This Week’s Thoughts on Recent Thematics
Bitcoin rose 6.5% in the week ending August 15th, printing a high of $48,152 before closing at $46,718. Price continues to trade around the 200D moving average at ~$45.5k. Following four straight weeks of gains, bitcoin is up +61.1% year-to-date as of Sunday’s close. The total digital asset market cap has again surpassed $2 trillion USD.
This week, we discuss updates on the infrastructure bill and tapering along with on-chain metrics covering exchange balances.
Clarity Coming on Infrastructure Bill
Despite debate, controversy, and lobbying from many crypto insiders and stakeholders, the Senate passed the infrastructure bill framework with original language on crypto “broker” reporting requirements. Hours of debate on the Senate floor led to proposals with more clarity, but Senator Shelby (R-Ala) broke the unanimous vote that was required to change the language. While disappointing on the surface, the price of bitcoin remained resilient as investors and traders believe further clarity will come by 2023 when the law goes into effect. Since, the Treasury has announced plans to provide guidance on the Senate’s definition of “broker,” the latest reassurance that law and policymakers will remain conducive towards growth and innovation within digital assets.
Tonight’s Town Hall
While Federal Reserve Chair Jerome Powell has maintained a subjective and broad stance in recent press conferences, market participants look to tonight’s town hall for communication related to tapering plans. Expectations are for the Fed to communicate details related to size and timing by the end of September and begin an 8-10 month transition out of bond-buying beginning in December or January. Powell has taken an incredibly safe stance thus far and has avoided any potential controversy by remaining status-quo, but investors have become increasingly anxious about inflation after three straight months of 5% or more headline CPI. While this anticipation makes a “taper tantrum” unlikely, we take the chance to highlight bitcoin’s performance during Bernanke’s taper tantrum of 2013:
This Week On-Chain: Miners to Exchanges
Naturally, U.S. miners sent some bitcoin to exchanges after learning of difficult-to-achieve tax reporting requirements. We can assess the magnitude of these concerns by comparing the number of bitcoin that miners sent to exchanges relative to different periods of time. Here, we see that while flows picked up, they remained lower than 2021’s daily average of 284/day. This illustrates that so far concerns are insignificant, which has certainly played a factor in bitcoin’s price resiliency as of late.
This Week On-Chain: Exchange Net Position Change
While miners have sent less bitcoin to exchanges, investors have also purchased and moved bitcoin to cold storage since the beginning of July. In the last 30 days, exchanges experienced withdrawals (investor inflows) of approximately 82,590 bitcoin, or almost $3.9bn based on Sunday’s close. This illustrates investors’ recent bias towards accumulation rather than distribution seen during the volatility of May and June.
Joseph Orsini, CFA
Director of Research
Price Volatility of Digital Assets – A principal risk in trading Digital Assets is the rapid fluctuation of market price. High price volatility undermines Digital Assets’ role as a medium of exchange as consumers or retailers are much less likely to accept them as a form of payment. The value of client portfolios relates in part to the value of the Digital Assets held in the client portfolio and fluctuations in the price of Digital Assets could adversely affect the value of a client’s portfolio. There is no guarantee that a client will be able to achieve a better than average market price for Digital Assets or will purchase Digital Assets at the most favorable price available. The price of Digital Assets achieved by a client may be affected generally by a wide variety of complex and difficult to predict factors such as Digital Asset supply and demand; rewards and transaction fees for the recording of transactions on the blockchain; availability and access to Digital Asset service providers (such as payment processors), exchanges, miners or other Digital Asset users and market participants; perceived or actual Digital Asset network or Digital Asset security vulnerability; inflation levels; fiscal policy; interest rates; and political, natural and economic events.
Digital Asset Service Providers – Several companies and financial institutions provide services related to the buying, selling, payment processing and storing of virtual currency (i.e., banks, accountants, exchanges, digital wallet providers, and payment processors). However, there is no assurance that the virtual currency market, or the service providers necessary to accommodate it, will continue to support Digital Assets, continue in existence or grow. Further, there is no assurance that the availability of and access to virtual currency service providers will not be negatively affected by government regulation or supply and demand of Digital Assets. Accordingly, companies or financial institutions that currently support virtual currency may not do so in the future.
Custody of Digital Assets – Under the Advisers Act, SEC registered investment advisers are required to hold securities with “qualified custodians,” among other requirements. Certain Digital Assets may be deemed to be securities. Currently, many of the companies providing Digital Assets custodial services fall outside of the SEC’s definition of “qualified custodian”, and many long-standing, prominent qualified custodians do not provide custodial services for Digital Assets or otherwise provide such services only with respect to a limited number of actively traded Digital Assets. Accordingly, clients may use non- qualified custodians to hold all or a portion of their Digital Assets.
Government Oversight of Digital Assets – The regulatory schemes—both foreign and domestic—possibly affecting Digital Assets or a Digital Asset network may not be fully developed and subject to change. It is possible that any jurisdiction may, in the near or distant future, adopt laws, regulations, policies or rules directly or indirectly affecting a Digital Asset network, generally, or restricting the right to acquire, own, hold, sell, convert, trade, or use Digital Assets, or to exchange Digital Assets for either fiat currency or other virtual currency. It is also possible that government authorities may take direct or indirect investigative or prosecutorial action related to, among other things, the use, ownership or transfer of Digital Assets, resulting in a change to its value or to the development of a Digital Asset.