A weekly newsletter on actionable digital asset market insights and practical observations with a smidgen of greentea 🍵 insights
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📖 Book of the Month 📖
This month, I am re-reading The Fourth Turning by William Strauss and Neil Howe. If you have not read or listened to the audiobook (free link below). I cannot recommend it enough. In my opinion, this is one of the most important books of the last 20 years. I know it sounds hyperbolic, but give it a read or listen and judge for yourself!
Listen to The Fourth Turning For Free with Audible. Link
💭✍🏼 Food For Thought 💭 ✍🏼
Canada to Freeze Bank Accounts of protestor's. This is a slippery slope - Link
Justice Department Announces First Director of National Cryptocurrency Enforcement Team - Link
This is a major development, I interpret this to mean we are well on the way to getting unified cross agency crypto policy very very soon. The significance here is not just the headline (I never post just for headlines so make sure to dig deeper). The appointee is a millennial, very tech savvy and has worked her way up the ranks in the Southern District of New York for what looks to be over a decade. Congrats to her and if you are doing anything that is not above board or trying to skirt Biden's pending Executive Order---you should be very scared. This is the lawyer that argued the appeal that kept Ross Ulbricht (the Silk Road administrator) behind bars.
💸 Companies and Deals I am Watching Closely 💸
1. Circle and Concord Acquisition Corp have revised the terms of their SPAC merger and now value the company at $9 billion - Link
2. Sequoia is launching a $500-600 million fund to focus on liquid token investments - Link
3. Forbes received a $200 million strategic investment from Binance - Link
📖 Quote of the Week 📖:
“The measure of a man is what he does with power.” ― Plato
📰 This Weeks Most Interesting Digital Asset News 📰:
- Russa to treat BTC as a Currency - Link
2. Canada's Emergency Act is targeting crowd funding & crypto payment processors (banks can freeze accounts) - Link
3. JP Morgan Becomes First Global Money Center Bank in the Metaverse (the irony if you know their history) - Link
4. BlockFi Enters Resolution with Federal and State Regulators Providing Pathway for Crypto Interest Securities - Link
5. Belarus to require crypto wallet registration - Link
📈 Top 10 Market Movements by Market Cap over the last 7 days 📉:
Bitcoin: Total Miner Revenue - All Miners
This chart shows on-chain data since the BTC price top in November but in the context of BTC Miner revenue. Back in 2021 Miners were borrowing against their BTC holdings to fund operations and not actually selling BTC. Today you can see miner fee + mined coin value is relatively low and it seems likely this creates new BTC selling pressure of miners needing to sell their BTC to fund cash for operations versus being able to borrower becuase of generally lower BTC prices equals more collateral required for loan underwriting purposes. This is just one metric but taken together with the Hash Rate below it creates more BTC selling pressure from miners because they face a deteriorating financial situation from a business cycle perspective. Not the end of the world but still bearish for BTC. It is generally a bad idea to take on debt to buy speculative assets---I do not expect this cycle to be any different.
Bitcoin Mean Hash Rate:
This metric shows the the average estimated number of hashes per second produced by the miners in the network. Recall the "hashrate" is a measure of how fast miners can process the Bitcoin Proof of Work algorithm. With hash rates going up it means there was more miners on the network. More miners on the network means more competition and this means that it becomes harder for miners to profitability mine Bitcoin. This is metric feeds into the total miner revenue chart above because as Bitcoin's price moves higher the the block reward component of miner revenue also increases. To recap miner revenue = miner fees + block reward (i.e. the value of Bitcoin mined). Thus, as the price of Bitcoin's goes down that component of miner total revenue drops as well. Coupled with the fact that there is more hash power on the network as a result of miners build out and some going public and /or raising money to buy more asics you have profitability slowing, prices falling and miner's under pressure to sell their Bitcoin to raise cash to fund operations versus taking on debt to fund operations at this point in the business cycle. I consider this to be a pro cycle market force that is now working to pressure miners just like it served as a tailwind over the last year. Some would say I have just laid out the short case for Bitcoin mining stocks. These are just my personal views based on market forces I see.
Bitcoin: Price OHLC
As you can see Bitcoin is still chopping around on chain. If you have read my newsletter since December 2021 when I turned generally bearish (go back and reach those editions on the website) because of all the broader macro related factors. If you are a new reader, welcome! Go back and see my December and January letters and make sure to checkout my prior books of the month if you want to get more context for where I think we are right now in a market sense. I am no guru but I do like to read economic history and have been doing so for almost two decades though I am not that old. History offers us great lessons beyond our lifetimes.
Bitcoin: Exchange Net Transfer Volume from/to Exchanges - All Exchanges
Updated for this week, we can see that Bitcoin still continues to leave exchanges but as noted in prior letters---on chain data is not "driving the bus" at this time. I will retire this chart after this week until I see meaningful updates.
Ethereum: Net Transfer Volume from/to Exchanges - All Exchanges
The main call out on this chart is that it looks to me like like ETH is taking a bearish turn with more coins coming on exchange to be sold. Not the end of the world of course if you have an investment time horizon versus a "speculation" time horizon. I do not personally think we are in the speculation phase for any digital assets at this time.
Total Value Locked (USD) in DeFI
DeFI TVL has inflected downward noticeably. As a reminder TVL means "Total Value Locked". This refers to people taking ETH based tokens or other tokens and "locking" them in DeFI protocols to lend, generate yields and otherwise earn excess returns. When I see this move downward from the last six to eight weeks it just confirms (in my mind) what I have been saying which is that the broader macro environment is now driving all digital asset markets. The elephant in the room is, of course, the specter of the US Fed hiking rates in dramatic fashion (see prior weeks letters on this topic as I have been saying since late last year). Again this is not the end of the world but just a change in broader conditions to be aware of. Personally, if we get any major interest rate hikes I will re-evaluate and look to buy some projects that I think are long term promising. Also, for US readers, keep in mind that Biden is expected to announce a sweeping executive order on crypto any day now and I suspect one of the major impacts of this may be that most projects become "off limits" for US persons as a practical matter. I hope I am wrong on this point but it is logical and highly probable, given the US regulatory environment.
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Disclaimer:
This Newsletter does not provide, and no portion of this content purports to be, individualized or specific investment advice and I do not provide investment advice. All information provided herein is general in nature and is made without regard to individual levels of sophistication or investment experience, investment preferences, objectives or risk parameters and without regard to the suitability of the content for individuals or entities who may access it.
No information provided herein, should be construed as an offer to sell, or a solicitation of an offer to buy any security or investment vehicle, nor should it be construed as tailored or specific to you, or any reader or consumer thereof. You understand and agree that the content does not constitute specific recommendations of any particular investment, security, portfolio, transaction or strategy, nor does it recommend any specific course of action is suitable for any specific person or entity or group of persons or entities.
The content herein is based upon information from sources believed to be reliable and I am not responsible for errors, inaccuracies or omissions of information; nor is it responsible for the accuracy or authenticity of the information upon which I rely. For informational purposes only. Do your own research.
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