Blockware Intelligence Newsletter: Week 93
Bitcoin on-chain analysis, mining analysis, macro analysis; overview of 6/24/23-6/30/23
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Summary:
Core PCE inflation grew by 4.6% YoY in May.
Global central bankers met in Portugal this week for the ECB Forum.
The Case-Shiller US National Home Price Index for April climbed by 0.5% from March.
The 4-week moving average of Initial Jobless Claims continued to rise this week, despite a lower headline number.
US Treasury yields have moved notably higher this week on the back of a hawkish Powell in Portugal.
On-chain metrics STH RP and Retail Accumulation accurately indicate another local BTC bottom.
A low amount of profits are being realized despite the positive price action from BTC.
Perpetual futures open interest increased significantly as traders look to capitalize on the recent volatility.
Exchange balances are now down year-to-date, continuing the trend that dominated 2022.
The breakeven electricity rate for a modern Bitcoin ASIC is $0.126/kWh.
At a typical hosting rate today, new-gen Bitcoin ASICs require ~$17,196 worth of energy to produce 1 BTC.
Bitcoin News
Volatility Shares’ 2x Leveraged Futures ETF (BITX) began trading on Tuesday of this week.
One can only speculate as to why, given the SEC’s stated goal of “protecting investors”, a leveraged futures ETF was approved before a spot Bitcoin ETF. Considering this product has yet to eclipse $4m in daily trading volume since its release, it’s clear that institutional investors are holding out for a spot ETF, which has seen a flurry of institutions applying/competing to create, with Fidelity being the latest goliath to apply.
–BREAKING NEWS–
A majority of this week’s newsletter was written Thursday night, but right before publication we received word that, according to the Wall Street Journal, the SEC is claiming the spot Bitcoin ETF filings are inadequate.
This seemingly negative news is mostly irrelevant in the long run. The hand has been played and the intentions of the institutions are clear: they want in on digital scarcity. They will get exposure to Bitcoin one way or another.
General Market Update
As we head into a shortened holiday week there’s a few things to update on.
This morning we received the PCE numbers for May. In case you aren’t aware, this is often referred to as “the Fed’s inflation metric”.
PCE is considered to be less volatile than CPI, which makes it more clear for the Fed when directing monetary policy decisions. Specifically, central bankers in the US like to watch Core PCE (PCE excluding food and energy).
For May PCE:
Core (YoY): 4.6% vs. 4.7% in April
Core (MoM): 0.3% vs. 0.4% in April
Headline (YoY): 3.8% vs. 4.3% in April
Headline (YoY): 0.1% vs. 0.4% in April
These were overall positive developments for inflation in the US. Core PCE now sits at the lowest growth rate since April 2021.
The heads of several major central banks met in Portugal this week to discuss the current state of the global economy. The tone at this forum was largely hawkish, as sentiment regarding sticky inflation led to many discussions about future rate hikes.
The biggest sound bite from the ECB Forum came on Wednesday, with Fed Chair Powell stating that:
“I wouldn’t take moving at consecutive meetings off the table at all.”
Powell also stated that he sees current monetary policy as restrictive, but it’s possible that it’s not restrictive enough, or hasn’t been restricted for long enough.
Simply put, Powell is preparing the markets for more rate hikes to come. In his words, it’s possible that we see a return of back-to-back hikes in 2023.
GDP for Q1 2023 was revised on Thursday, moving the value to 2.0%, up from the previous estimate of 1.3%. This number was still down from 2.6% in Q4 2022.
In other positive economic news, the Case-Shiller Index for April (released on Tuesday) showed that home prices grew by 0.5% in April.
As you can see above, US home prices peaked in June 2022, and headed lower until March 2023. We’re now seeing a continuation in the strength for housing demand.
As we’ve discussed for the last several weeks, Initial Jobless Claims numbers have become a hot topic of discussion. After a few weeks of sharply rising values, this week’s number was a fairly large uptick down.
That being said, it’s more important to keep an eye on the 4-week moving average of claims, as the raw data point tends to be quite volatile.
As you can see above, Initial Claims dropped by 26,000 to 239,000. However, the 4-week moving average climbed by 1,500 to 257,500.
These stronger than expected economic points, combined with Powell’s hawkish tone at the ECB Forum, have led the market to begin pricing in higher rates to come.
2-Year Treasury Yield,1D (Tradingview)
As seen above, the 2-Year yield climbed steeply on Thursday, as the most policy sensitive Treasury priced in higher rates.
Stocks generally ignored this on Thursday, with several market ETFs heading higher on the session. Here’s a few examples of Thursday’s price action:
Russell 2000 (IWM): +1.15%
Russell 2000 Growth (IWO): +1.10%
Ark Innovation Fund (ARKK): -0.86%
S&P 500 Index: +0.45%
The Nasdaq was down slightly on the session, and could be building out a short bear flag here. That said, the individual price action from mega-caps like AAPL, TSLA and AMZN don’t look too bad.
Heading into next week, note that markets will have a half-day on Monday, and are closed on Tuesday, in observance of Independence Day in the US.
Bitcoin Exposed Equities
It’s been an interesting week of price action for Bitcoin exposed equities as Bitcoin consolidates sideways.
Certain names, such as Hut 8, the recent MVP from this group, have had very strong weeks. In our opinion this is a clear signal of the shift in sentiment that’s occurred over the last few weeks.
