Blockware Intelligence Newsletter: Week 146
Bitcoin on-chain analysis, mining analysis, macro analysis; overview of 9/7/24 - 9/13/24
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General Market Update
1. Fed Funds Rate
There are 3 more FOMC meetings this calendar year, and The Fed will almost certainly cut the target Federal Funds Rate by 25bips at each meeting, resulting in 75bips in total cuts by EOY. This is our base case. Cuts by more than 25bips will only happen in the event of much worse unemployment data, which is unlikely to happen in the next couple months. Bitcoin will likely respond well in the short term, as will equities, unless larger cuts take place due to a slowing economy, at which point investor fears about a recession may spur a temporary drop in asset prices.
In the long term, the rate cuts are, of course, bullish. This will incentivize more credit creation, increasing net liquidity, as well as incentivize investors into risk-on assets as treasury yields come down.
2. Consumer Price Index (CPI)
The year-over-year change in CPI came in at ~2.6% for the month of August; -0.8% month-over-month deflation in energy prices helped achieve the lower aggregate data point. With this being the fifth consecutive month of disinflation (not to be confused with deflation), Powell’s green light for cuts is getting even brighter. In the wake of the lowest CPI print in three and a half years, Fed Funds Futures has placed a higher probability of a 50bip cut next week than what was previously expected. However, as stated above, we think a 50bip cut is not in the cards for next week as the implications of this would be that Powell senses danger in the economy - a hard countersignal against the infamous “soft-landing” that Powell is attempting to achieve.
3. US Bond Yields
Short-duration treasuries yields are reacting as expected given the current market conditions. Charted below are the 3-month, 6-month, and 1-year treasury yields. Each of these are signaling that bond investors expect a handful of rate cuts are on the horizon. Most notably is the
4. 10y-2y Curve
The highly anticipated “uninversion” of the 10-year, 2-year treasury yield curve has, at long last, taken place. If you’re an OG reader of the Blockware Intelligence Newsletter you’ll likely recall that we began watching this all the way back in 2022 upon the initial inversion.
Each of the past four times this yield curve uninverted preceded a recession. This alongside gradually rising unemployment is beginning to point towards a potential recession sometime in 2025. However, that is no reason for you to panic as an investor. Given the Fiscal Dominance caused by an overwhelming congressional budget deficit (discussed in detail in this newsletter), liquidity will continue to rise, which is bullish for asset prices. Moreover, the Fed’s standard operating procedure for the past two recessions (2008 & 2020) has been to pump even more liquidity into the market - bullish.
5. Equities
As investors anticipate the return of lower interest rates / cheap credit, they are jumping back into risk-on mode. This was a great week for the US stock market, the S&P 500 is up 4% and is knocking on the door of its all-time high. This type of price action is not indicative of a market that is fearful of recession.
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Bitcoin: News, ETFs, On-Chain, etc.
6. Bitcoin at $58,000
“$58k Gang” continues its reign for yet another week. While the S&P is facing resistance at its previous all-time high, Bitcoin is facing resistance itself. However, despite the bearish sentiment online and loathsome sideways price action for months, there are quite a few bright spots right now, of which we will discuss below. The first is a technical one: BTC just made a higher low. After dipping below $50,000 in August, BTC’s most recent dip halted at ~$52,000. There’s healthy demand in the low $50,000 range which leads us to believe that this regime of sideways price action is likely “max pain.”
7. Long-Term Holder Supply
The next bright spot is that the amount of Bitcoin held by long-term holders is about to make a new all-time high. This on-chain activity is similar to 2019 / 2020. There was a large run up in 2019 as we came out of the bear market, causing a slight drop in long-term holder supply as some investors sold into the strength. This was followed by choppy sideways/down price action coupled with aggressive accumulation by long-term holders. Ultimately, this set the stage for a massive supply squeeze at the end of 2020 which resulted in BTC ripping from $10,000 to $50,000 from Sept 2020 to Feb 2021.
Contraction of supply into diamond hands paired with expanding fiat liquidity is quite a bullish cocktail.
7. Market Value to Realized Value Ratio
Right now the average Bitcoin holder has a cost-basis of $31,400 according to the on-chain metric “Realized Price” / “Realized Value.” Vast discrepancies between Price & Realized Price (high ratio as indicated by the green line) means there are significant amounts of unrealized gains in the market, which constitute potential sell-pressure as investors look to take fiat-denominated profits.
A bullish indicator is that we’ve seen the MVRV-Ratio decline steadily over the past few months; meaning that the average cost-basis is rising, especially in relation to the BTC price. In fact, the MVRV-Ratio is down to ~1.8 from its March peak of ~2.8. Like long-term holder supply discussed above, this is similar behavior to the consolidation period in 2020, after the bear market recovery but before the next bull market.
8. MicroStrategy Buys the Dip
Michael Saylor continues to show the world what it means to be “orange-pilled.” MicroStrategy executed another Bitcoin buy, increasing their total holdings to an 244,800 BTC; ~1.1% of the total supply. With each Bitcoin buy MicroStrategy is claiming their slice of the digital scarcity pie, and fortifying their balance sheet against perpetually devaluing fiat currencies.
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Bitcoin Mining
9. Outperform Bitcoin by Mining - Blockware Cointelegraph
“A desire to outperform BTC has led many crypto-forward investors further out on the risk curve, often into speculative territory. Low-liquidity altcoins, leverage trading, or both simultaneously, have become commonplace. Unfortunately, these strategies frequently result in underperformance due to market volatility, lack of liquidity, and overexposure to downside risks.”
This excerpt was taken from Blockware’s recent publication in Cointelegraph. This article explains how mining is the optimal strategy for investors looking to outperform spot BTC.
Read here: https://cointelegraph.com/news/how-to-outperform-bitcoin-the-ultimate-benchmark-of-digital-assets
10. Blockware Intelligence Research Report
In case you missed it, last week we published an in-depth analysis on the relationship between Bitcoin Price & Hashrate. This report is 100% free and can be downloaded by clicking the link below! The team also published a video walkthrough of the report which we highly recommend watching! If you’re interested at all in Bitcoin mining, and are curious about the bull case for miners in the face of the diminishing BTC block subsidy and rising network difficulty, then this report will shed some light for you!
Read the Report: https://mining.blockwaresolutions.com/report
Watch Blockware Report Breakdown:
11. Energy Gravity
At a typical hosting rate today, new-gen Bitcoin ASICs require ~$61,300 worth of energy to produce 1 BTC. The green line shows the average cost to mine 1 Bitcoin using the latest-generation Bitcoin mining rig.The orange line shows how many $ (output) miners are able to earn for each kWh of power (input). To learn more about Energy Mass & Energy Gravity, read our report at the link below.
Read the Energy Gravity report here.
All content is for informational purposes only. This Blockware Intelligence Newsletter is of general nature and does consider or address any individual circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal, business, financial or regulatory advice. You should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.