A slew of high-profile institutional adoption news this week moved the bitcoin price from the $38K area on early Monday (Feb 8th) morning to the ~ $48K range as I type on Friday morning. BNY Mellon’s announcement is most significant for continued institutional adoption, in my view, but it’s hard to argue that Tesla’s $1.5bn purchase can be topped for its impact on individuals’ adoption. The Mastercard announcement falls into the good hype/advertising category, but it is unlikely to see a direct linkage to new capital flows, especially from institutions. More below on each of the news stories, plus Miami’s possible adoption of bitcoin, rapid rise in residential home price and on-chain data that shows the rise in purchases by individual this week.
BNY Mellon (Bank of New York Mellon) the oldest bank in the US and one of the largest custody bank in the world said it would custody bitcoin in the future. This should provide institutional investors who want to buy bitcoin with greater comfort as they may already have an existing relationship with BNY Mellon to custody other assets like stocks and bonds. More details of the announcement from Forbes.
Tesla’s $1.5billion bitcoin purchase
Everyone should be able to agree that this event is likely to bring significant new interest/adoption into bitcoin from the legions of Musk followers.
- Should a company that has not had a year of positive free cashflow be investing 10% of its cash in a highly volatile asset like bitcoin? That’s not the advice I would provide a client that comes in with a bunch of cash but annual costs that outstrip income.
- Accepting bitcoin for Tesla vehicle purchases would be a notable addition to the functional utility of the coin.
More details from theverge.com is here
Mastercard’s crypto announcement that they will accept crypto currencies for payments and settlements should add to confidence to the asset class. However, when you read the statement in more detail, it’s more likely that only stablecoins will be accepted, not bitcoin. The release does point to rising purchases of bitcoin using Mastercards (section of statement shown below), which points to further evidence of increased individual adoption.
Less high profile, but just as impactful is Miami’s consideration of adding bitcoin to city reserves and paying employees in bitcoin! In my view, Uncle Sam is unlikely to allow this action, but it is still intriguing to see the conversation. More details of the announcement from Forbes.
US residential median home sales prices reach new highs
Zillow says housing value gains in 2020 were the strongest since 2005. Here’s the Zillow article that provides more details. Fed money creation (historic low rates & liquidity) and low inventory (foreclosure moratorium) are leading to record residential real estate prices. The common theme for rising bitcoin adoption/bitcoin price & real estate prices is Fed money creation.
Median sales price of homes in the US (Source: St. Louis Fed)
Log scale chart of the above data along with US M2 (Source: St. Louis Fed)
M2’s rate of change since Covid is much faster than home sales prices increase.
Real estate is doing well in US$ terms but is lagging mightily in bitcoin terms. Here’s a great tweet that highlights how our nominal dollar-based thinking may need to change going forward. I am sure this Lake Tahoe property has done very well in nominal US$ terms since 2014, but it has depreciated notably vs a more scarce asset that’s in the early part of the adoption curve – bitcoin. Pay attention to the tweet shown below the picture.
If you have access to wsj.com, the original story of his property purchase in 2014 is here.
On-chain activity shows the Tesla impact this week, in my view. The table below shows activity through Thursday the 11th, and it has a few clear trends:
- Half a million new small (less than one bitcoin – Minnow) wallets were created, with larger addresses going down in number (profit taking). See top half of table below.
- The largest weekly coin addition was from “Blue Whales” that are very likely exchange address. This is where individuals making a first bitcoin purchase execute and hold those coins. They would potentially move these coins into their own self-hosted “Minnow” or “Fish” wallets later on.
- For Institutions, it will take months for them to react to both the Tesla and BNY Mellon announcements as they go through internal deliberations and an approval process to buy. As a result, any positive institutional flows from this week’s announcements may come through in the spring and/or summer, in my view.
I am happy to explain how the data in the chart is obtained and how to interpret it in more detail if you have interest to discuss.