Blockstream Markets Weekly — July 16, 2021

$2T Capital Group buys BTC proxy, BNY Mellon teams up with Grayscale, $550M of GBTC set to unlock, central banks criticize stablecoins, Jack Dorsey wants to build DeFi on Bitcoin, PayPal jacks BTC purchase limits and Blockstream’s BMN produces 0.19 BTC/BMN in first 10 days of mining

By Jesse Knutson

What’s happening in the markets?

Transitory

Bitcoin continued to slide lower ending on the bottom end of the week’s range for the fourth drop of the past five weeks.

Inflation data out mid-week came in hotter than expected with consumer prices posting the largest annual increase in 13 years. The blowout inflation reading saw 10-year Treasury yields break back above 1.4%, risk assets mostly trade lower and Bitcoin drift towards the bottom end of its eight-week consolidation range.

Mixed bag

News flow this week was mixed with stablecoin criticisms from the PBOC, ECB, and Fed, reports that $2 Trillion Capital Group had purchased $600M of MicroStrategy stock, BNY Mellon teaming up with Grayscale on their ETF application, Square’s new unit planning to build DeFi on Bitcoin, PayPal increasing weekly Bitcoin limits fivefold, and total BTC on the Lightning Network continuing to set new highs.

Unlocked

An estimated $550M of GBTC shares which were locked six months ago will be made available to investors on July 18.

There has been a lot of speculation and analysis around this event. To be clear, the unlock refers specifically to GBTC shares and not Bitcoin. Other than a negative impact on sentiment, and there should no reason why selling in GBTC shares should have any impact on BTC price.

I would imagine that a good chunk of the GBTC shares being unlocked belong to hedge funds trying to capture the GBTC premium arbitrage trade. That trade didn’t work. But as Kraken highlighted in the June research report, if anything, it could result in net-buying as GBTC holders sell shares to cover spot and futures shorts.

I think the GBTC unlock will probably pass as a nonevent for Bitcoin.

CBDCs

Lots of news this week on Central Bank Digital Currencies including stablecoin warnings from the US, China, and the Eurozone.

In China, approved users of the Digital Yuan have reportedly recently passed the 10 million user mark. The eCNY has reportedly already been adopted by various provincial public transport agencies as well as the Beijing subway system.

Fan Yifei, Deputy Governor of the People’s Bank of China, recently expressed concerns about the use of digital assets and stablecoins for money laundering and illicit activities and said it was important to vigorously promote central bank digital currencies.

In Europe, The European Central Bank announced Wednesday that it’s starting work on a two-year project to create its version of a CBDC.

Like their counterparts in China and Europe, officials at the Fed this week also worried that households and businesses could be harmed by a payments system that is fragmented by stablecoins.

Why is there suddenly such a push for CBDCs?

Other than rounding out a social credit system with a deeper degree of censorship, surveillance, and control, there are also negative interest rates. CBDC’s give central bank lever pullers more tools to work with, as ECB Executive board member Fabio Panetta said in February, CBDC’s are an innovation that allows for negative interest rates to be passed on directly to consumers.

Sounds great.

Volatility

Price continued to coil tighter this week with Bollinger Bandwidth (volatility) decreasing to the lowest level since October of last year.

I don’t really have much to say on this other than to reiterate last week’s observation that extreme lows in volatility are often inflection points that foreshadow big price moves. Still think we have a big move (either up or down) incoming.

Probably makes sense to have some bids stacked up in case this consolidation resolves itself with a sharp move lower.

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Bitcoin markets news

$2 Trillion Capital Group takes 12.2%, $600M stake in Microstrategy

  • With more than $2.3T AUM and $7.6B in revenue, Capital Group is one of the largest and oldest investment management firms in the world
  • My take is that the investment is a reflection of mandate restrictions that prevent Capital from investing directly into BTC
  • This feels like it should be massive news. Probably one of the biggest Bitcoin stories of the year. It took most of the mainstream media more than a week to cover it, though, and Bloomberg only gave it two paragraphs

BNY Mellon teams up with Grayscale for ETF services

  • BNY Mellon, the oldest bank in the US, will provide ETF services as part of Grayscale’s application to convert the GBTC into an ETF
  • Meanwhile, in Canada, the Purpose BTC ETF hit another ATH of 22,4XX BTC under management

Dorsey: Square’s new unit will build DeFi on Bitcoin

  • Dorsey said the goal of the new unit is to make it easy to create non-custodial, permissionless, and decentralized financial services

“We’re going to do this completely in the open. Open road map, open development, and open source”

Each BMN produces 0.1926 BTC in the first 10 days of mining

  • Scroll down in the link above to see the latest data on the BMN
  • I think this gives a good indication of how profitable mining is at the moment

Grandmaster Jay: who needs BTC when you have CBDCs?

  • Speaking at a Congressional hearing this week, Federal Reserve Chair Jerome Powell said:

“…you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency…”

  • Stablecoins like USDT are low friction, high freedom of use assets. It’s hard to see how a digital USD will be anything like that. Let alone have the fixed supply and censorship-resistant characteristics of Bitcoin
  • Fed officials will be broadly examining the digital payments universe in a discussion paper that could be released in early September, Powell said. He described it as a key step that accelerates the Fed’s efforts to determine if it should issue a central bank digital currency or CBDC

Wall Street: CBDCs may destabilize the financial system

  • The idea of CBDCs is to essentially nationalize a large part of the retail banking sector and take away a big part of Wall Street’s core business
  • Bloomberg says that some economists think that an eUSD could destabilize the banking system, especially in times of crisis, when depositors see government debt obligations as safer than savings accounts

PayPal lifts weekly BTC purchase limit to $100,000

  • Marks a fivefold increase from the previous limit
  • PayPal is also getting rid of its previous annual limit of $50,000

Cathy Wood: Bitcoin ESG concerns are transitory

  • Another great 100-word article from Bloomberg
  • Wood says that ESG worries won’t derail Bitcon’s longer-term and that it’s healthy to have mining distressed dispersed geographically

China’s State Grid Corporation issues mining shut down order

Bitcoin miners in Ohio go nuclear

  • Energy Harbor Corp announced Monday that it has partnered with bitcoin mining hosting provider Standard Power
  • Starting in December of this year, Standard Power will convert an abandoned paper mill in Coshocton, Ohio into a mining facility that uses power from Energy Harbor’s nuclear power plants

Charts

Volatility falls…Bollinger bandwidth tightest since October

  • Volatility has contracted even more from last week
  • Bollinger Bands have contracted to the tightest since October of last year
  • Implies that a sharp move in price is probably not very far away

Long-term holders aren’t selling

  • The chart below shows that holders of Bitcoin acquired between 2016 and 2019 ($640-$20,000) now account for close to 1/4 of Bitcoin in circulation
  • Those holders aren’t selling

Chart credit: Paula P.

Inflation

  • $1 from January 1947 to May 2021

Chart credit: Peter Mallouk

Lightning Network growth

  • Liquid Network BTC capacity, while still small, looks to have accelerated sharply in the past three months and is now at a record high of 1,806 BTC

Chart credit: Arcane Research

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

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