BTC: it was the best of coins… it was the worst of coins

8th April 2022

Q9 Capital: www.q9capital.com

• 19 millionth Bitcoin mined this week
• Mexico, Honduras, and Madeira lay out plans for Bitcoin adoption
• Crypto markets fared well compared to global risk assets sell off

BTC finished the week -4.5%. It wasn’t the best performing asset in crypto, but it wasn’t the worst either. In fact, in a week global markets saw a sell off after the Fed laid out a plan reducing their balance sheet $1 trillion a year to fight inflation, you would expect BTC to sell off. The prospect of less inflation means less need for inflation hedges. But the crypto market was not in a panic sell. ETH was strong and ETHBTC continued to advance finally, posting ~3% gains after testing 0.076 this week. But it was BTC, once again, capturing the attention. Microstrategy posted in a statement this week that they bought another 4,167 BTC (for ~$190.5mln), the software firm now holds 129,218 Bitcoins. Luna Guard Foundation added another 5,040 BTC (~$230mln) earlier this week. The onchain data from Glassnode indicated strong accumulation over the past few weeks driven by Shrimps (<1 BTC) & Whales (1,000–10,000 BTC), and a significant uptick in the coin outflows from exchanges. This is taken as an indication that people are planning to HODL.

Whatever the short term price action, momentum only continues to grow for Bitcoin the protocol, community, network and social phenomena. On Thursday Mexico, Honduras and Madeira followed El Salvador by setting out their roadmaps for regulating and making Bitcoin legal tender. Joel Bomgar, the president of Próspera, an “economic development hub” located in Honduras, described favourable tax regulations being established there; Miguel Filipe Machado de Albuquerque, the president of Portugal’s Madeira region announced that Bitcoin investors will pay no personal income taxes there; and Indira Kempis, a senator in Mexico, announced that she plans to propose regulation there to recognize Bitcoin as legal tender.

On the other side of the pond, the UK government set out its plan to make it a global crypto hub. And read this super reasonable regulatory outlook from Janet Yellen, US Treasury Secretary. She’s basically saying that reasonably embracing innovation has worked before, why stop now? US politicians are also now jockeying to become the most pro-Bitcoin, or at least pro-crypto. For many citizens “don’t mess with my Bitcoin” has become a single-issue voting block. This is a 180 degree turn from 12 months ago.

Source: Twitter

Miami Heat

What we see above is a healthy example of competition. Political competition. If I crush crypto or bitcoin in my country, state, district etc to ‘protect’ the people or vested interests, then maybe my neighbour will take my business. This is exactly what we are seeing.

Famous for its beaches, glamour and sex appeal, Miami is trying to establish itself as the center of the crypto revolution. It has a lot of key ingredients: a growing population of crypto enthusiasts and dealmakers, a pro-crypto mayor and a futuristic vibe that will continue to attract both people and investment.

But it has a long way to go… San Francisco and New York already have major head starts in deals, dollars and tech culture. Cities such as Denver and Austin are making their own attempts to establish crypto footholds. So far Miami crypto start-ups have attracted a sliver of US venture capital investment (see chart below) — about $838mn, compared with $12.7bn for companies in the San Francisco Bay area and almost $7 billion in New York City.

Pandemic Crypto Deal Value

Source: Bloomberg

And not at all coincidentally Miami is the host of BTC 2022, the world’s biggest event and a fantastic excuse for bitcoin people to go meet somewhere amazing that actually wants them there. But think about that for a minute, this is a ‘Bitcoin’ conference, not a crypto conference. While not unusual, there are other protocol/community conferences in crypto, Bitcoin remains the largest community and flagship of crypto, Web3 and maybe even the Metaverse. Well, at least this is so in the public consciousness where Bitcoin is used interchangeably with crypto (incorrectly). But why?

James Lindsay was @ Bitcoin Miami 2022

Still About the BTC

This week the 19,000,000th Bitcoin was mined — meaning that there are only 2mn more coins left to mine and scarcity will become a real factor now. 90% of all the BTC that will ever exist is now already in circulation.

Source: Glassnode & Delphi Digital

Mining difficulty is defined as how difficult it is for miners to mine a block of transactions into a blockchain. Bitcoin’s mining difficulty adjusts every 2016 blocks (~14 days) and is based on the hash power that competes for mining rewards on the network. As more miners enter the network to compete for blocks, this pushes the hash rate and difficulty up in the next adjustment.

As BTC heads into the next halving estimated in 2024, we can expect fiercer competition as every Bitcoin becomes more valuable.

Now a teenager, Bitcoin “has had a long time to just kind of work,” explained tennis star Serena Williams. “I really like it, I’m really into cryptocurrency … particularly Bitcoin really stands out because it’s so unique and different.”

And different it is. The magic of blockchain is that it’s a cost effective, tamper resistant accounting system. The most essential factor of accounting is that it is correct, it’s basically the meaning of the word. Bitcoin, by design, leaned heavily into keeping the bitcoin ledger correct through proof of work and decentralization. The Bitcoin blockchain has never been hacked. By it’s design it sacrificed speed, energy efficiency and cost to get security. It solved for its survival and its goal, to be non-sovereign money or store of value. It’s not perfect, and it never will be. But it is working and, by far, the what the market currently thinks is the most likely to succeed.

In a Class of Its Own

“Bitcoin is the first global, private, digital rules based monetary system in the history of the world.” Cathy Wood, Ark Invest CEO

And the world finally seems ready to embrace it. BTC is inflation resistant in its design and in a world where inflation is once again a story, we look for solutions. BTC is one.

