The News Block #22 (01/30/2024)
GBTC Outflows Are Slowing, Bitwise Discloses Bitcoin Address, Many Miners May Struggle Post-Halving, Government Spending Set to Exceed $2 Trillion, Yellen Admits Prices Are Not Coming Back Down
Listen to the latest episode of the News Block below. 👇
GBTC Outflows Show Signs of Slowing:
In the last issue of the News Block, we highlighted how GBTC outflows were suppressing Bitcoin’s price and offsetting the billions of dollars flowing into the other ETFs. The good news is that these outflows now seem to be slowing down.
BitMEX Research highlighted this trend in the table below. It shows how $640 million in outflows occurred out of GBTC last Monday, while only $255 million in outflows occurred last Friday.
It appears the selling pressure from GBTC may be close to exhausted, at least, that’s what some analysts at JPMorgan Chase also believe.
JPMorgan previously estimated that around $3 billion of GBTC outflows would occur after it was converted to an ETF. Given that more than $5 billion has already left it, JPMorgan analysts feel confident that most of the selling is behind us.
It’s important to note that the same JPMorgan report did say that if Grayscale didn’t reduce its fee soon, then it could continue to see outflows in the coming weeks as investors move funds to cheaper ETF alternatives.
But if we zoom out — the other ETFs have continued to see healthy inflows. BlackRock’s spot Bitcoin ETF leads the inflows — and has officially crossed $2 billion in assets under management. As far as total net inflows — meaning the inflows minus the Grayscale outflows — we’ve seen more than $750 million since the ETFs have gone live.
Bitwise Becomes First ETF to Disclose Bitcoin Address:
ETF providers continue to try to differentiate themselves from the pack and compete to attract investors. Invesco and Galaxy even announced that they would lower their fees this week to attract more buyers. Meanwhile, Bitwise just became the first ETF provider to publicly disclose the address of its Bitcoin holdings last week.
This level of transparency should be applauded because it could help prevent fraud and better protect investors. It also highlights why the transparent and open nature of Bitcoin is so unique in the asset world. As many noted, “Try doing that with gold.”
However, the Bitwise announcement didn’t come without criticism. Several people were surprised to learn that the company’s Bitcoin was held in a singlesig address, meaning it appeared to be controlled by a single private key. For those with experience in Bitcoin, it’s much safer to secure it via a multisig scheme with multiple private keys.
One possible explanation here is that Bitwise uses Coinbase to custody the Bitcoin, and therefore, that single private key is likely protected by institutional-grade sharding, which is a process where a single key is split up into multiple pieces, as well as other internal security controls. In other words, it’s highly unlikely that the Bitwise Bitcoin is just sitting in a simple singlesig address.
All in all, the hope is that this action sets an industry standard for transparency and forces other ETF providers to follow suit. In my opinion, the more transparent these ETF providers are with their operations, the better.
Report Shows Many Miners Will Be Unprofitable Post-Halving:
Now that the ETFs are finally launched, the market is shifting its focus to the next important event on the horizon for Bitcoin — the Halving.
Although much of the attention around the Halving is focused on the amount of newly issued bitcoin getting cut in half and its potential impact on price, the most immediate consequence of the Halving will be felt by the mining industry.
Historically, halvings act as a cleansing event for miners. It can be thought of as a sort of Darwinian-like “Survival of the Fittest” event that occurs roughly every four years.
It effectively cuts the revenues of miners in half, and, as such, only the most efficient mining operations with the cheapest courses of energy are positioned to survive. The weak, inefficient ones could be forced to close up shop, especially if Bitcoin’s price remains stagnant.
This has led to speculation on which public miners are best positioned to thrive after the Halving occurs. A recent report from Cantor Fitzgerald attempted to estimate which miners can maintain profitably following the Halving, taking into account their costs and assuming Bitcoin’s price remains around $40,000 and the hash rate remains near the same level as today.
Shockingly, the report concluded that if the price and hash rate stayed where they are today, then 11 out of the 13 public Bitcoin mining companies analyzed would not be able to mine profitably post-halving.
