Blockstream Markets Weekly — Aug 6, 2021
Infrastructure bill sees pushback, SEC and CFTC battle for BTC oversight, SEC signals interest in futures backed BTC ETF, $1.5T Invesco makes ETF application, Fidelity reveals $20M stake in listed miner and BTC threatens first weekly finish above $40K in months
By Jesse Knutson
What’s happening in the markets?
Bitcoin is on pace to close the week above $40,000 for the first time in three months.
Price action this week was pretty resilient given the uncertainty around new crypto regulations buried within the Biden administration’s new trillion-dollar infrastructure bill.
Gains this week were buoyed in part by continued strength in global equities with the MSCI World Index on pace for its highest weekly finish ever.
Headlines this week were regulation and compliance-focused with a last-minute lobbying push attempting to offset increased IRS scrutiny buried in Biden’s trillion-dollar infrastructure bill, the CFTC and SEC battling over digital asset oversight, the EU greenlighting an equity backed Bitcoin ETF, the SEC signaling openness to futures backed ETFs, and a midnight filing following that news from $1.5T Invesco for an ETF backed by Futures, ETPs and the GBTC.
Outside of regulatory news, top stories included Fidelity revealing a 7.4% stake in listed Bitcoin miner Marathon and JPM said to be pitching a passive BTC fund to private wealth clients after reporting strong client demand last month.
Square peg, round hole
It is a bit funny to see the degree of financial engineering and contortions being performed to allow investors access to Bitcoin price performance while conforming to (US) regulatory requirements and investor mandate restrictions.
Some of the applications announced this week are proxies to proxies. Funds backed by regulated futures contracts (which don’t trade 24/7), listed companies that trade or mine Bitcoin, or Bitcoin ETF-like products trading in other markets. Like the GBTC, none of these are likely to track BTC particularly well.
All of this is probably massively favorable to smart retail investors who can just simply buy and hold Bitcoin directly.
A last-minute lobbying push from the digital asset industry looks to have secured amendments to language in Biden’s infrastructure bill that would have seen a ratcheting of attention from the IRS.
It’s still unclear if this has played out to its final conclusion yet, but I think the ability of the digital asset industry to demand concessions from US lawmakers probably marks an interesting inflection point in the development of the industry and points to the pace at which Bitcoin adoption is increasing.
A study from NYDIG in May concluded that 46 million Americans ( ~17% of the adult population) already had some exposure to Bitcoin. A draconian regulatory approach would likely not be popular (as if that would stop them).
There is also a lot more institutional money in the space than ever before. Deep pockets have an ever-increasing degree of skin in the game.
We’ll have to see how this plays out.
Path to $100k
Price action this week was remarkably resilient given the focus on regulatory headlines. The market seems confident issues around Biden’s infrastructure bill will be resolved positively.
What could go wrong?
The ability to shake off negative news, though, is probably indicative of a positive shift in sentiment and another sign that Bitcoin is starting to get its legs back.
Hopefully this week’s regulatory action is resolved favorably and Bloomberg Intelligence is right that Bitcoin is already back on path for $100,000.
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Bitcoin markets news
- Thinks that Bitcoin’s current $30,000 base is like the $4,000 base in 2019
- Expects BTC and gold to both resume uptrends in 2H as Treasury long bond prices begin to move higher
“Supply is declining while demand and adoption are rising in most countries that welcome open discourse and free-market capitalism”
- An official from the Commodity Futures Trading Commission took aim this week at SEC chief Gary Gensler’s assertion that most crypto assets are securities and therefore under the jurisdiction of the SEC
- CFTC Commissioner Brian Quintenz said in a tweet this week that
“the SEC has no authority over pure commodities or their trading venues whether those commodities are wheat, gold, oil… or #crypto assets”
- Likewise, former CFTC Chair Christopher Giancarlo, argued that the CFTC is the only U.S. regulatory agency that has experience regulating markets for Bitcoin and crypto
- An amendment to the infrastructure bill introduced by Democrat senators would clarify the term “broker” in the bill doesn’t apply to miners, stakers or software developers
- The original language put the industry forward as a target of increased tax compliance and a means by which to help pay for other aspects of the bill
- A proposal by Senator Ted Cruz also sought to strike the provision completely
- It looks like the industry might dodge a bullet due to last minute lobbying efforts
- In his first major speech, SEC Commissioner Gary Gensler suggested an openness to an ETF focused exclusively on Bitcoin futures
- Bloomberg Intelligence says there have been nine Bitcoin ETF filings since 2020
- Focusing on futures adds an additional layer of complexity and more costs for investors. This is probably an effort to move towards a Bitcoin ETF in a semi-controlled way.
- As Bloomberg Intelligence ETF analyst James Seyffart said:
“I view it all as different stepping stones. The same level of demand won’t be there for a futures product so they won’t grow to be as large or grow as quickly as a physical Bitcoin ETF product will”
- Paris-based Melanion Capital has recently received French regulatory approval for a Bitcoin tracker fund
- The fund will track a basket of up to 30 stocks in sectors such as cryptocurrency mining and blockchain technology, which Melanion says is up to 90 percent correlated to the price of bitcoin
- Why not just buy MicroStrategy and save on management fees?
- Fidelity has acquired a 7.4% (~$20M) stake in listed Bitcoin miner Marathon across four of its funds with a combined market cap of ~ $170B
- I think this is part of an effort by large institutional investors that are prevented by mandate restrictions from investing directly in Bitcoin to find equity proxies
- The fund is reportedly being offered as part of a partnership with NYDIG
- JP Morgan has also recently opened access to GBTC
- Two weeks ago, Mary Callahan Erdoes, J.P. Morgan Asset & Wealth Management CEO, reported that demand for Bitcoin is high
- Says that Satoshi’s decision to anonymously publish the Bitcoin White Paper shows he understood the importance of his invention
“It’s like Babe Ruth calling a home run”
- Grayscale CEO Michael Sonnenshein said,
“Grayscale is 100% committed to converting our investment products, including Grayscale Bitcoin Trust (GBTC), into ETFs”
Bloomberg: $30,000 is like $4,000 in 2019
- Bloomberg Intelligence’s August Crypto report thinks that support at $30,000 looks similar to support in early 2019 at the $4,000 level
- BI sees performance parallels that could get Bitcoin back on track toward $100,000
Chart credit: Bloomberg Crypto Outlook, August
Bitcoin held by Long Term Holders signals bullish
- Chart shows that the % of Bitcoin supply held by Long Term Holders (coins that haven’t moved in ≥155 days) is now up to 66%
- Historically, readings in this range have come at the onset of major upward price moves
- I think that this chart would be clearer without the pink line (which also has a typo — LTH should read STH)
Chart credit: Glassnode
Bitcoin shortage continues
- The sharp drop in on-exchange Bitcoin balances highlighted last week looks to be continuing
- The chart below shows that the amount of Bitcoin held on exchange is at the extreme bottom end of the two-year range
- Like the chart above, I think this points to a low near-term propensity to sell and is probably price positive
Chart credit: CryptoQuant.com