BTC Back Up to 10k Before Halving

KEY TAKEAWAYS

Macro

  • Trump adviser Matthew Pottinger’s compromising comments on China is fuelling risk appetite and BTC is again leading a global rally of risky assets. 
  • The Fed’s Balance Sheet has expanded by more than 60% since March, which continues to buoy BTC buying interests.

Bitcoin Bull

  • GBTC has purchased 30% of the total mine production year to date, a de facto halving before the real halving next week. 
  • Transaction volumes of BTC on Square‘s Cash App reaches USD 300 million.
  • Veteran hedge fund manager Paul Tudor sees Bitcoin as a store of value.

Bitcoin Bear

  • After halving, miners will have to hedge more for cash flow management and profitability. 

In our last piece “Crypto Market Sentiments Echo US-China Tensions” , we reminded traders of Pottinger’s negative comments on US-China relations. Markets panicked at first, but then quickly calmed down after Pottinger’s later comment that no punitive measures would be taken against China if the “Phase One” trade deal commitment was honored. Renowned investment banker Steven Mnuchin echoed this stance. Risk appetite was encouraged and as we have seen, Bitcoin led a global rally of risky assets. 

Fundamentally, US monetary policy still supports a bull run. The question is how fast and what kind of path the run would pursue. Fed’s balance sheet has increased by more than 60% since March, to almost USD 6.8 trillion. 

Source: Federal Reserve 

The rates market also expects Fed to maintain 0-0.25% rate until at least Spring 2021.

Source: CME Group 

However, note that the Fed has started to slow its purchase of treasuries, from a peak level of USD 75 billion per day to USD 8 billion per day. 

Source: New York Fed

Who is really buying Bitcoins under such loose liquidity conditions? We previously mentioned the name of GBTC and XBT Provider in “Crypto Gains Increasing Interest From Institutional Investors”. GBTC recently purchased 7,839 BTC from May 1 to May 7.  Year-to-date, GBTC has absorbed 30% of total BTC mine production, which means the halving has effectively happened even before the real halving. GBTC is in fact locking these supplies into its own vault until a redemption program is available. 

Source: GBTC Financial Statement

Jack Dorsey’s Square has announced that its Cash App has seen more than USD 300 million transaction volume in the first quarter, almost equals to the size of LocalBitcoins, one of the most popular peer-to-peer crypto trading platforms. 

Source: Square 1Q2020 Financial Statement

Paul Tudor Jones, a veteran hedge fund manager, recently disclosed his long position on CME bitcoin futures. Jones first dabbled in Bitcoin in 2017, doubling his investment before exiting the trade near the peak at almost USD 20,000. This time, he sees Bitcoin as a store of value – Bitcoin passes the test based on four characteristics: purchasing power, trustworthiness, liquidity and portability.

CME open interest stands at around 30,770 Bitcoins, which has almost doubled since the end of 2019. 

Source: CFTC

Market looks bullish as halving is approaching. Any downside concerns? While halving decreases Bitcoin’s hard supply, miners may have to conduct more hedging, in other words more selling, for cash flow management and profitability management. It may contain the price in the short run. 

If electricity cost remains at USD 0.042/kwh or above, the most popular Antminer S9, representing around 23% of current computing power, will have to cease production. Only the latest mining machines from Bitmain and Whatsminer could survive the halving. As wet season is coming in China, some miners may find cheaper electricity at USD 0.028/kwh and survive longer.

Source: Bybit Insight

Source: Bybit Insight