused

Charts

Bitcoin is THE reflation asset

  • Bloomberg highlighted this week how Bitcoin loves higher bond yields and the general belief that inflation is coming

Chart credit Bloomberg

Bitcoin’s path to $400,000

  • Bloomberg thinks that Bitcoin is tracking performance similar to 2013 and 2017, this could put it on pace for a peak cycle price of $400,000

Chart credit Bloomberg April Crypto Outlook

What does Bitcoin’s divergence with Tesla tell us?

  • Since Tesla announced plans to acquire $1.5B in Bitcoin, Tesla has fallen ~24% while Bitcoin has gained 35%
  • Bloomberg thinks consolidation between about $40,000-$60,000 is building a base for the next leg of the rally
  • Divergence with Tesla may indicate that Bitcoin’s correlation with tech stocks is starting to break down

Chart credit Bloomberg April Crypto Outlook

New OFAC list?

  • France and Germany announced this week support for Janet Yellen’s proposal of a global minimum corporate tax
  • Reallocating profits so large digital businesses are taxed in the countries where they make sales will hit smaller tax haven countries hard
  • This could possibly mean enforcement by the threat of sanctions and will be a big shakeup for all of the countries listed below

Chart credit Reddit

Bitcoin is new settling an average of $12.25B in transactions per day

  • Bitcoin has seen a significant gain in on-chain transactions over the previous few months
  • Prior to the start of the current bull market, the average daily on-chain transaction was ~ $1.7B
  • Bitcoin is now settling ~ $12.25B of transactions per day

Chart credit Glassnode, The Week Onchain

Coinbase is making a lot of money

  • 1Q20 revenue came in at $1.8B, +842% YoY

Chart credit CNBC

Support and resistance

  • Based on exchange trading volume and on-chain transactions, support should be in the $47,000 to $50,000 range
  • The bulk of resistance is around the current level

Chart credit Yann & Jan

A coiled spring?

  • I think this looks like a pretty positive chart, price is consolidating between resistance at the $60,000 level and an ascending trendline
  • Volatility has dropped off significantly which should imply an incoming price move
  • To me, it looks like that move will probably be higher

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

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