By its decentralized design, BTC is censorship resistant. In a world increasingly marked by de-globalization and fragmentation, we look for solutions. BTC is one.

Bitcoin now provides freedom and security to over 100mn people worldwide. The truly amazing thing about Bitcoin is that these people don’t need permission to use it. In a world with so much red tape and friction it’s a breath of fresh air. It doesn’t matter who you are or where you are from. It doesn’t care about your country, religion, race, or creed. It’s for everyone. All you need is an internet connection.

The year 1776 marked the separation of church and state. 2008 marked the separation of money and state.

However, it was not simply the fact that the technology needed to get there before we could have a global money out of central control. Although this is true. By its invention Bitcoin has probably accelerated/enabled the decline of the nation-state as the unrivalled and unquestioned form of global political organization in the world. As humans our memories are short, but the nation-state is a somewhat recent invention. Historically, land, power, and by extension, human rights, were often privately held. Technology, climate and diseases change things, as they always do. Gunpowder brought scale to violence and the nation-state became the way to wield the power of the people. It led to extraordinary violence amongst nations, but also the best standards of living and quality of life the world has ever seen within borders. And to large scale democracy. But the world is changing, as it does and technology, once again, will bring us change.

If you are looking for some definitely not light weekend reading we highly recommend “The Sovereign Individual” by James Dale Davidson and William Rees-Mogg who write eloquently (although not succinctly) about our changing world. Written in the late 90’s, we guarantee your neck will hurt as you keep checking the front cover for the publication date. They talk about cyber money, governments competing for citizens and even mention Osama Bin Laden a couple of times. They don’t get everything right, but it’s pretty impressive.

This is not a value judgement of what should or shouldn’t be. All we can hope for as humans is that we make the best of the hand we are dealt, collectively and individuals. Which sort of brings us back to why many of you have chosen to keep reading this, because you are investors.

But I Just Want to Make Money

Thinking you’re late to Bitcoin is like thinking you’re late to the internet in January 1998. Shark Tank star and former BTC sceptic Kevin O’Leary now predicts that “in ten years, crypto, blockchain and all of these types of assets will be the 12th sector of the S&P.” He also stated that when regulatory clarity and policy around Bitcoin arrives “the spigots of capital will flood open… The beautiful thing about all of this, is when we get policy we make bitcoin for institutions”. There is currently $37,000,000,000,000 in retirement accounts in the US alone that can’t currently invest in Bitcoin. What happens when they can?

We’d go a step further and can easily imagine a world where crypto is not an asset class but a technology interwoven into the investment framework. It will just be the rails of how value is exchanged in the world giving incredible power to the individual. Some of the values will represent things you can touch and smell, and some will be native to the metaverse. (Which you will also be able to touch and smell at some point).

If you are not holding some crypto is it because you do not believe the possibility of this future? If you do not believe, are you so smart that you cannot be wrong? If you are invested does your allocation reflect a world where blockchain and crypto exchange is de-facto? The way we settle trades today may soon seem as out of date as trucking over share certificates to complete a trade.

Our clients, indeed, are even more practical than this having made their decision to not only be in crypto, but to make their portfolio their own. Most hold at least some BTC and many enhance their returns with income through Earn or look to diversify through our Auto-Invest product.

Our most popular product is now our Q9 YIELD product series. Clients are monitoring Bitcoin as it currently sits in the mid of its range of 47.9k and 37.5k since the beginning of the war in Ukraine. They mostly look to ‘buy the dip’ through YIELD with Link prices at the bottom of the range. They are happy to play the range as long as it goes, but they are also happy to own bitcoin and crypto for the long term.

The odds have changed. Have you?

BTC/USD YTD

Source: TradingView

In the News…

• Elon Musk takes nearly $3bn stake in Twitter; DOGE spikes
• Singapore tightens crypto rules with new law on licenses for virtual asset firms
• Robinhood becomes latest to integrate Bitcoin’s Lightning Network
• Sky Mavis raises $150mn to reimburse Ronin attack victims
• HSBC launches Metaverse fund in Asia
• Shark Tank’s Kevin O’Leary: ‘Bitcoin mining is going to save the world’
• Tennessee Titans become first NFL team to accept Bitcoin
• Marathon Digital to relocate Bitcoin mining facility to carbon neutral energy sources
• Yellen says US crypto rules should support innovation, manage risks

Crypto Markets

• BTC & ETH saw a pullback posting declines of -4.5% & -1.5% respectively on the week (8am). The total market cap of the crypto market continued to stay above $2tln mark and Bitcoin dominance hovered around 41%
• Among other majors, both SOL dropped -3.2%, among dex coins SUSHI plummeted -17.1% this week
• While crypto options markets saw an uptick in implied volatility the annualized realised volatility in crypto markets failed to spike, 67% for BTC and 80% for ETH this week

Legacy Markets

• Global markets continue to see risk off as investors digest the plan laid out by Fed to reduce their balance sheet by $1 trillion an year in efforts to fight red hot inflation
• The US Dollar index rose +1.5% while the Oil futures dropped -1.2% and the SPX fell -1.1%, fall in stocks led by tech names
• Bond market priced in expectations of a faster policy tightening by Fed, 10 year US treasury yields touched 3 year highs as they jumped 32bps this week

Our Flows

• Two way flow on client pad slightly skewed towards clients buying (1.4x buyers vs sellers) during last week
• ETH buyers and sellers in BTC & SOL were the major drivers of our client flow last week
• We also saw sellers in FTM on modest volumes, we recently added it on spot trading offering (chat only)

Q9 Capital: www.q9capital.com