This week (Feb 15th) bitcoin’s market value rose above $1 trillion, but short-term indicators are flashing red. This issue digs into the following additional events that point to continued institutional and individual adoption.
- Microstrategy (NASDAQ – MSTR) issues ~ $1bn bond to buy bitcoin – bond excess!
- BlackRock’s Chief Investment Officer (CIO) said they are “dabbling” in bitcoin.
- JP Morgan’s 86-page bitcoin/blockchain report – Formerly skeptical firm converted.
- Bitcoin futures open interest continues to hit new records.
- Bond sell-off and the current reflation narrative. Is this a source of inflows into bitcoin?
- Weekly coin movement points to rising individual users.
Microstrategy issued another convertible bond ($900m minimum) to buy bitcoin, which illustrates the optimism towards bitcoin in addition to the excess of the bond market. Microstrategy increased the size of the bond offering from $600m planned to $900m (possibly to $1.15bn) and cut the coupon to zero, which illustrates the exuberance of the market. It’s puzzling that investors want to lend money to a company with limited tangible assets (most tech companies ) to enable purchase of a volatile asset like bitcoin with debt.
BlackRock is “Dabbling in bitcoin”, the CIO of the firm said during a CNBC interview. BlackRock had previously filed papers with the SEC to allow a few funds to invest in bitcoin via the CME futures.
Speaking of bitcoin futures, open interest continues to push into record territory. Growth of CME’s market share to #1 is a sign of institutional activity. CME’s current share is a tad over 15% share, up from ~5% one year ago.
- Global institutional investors – your pension funds, endowments, investment managers can only trade a regulated futures contract like the CME’s.
JP Morgan (JPM) issued an 86-page report as titled below, illustrating the institutional embrace.
After reading the executive summary, there’s nothing in the report that pushes the thinking on any of the subjects. A few summary snippets are below.
JPM also makes the assertion below, which I agree from a short-term perspective (3-6 month view).
However, bitcoin’s correlation to traditional asset classes has been low over longer period. While the correlation is likely to increase as the asset becomes more mainstream, I believe, bitcoin is likely to provide a good long-term hedge against extreme tail risks like runaway inflation or a deflationary bust.
So, while institutions like JPM and BlackRock arrive on the bitcoin scene, individual adoption is also accelerating in terms of number of people/wallets. The chart below shows larger wallets dropping, which means smaller wallets are rising as overall wallet numbers are rising. Ultimately, individual adoption will drive network effect with institutions impacting the price via large holdings.
Along with price momentum comes signs that this rally is maturing, as the tweet below from Glassnode captures.
If you’d like to get the details of how this metric is calculated, the details are here.
I’d also suggest that the current cycle is unlikely to be like the 2017. History rhymes but doesn’t repeat!
Additionally, this short-term trading indicator by glassnode puts bitcoin at a level where we have seen selloff in the past.
Details on how SOPR is calculated is here.
In the bond world, the selloff continues as the reflation narrative gathers momentum. The rising yield in the chart below means the bonds are dropping in price. Could the possible end of a 40-year bond bull market be a source of capital flowing in bitcoin and digital assets? More than $15 trillion is currently invested in bonds that yield zero or less!
German 30yr government bond yields break above zero.
Finally, here’s the weekly movement of coins. My interpretation is that large wallets sold and individual investors accumulated. Many of the Blue Whales are exchange wallets and Minnows and Fish are clearly individual investors.
|This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of @asidesilva and are subject to change at any time based on market and other conditions. Past performance may not be indicative of future results.|