Institutions are clearly building positions in some of these names. This industry group is fairly illiquid, so institutional buying is very hard to hide.
Charts such as HUT, BTBT, MARA, COIN, HIVE, IREN, and BTDR are shouting at us that funds are looking for directional BTC exposure.
Keep in mind that a lot of funds don’t have the ability to just go out and buy spot BTC. Some funds are equity only, and most have to get approval from a board of directors, partners, investors, etc. before they can buy something new.
Bitcoin exposed equities provide an easily justifiable way to gain exposure to Bitcoin price action. The list above are the names that appear to be institutional favorites, at the moment.
As you can see above, several Bitcoin exposed equities have had huge weeks. Topping the list is Coinbase (COIN), which has seen a surge in demand as many of these ETF filings have sited Coinbase as the custodian.
Bitcoin Technical Analysis
Despite the onslaught of news, Bitcoin has had a remotely quiet week of price action.
BTC/USD, 1D (Tradingview)
There’s certainly been a bit of volatility this morning, following the PCE news and then the SEC comments. That said, BTC is holding up well here.
Prior to Friday, BTC was seeing a contraction in volatility, with volume drying up. In our opinion, this was very bullish price action.
Now as the SEC has voiced criticism of the ETF filings, volume has flooded back into the asset, with price making some big swings. At the time of writing, it’s far too early to predict the effect of this news on price action.
Generally speaking, holiday weekends tend to be low volatility/volume periods, as many fund managers and traders are out of office. That said, Bitcoin tends to defy expectations consistently.
Keep a close eye on price action in the coming days.
Bitcoin On-Chain & Derivatives
After spending a few days tinkering around short-term holder realized price (STH RP), BTC has once again ripped off that support level.
This move occurred in the wake of Blackrock’s announcement that they are in pursuit of a spot Bitcoin ETF. Coincidentally, the bounce off of STH RP earlier this year occurred in the wake of the Silicon Valley Bank collapse.
One could argue that these price moves were more in relation to the aforementioned news events, and they definitely were to some extent, but we can be confident based on historical market behavior that STH RP will continue to serve as support going forward.
Alongside STH RP, increased aggression in the accumulation of BTC from smaller on-chain entities (.01 - 1 BTC) has been a great indicator of local bottoms.
This chart clearly illustrates the idea of “buy the dip”, where demand increases in response to a drop in price, forming a local bottom.
Some may be concerned that the price action of this year is no different than that of 2019, which is far from the truth.
When adjusting realized profits for market cap, you can see a clear difference between now and then. Users that have held BTC through the volatility of the past year have zero interest in “taking profits'' at $30,000. The medium-to-long term outlook could not be more bullish given the dam of institutional capital is about to break, the halving is less than a year away, and the solvency issues of the US banking system means that rate cuts and QE will have to resume at some point (timeline uncertain).
Since June of 2022, the aggregate cost basis of the market (realized price) has been less than the aggregate cost basis of long-term holders (long-term holder realized price). We are about to see a bullish cross in which LTH RP drops back below RP.
This has historically been a slightly lagged indicator in signaling the end of a bear market. The final confirmation if you will..
Perpetual futures open interest has jumped significantly in the wake of the price increase as investors seek to capitalize on the increase in volatility. Open interest as a % of total market capitalization increased as well, continuing the steady increase in overall leverage that we’ve been observing for the past few months.
After slightly increasing during Q1 2023, the amount of BTC on exchanges is now less than what it was to begin the year, continuing the trend that dominated 2022. The market is slowly understanding the scarce nature of Bitcoin.
🚨ASIC GIVEAWAY🚨
Complete these steps for a chance to win a FREE S19 Pro (110T).
Follow @BlockwareTeam and RT this tweet.
Sign up for the Blockware Marketplace.
Complete KYC & MPA that you will receive via email after step 2.
The winner is picked on July 4th. Good luck to all participants!
* If you refer a friend to the marketplace before July 4th, you'll receive 1 extra entry per referral that completes all entry requirements. Just be sure your referral tells us that you sent them!
Bitcoin Mining
RIOT Stacking ASICs
On Monday this week, Riot Platforms, the second largest publicly traded Bitcoin miner in the world announced that they are purchasing 33,000 new machines from MicroBT, Bitmain’s competitor.
By: Yahoo Finance
This was a massive deal for MicroBT and Whatsminer enthusiasts. Slowly but surely Bitmain is losing ground to a very credible competitor. Thanks to the Blockware Marketplace, miners can now quickly view, evaluate, and trade both Antminers and Whatsminers.
Future: Energy and Bitcoin
Many Bitcoin mining experts have speculated that large Energy companies will eventually begin doing M&A in the Bitcoin mining space. Profitable energy companies buying highly distressed Bitcoin miners at the end of 2022 would have been a great play, but it didn’t happen.
It’s also possible that large energy companies will be incredibly slow to take a serious swing at Bitcoin mining. Maybe it will take another massive bull market for opportunities to be realized. If Bitcoin goes on a bull run in 2024/2025 and surpasses $500,000 BTC, large public miners like RIOT and MARA may be trading for $50B - $100B. At that point, it would be the large public miners buying out some mid sized energy companies.
Energy Gravity
The presented chart, which is based on a Blockware Intelligence Report, depicts the relationship between Bitcoin's production cost and its market price. The model facilitates the identification of overbought or oversold market conditions for Bitcoin, making it a valuable tool for visualizing price trends.
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.
BULLISH 💥