Blockstream Markets Weekly — Dec 10, 2021

By Jesse Knutson

Are we there yet?

Bitcoin is on pace to end this week down, bringing weekly declines to the fourth in a row — the first four-week losing streak since November of 2019.

After an Omicron-driven wobble in traditional market risk sentiment and a corresponding cascade of liquidations, last weekend’s sell-off saw Bitcoin briefly wick below the $43,000 level before managing to regain its footing somewhat.

Four weekly drops in a row is a bit of a rarity. To put the current correction in perspective, Bitcoin hasn’t posted more than four consecutive weekly losses since April of 2014.

US inflation numbers out later today will probably be another driver of market volatility. Economists are expecting a 6.8% print in November — which would be the highest in close to 40 years.

Bitcoin visits Capitol Hill

Newsflow this week slowed a bit from a slew of positive headlines last week.

The US Congress’ hearing on digital currencies and stablecoins dominated headlines as US policymakers and industry representatives discussed the current state and future of digital asset regulation.

Outside of that, top headlines included MicroStrategy buying another $82M of Bitcoin, Visa launching a Bitcoin consulting service, an almost complete recovery in hashrate, Senator Ted Cruz calling for Bitcoin to fix Texas’ broken electrical grid, and a survey from Natixis reporting increasing institutional interest in Bitcoin.

Death of cycles

I wonder if this time it’s different…

Prior to this cycle, Bitcoin has had very defined periods of strong growth punctuated by 80–90% pullbacks. The reason for this is probably a combination of a market that has historically been dominated by retail investors, and probably more importantly, Bitcoin’s four-year halving cycles and the corresponding uptick in scarcity.

I wonder, though, if — as Bitcoin matures — and as institutional participation increases we see cycles lengthen considerably and a lot of the sting comes out of the downside.

Part of this, I think, could come from investors with deep pockets and a long-term view. Investors like MicroStrategy or El Salvador and probably an increasing number of institutional investors willing to back up the truck into big price moves.

I think also that the importance of halvings on price is much better understood by the market in aggregate than it was previously and that alone could significantly alter the previous boom and bust cycles around halvings.

Hold the line!

Despite a brief wick just below the $42,000 mark Bitcoin looks to be tentatively regaining its footing at around the $48,000 level.

With close to $1B of liquidations this week and open interest across exchanges down more than $5B, Bitcoin has been significantly deleveraged.

We’ve also seen a significant sentiment reversal with funding rates flipping negatively for the first time since late September, the fear and greed sentiment index falling to the lowest level in ~ five months, as well s the lowest RSI reading (30) in ~ eight months.

The current level should be a fairly strong line of support given the amount of volume that has accumulated around $48,000 over the past ten months, the 200-day moving average at ~ $47,000, and a big cluster of on-chain transactions just north of $48,000.

Hold the line!

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Bitcoin markets news

Blockstream Talk #5 Moritz Wietersheim, CEO Spectre Wallet

  • Moritz had some great insights on Liquid as well as a really interesting, boots on the ground view of what’s happening with Bitcoin in El Salvador and Latin America

MicroStrategy buys another $82M of Bitcoin, bringing total to $6B

  • Bought 1,434 BTC from Nov. 29 to Dec. 8 at an average price of $57,477
  • The company raised funds for the purchase by selling shares
  • In the third quarter, the company added almost 9,000 bitcoin to its holdings, an average of 3,000 a month
  • As of Dec. 8, the company held approximately 122,478 bitcoins

Visa launches Bitcoin consulting service

  • Visa is launching an advisory and consulting service on Bitcoin and cryptocurrency for its institutional clients
  • Visa will advise banks, fintech companies, and retailers looking to implement Bitcoin services
  • Elizabeth Stark, Lightning Labs CEO, said previously that she expected the Lightning Network to exceed Visa in transaction processing power

Congressional hearing on digital currencies and stablecoins

  • Participants on the industry side included: Circle, FTX, Bitfury, Paxos, Stellar and Coinbase
  • Bitfury CEO of Bitfury and former Acting Comptroller of the Currency had some good comments

“There are some products that are legal in other countries and are just not legal here…One of the things that makes crypto risky is that consumers may not understand the difference between one token and another token, so they may want to diversify …we don’t allow that in the United States — we do allow it in Canada, we allow it in Germany, Singapore, Portugal and a number of other places.”

Hashrate has almost completely recovered from the China ban

“Unlike traditional data centers that require multiple redundancies to avoid going offline, one of the biggest advantages of a Bitcoin mining data center is its flexibility and the ease in which it can unplug and plug back into the grid, which makes crypto mining a power load balancer for nuclear and renewables facilities that want to avoid shutting down during periods of weak demand”

Senator Ted Cruz: Bitcoin can fix Texas’ broken electrical grid

  • The Texas power grid is struggling, and Republican Senator Ted Cruz thinks bitcoin has the power to fix it.
  • To run smoothly, the grid requires a perfect balance between supply and demand
  • Miners act as a buyer who will take as much power as they’re given, whatever the time of day, and are just as willing to power down with a few seconds’ notice

Natixis: Money-managers increasingly see BTC as an asset class

  • Bloomberg spun the story as negative, but I think they buried the lead — institutional investors are increasingly looking at Bitcoin and the broader digital asset space as an investable asset class
  • The Natixis Investment Manager (Natixis is Europe’s second-largest money manager) survey reportedly finds that money-managers think digital assets are the top contender for a major correction next year
  • At the same time, though, 28% of the institutions surveyed already have digital access exposure, and about 1/3 plan to increase exposure next year
  • In total 8% of institutions surveyed plan to increase allocation in 2022
  • 40% of those surveyed recognize digital assets as a legitimate investment option

Goldman Sachs CEO hasn’t given up on ‘blockchain, not BTC’ mantra

  • In 2015 this was seen as a way for banks to look like they were being innovative without actually changing anything or being too edgy

“I think bitcoin is really not the key thing, the key thing is; how can blockchain and other technologies that are not developed yet, accelerate the pace of digitization of how financial services are delivered”

  • This comment overlooks the fact that a parallel system exists that trades $10s of billions in value daily, 24/7/365 without circuit breakers or backstops and that is able to provide banking services to some of the poorest people on the planet (El Salvador or Africa)

Charts

Purpose Bitcoin ETF

  • Despite declines over the last four weeks, the Purpose Bitcoin ETF has seen continued inflows
  • Bitcoin under management has increased to a record high 28,145 BTC
  • Total BTC has increased by ~ 3,500 BTC in December, which amounts to about 12% of total BTC under management

Chart credit: Coinglass

Bitcoin Liquid Supply

  • An interesting difference between the correction in May and the current one is that there are a lot fewer Bitcoin being held on exchange (liquid supply) now than in May

Chart credit: Mimesis Capital

Hashrate recovery

  • Bitcoin hashrate has completely recovered from the China ban crash

Chart credit: Blockchain.com

Liquidations

  • Close to $1B worth of long liquidations this week

Chart credit: Coinglass

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

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