Blockware Intelligence Newsletter: Week 141
Bitcoin on-chain analysis, mining analysis, macro analysis; overview of 7/27/24 - 8/2/24
Bitcoin: News, ETFs, On-Chain, etc.
1. Presidential Candidates Headline Bitcoin 2024
As you probably noticed, there was no Blockware Intelligence Newsletter last Friday. The team was all-hands-on-deck at Bitcoin 2024 in Nashville. The highly anticipated appearance of presidential candidates RFK Jr. and Donald Trump brought the eyes of the world onto Bitcoin. The highlights of Trump’s speech were the following:
Plans to increase energy production in support of Bitcoin miners
Firing Gary Gensler as SEC Chairman
Reinforcing his plan to pardon Ross Ulbricht
Establishment of a United States Strategic Bitcoin Stockpile
The day prior to Trump’s speech, RFK expressed his desire to accumulate 4,000,000 BTC on behalf of the US Government. Expectedly, this set the bar tremendously high for Trump the following day, which left many people underwhelmed when he said he wouldn’t sell the US’s BTC holdings without mentioning anything about continued accumulation.
However, if you wipe away expectations and take the statements made by Trump at face value, this was an objectively bullish speech for Bitcoin. If you could go back in time and tell any Bitcoiner that the leading Presidential Candidate and former POTUS would say these things about Bitcoin, regardless of if they are genuine or nothing more than campaign platitudes, they would be ecstatic.
Politicians are appealing to Bitcoiners. This is bullish.
2. Cynthia Lummis Introduces Bill for Strategic Bitcoin Reserve
The most important moment of Bitcoin 2024 did not happen when Donald Trump was on stage, it took place immediately after when Wyoming Senator Cynthia Lummis unveiled a bill to establish a strategic Bitcoin reserve for the United States. “The Bitcoin Bill” outlines an objective of accumulating 1,000,000 BTC over a five year period.
They are finally saying the quiet part out loud. The United States Government recognizes the inevitability of Bitcoin as a global reserve asset and is seeking to accumulate its own stockpile in order to maintain the top spot in the global economic hierarchy.
Acquiring 1,000,000 BTC is no small task, especially given that the vast majority of bitcoins are either lost or being held by those with deep conviction in the asset, both as a financial tool but also as a freedom tool. Attempting to buy 1,000,000 coins on the spot would of course bid the price to the moon. In order to acquire such a stockpile, the US Government will need to do so through sly, roundabout means. In the past, when the US Government needed to stockpile gold in the past they signed Executive Order 6102, granting themselves the authority to seize gold from private bank vaults. With that in mind, keeping Bitcoin on an exchange or holding it in the form of an ETF might not be the wisest move going forward. Holding Bitcoin in your own hardware wallet in which you are the sole custodian of the private keys is the only way to ensure that your Bitcoin cannot be taken.
Doomsday scenario aside, this bill is good for the United States and bullish for Bitcoin.
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3. Cantor Fitzgerald Announces Bitcoin Financing Services Arm
Cantor Fitzgerald, who is one of the largest institutions in traditional finance and one of twenty four primary dealers for US treasuries, announced a new line of business in which they will be providing financing for Bitcoin holders. The ability to borrow against your Bitcoin has long been touted as one of the killer applications. The “buy, borrow, die” strategy is popular as it allows you to spend your accumulated wealth without technically realizing the gains, and having to pay capital gains tax.
But it should go without saying, leverage your Bitcoin with extreme caution. Unlike other hard assets that can be borrowed against, such as real estate, Bitcoin is volatile and marked-to-market 24/7. If you’re going to borrow against your Bitcoin, do so with a high LTV and a small percentage of your holdings.
4. Morgan Stanley Greenlights Wealth Advisors to Recommend Bitcoin ETF
The bullish headlines just keep coming. Morgan Stanley ($1.5 trillion assets under management) has given their 15,000 financial advisors the go-ahead to recommend clients allocate to a Bitcoin ETF. This is yet another step in the direction of mainstream Bitcoin adoption.