Only two public mining companies - Bitdeer and Cleanspark - would be able to mine “in the green” at current prices. The other miners really need a major price rally leading into the Halving in April.
Ultimately, Bitcoin mining is an extremely competitive industry. The Halving puts this reality on full display. The market dictates which miners will survive and which miners are in over their skis. May the best miners win.
Government Spending on Track to Exceed $2 Trillion in 2024:
If you haven’t noticed, asset prices everywhere have been soaring. Both the S&P 500 and NASDAQ recently hit all-time highs, and according to the Case-Schiller US National Price Index, home prices have also reached a record high and have increased for nine consecutive months.
The economy as a whole, as measured by fiat indicators, also appears to be running hot. The US economy grew at a faster rate than expected in the fourth quarter of 2023, with GDP increasing by 3.3% annualized.
So, what’s been helping fuel the rise in stock prices, home prices, and GDP?
The answer is…government spending!
The U.S. fiscal deficit is now on pace to exceed even last year’s whopping $1.7 trillion. We’re barely into Q1, and the government has already spent more than half a trillion dollars. If the current pace continues, 2024 could see a deficit of more than $2 trillion!
The fiscal deficit as a percentage of GDP currently sits around -6%.
As Lyn Alden wrote in her recent newsletter, “The United States has never entered a recession where the fiscal deficit as a percentage of GDP is larger than it is now, at least since 1960. The deficit is a significant stimulatory variable in nominal terms.”
What Lyn is highlighting is that historically, we’ve never entered a recession with government spending this high before. Typically, we run large deficits to respond to a recession, not when the unemployment rate is at multi-decade lows, and nominal GDP growth is elevated.
Increased government spending can delay a recession by stimulating economic activity, which increases corporate earnings, which helps boost stock prices, which makes people feel wealthier, which results in more spending, which leads to more economic activity, and the feedback loop continues…
It leads to the question, can this multi-trillion dollar deficit keep asset prices afloat and prevent a recession from happening?
Some analysts aren’t so convinced and see trouble brewing under the hood of the economy.
One such analyst is Danielle DiMartino Booth, who points to rising unemployment across the US. She notes that, based on data going back to 1976, once unemployment starts rising in all 50 states, the US has entered a recession. Today, every state but Texas has a rising unemployment rate.
Another thing to keep an eye on is credit card debt. The WSJ reports that credit card debt grew faster than spending last year, and unpaid balances currently sit at their highest level in 5 years, signaling that Americans are struggling to pay off their credit card bills.
Many are going into more credit card debt because they are struggling to afford the higher prices of necessities like food, gas, and rent. Our elected officials are celebrating that inflation is defeated, but prices still remain approximately 20% higher than they were three years ago. These prices will never come back down.
US Treasury Secretary Janet Yellen was surprisingly honest about this in a recent interview.👇
That’s right Janet! The Fed’s job is to keep prices increasing and stealing at least 2% of our purchasing power each year - which is why we Bitcoin!
I think the big-picture perspective to reflect on here is that this level of government spending is highly stimulative for asset prices, and even if a recessionary impulse hits, I think we all know what these politicians will resort to…even more spending… and an even larger deficit.
In this environment of massive fiscal deficits, it’s scarce, hard assets that investors will want to own to protect themselves, and with the upcoming halving this spring, Bitcoin is set to officially become the scarcest asset on the planet, surpassing gold.
As billionaire Paul Tudor Jones once said, “Bitcoin is the fastest horse in the race,” and it’s the horse I continue to bet on as inflationary government policies continue to ramp up.
Until next week, keep stacking.
- N₿
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NEW: Preston Pysh on Economic Outlook, Asset Tokenization, and Why Bitcoin is the Great Reset
Preston Pysh is the founder of investment company, the Pylon Holding Company, General Partner at investment fund Ego Death Capital, co-founder of The Investors Podcast Network, host of Bitcoin Fundamentals, and founder of BuffettsBooks.com.
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