If Bitcoin is to become a $10, $50, or $100 trillion asset class, institutional investors are going to be what pushes it there… and institutional adoption is happening right before our eyes.
5. ETF Flows
Speaking of ETFs, the total holdings for US Spot Bitcoin ETFs is up to ~887,000 BTC, a ~22,000 net-gain since the start of June. Prior to this week, total holdings were north of 900,000 BTC. That is until the largest single day of net-outflows, which were almost exclusively out of GBTC. Much of the capital leaving GBTC has done so simply because of their excessively high fees, and is ultimately rotated into other Bitcoin ETFs or BTC proxies.
General Market Update - Labor Market Cracking & Fed Turning Dovish
6. Unemployment Rate
The unemployment rate for July came in at a staggering 4.3%, the highest level in nearly three years. This is the core metric that the Fed uses to gauge the health of the labor market. The Fed is engaged in a constant balancing act between inflation and unemployment (an impossible task and one that is not in any way aided by centrally planned monetary policy). Given this dual-mandate, rising unemployment and declining CPI is giving credence to the first interest rate cut since 2020.
Now, singular data points often don’t tell the whole story. Let’s look at some other metrics to really paint the picture…
7. Initial Jobless Claims
Jobless claims came in at 249,000, continuing the uptrend we’ve seen all year long. This provides yet another clue at the state of the labor market: it’s not yet broken, but it’s trending that way.
8. Non Farm Payrolls
Lastly on the employment side, non farm payrolls grew by ~1.6% on a year-over-year basis. This metric has also been declining for quite a few months in a row, indicating slowing growth in the economy. The culmination of these worsening employment metrics have the eyes of both the Fed and investors.
9. Purchasing Managers Index (PMI)
The Purchasing Managers Index for July came in at a value of 46.8; a drop of nearly 2 points relative to the June value of 48.5. PMI is a survey of manufacturers within the US to gauge their sentiment on the health of the economy. Values less than 50 indicate a sub-par sentiment. Not only is the sentiment bad, but declining values month-over-month mean that sentiment is worsening. The “soft-landing” may not be so soft after all.
10. US Stock Market
As you likely guessed, the equity markets have not responded kindly to the recent developments. The S&P, Nasdaq, and $QQQ have all dropped more than 3% over the past five days, and 4.5 to 5% each since Wednesday.
11. Yield Curve (10-Year US Treasury Yield minus 2-Year US Treasury Yield)
Bond yields nuked following the Fed meeting on Wednesday. So much so that we’re on the cusp of seeing the largest yield-curve inversion of the past four decades revert into positive territory. The uninversion of the yield curve is an incredibly accurate indicator of recession, and it’s on the verge of signaling that once more. The reason this happens is because investors pile into short-duration treasuries (causing yields to drop) due to expectations of a slowing economy having a negative impact on the performance of risk assets.
12. US M2 Money Supply
Borrowing a chart from the last newsletter to reiterate an important point, one that is fundamental to our macroeconomic thesis. Despite short-term volatility, asset prices are designed to increase in the long-term due to an ever expanding monetary supply. There may be turbulence on the horizon in the short-term, but the Fed responds to recessions with a very predictable strategy: quantitative easing. The would-be-recession of 2020 turned into the largest expansion of the money supply in history. The next injection of liquidity will need to be even larger.
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Bitcoin Mining
13. Difficulty
The story of the week for Bitcoin miners is the mind-boggling 10% difficulty increase. Combine this with a recent drop in the price of Bitcoin, and it’s unsurprising that miner profit margins have been crunched. Unless the price of BTC makes a move up in the near-term, we could be headed towards yet another miner capitulation. We’ll discuss this more in Monday’s newsletter.
14. Energy Gravity
At a typical hosting rate today, new-gen Bitcoin ASICs require ~$60,625 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.