Ten31 Timestamp 821,632
It was a bull market for central planning headlines in this last week before the Christmas and New Year’s holidays. Markets rejoiced early as the Fed seemed to open up (albeit clumsily) to the possibility of near-term rate cuts heading into 2024, pushing stonks higher and yields lower – after this week, the benchmark 10-year Treasury yield has now declined over 100bps in just 6 weeks, more than retracing its violent upward spike from September and October. Congress, meanwhile, continued its concerted efforts to infringe on civil liberties in the form of both sweeping new surveillance authorities for intelligence agencies and the latest attempt by noted tribal elder Elizabeth Warren to “crack down” on open source software, privacy, and math. While policymakers keep scrambling to salvage an eroding monetary system while blocking the exits, we think it’s important to stay focused on the big picture of where the world is heading, best captured this week by two charts that appear to be simultaneously going parabolic:
Portfolio Company Spotlight
Start9 provides software and hardware to empower users to easily take control of their digital lives by self-hosting their own personal servers independent of third parties. With intuitive mass market software and one-click installations of popular programs like Bitcoin Core, Mempool.space, various lightning implementations, and 30+ other services, Start9 enables a move away from the current computing paradigm of custodial services that limit privacy, data integrity, and censorship resistance. The company’s exciting roadmap aims to do for personal servers what Microsoft and Apple did for personal computing, which we expect to become progressively more valuable over the coming decades as financial and tech counterparties become less reliable and more invasive.
Selected Portfolio News
Strike added a new “saved contacts” feature to its interface:
Strike also launched Strike Learn, a repository of information and tutorials on bitcoin, lightning, and more:
Start9 launched a new package for self-hosted instances of Mutiny Wallet:
River announced River Link, a new product for easily sending bitcoin through links over text or email:
Ten31 Managing Partner Marty Bent joined What Bitcoin Did to discuss the bitcoin mining landscape and his outlook for 2024.
Unchained Co-Founder and CSO Dhruv Bansal published a new essay delving into the key design choices that enabled the genesis and growth of bitcoin.
Popular bitcoin education channel BTC Sessions featured Zaprite’s checkout platform and merchant tools in a new tutorial.
November’s CPI reading came in at +0.1% M/M and +3.1% Y/Y, with core figures (ex-food and energy) up 0.3% and 4%. Both readings were roughly in line with expectations and October numbers. That said, some underlying components of the index have continued to push higher.
While official inflation gauges remain comfortably above the Fed’s stated targets, the central bank once again held its benchmark Federal Funds Rate steady this week.
More importantly, the Fed’s latest “dot plot” (its summary of Fed policymakers’ FFR projections) pointed to three rate cuts in 2024, and Fed Chairman Jerome Powell also suggested rates are “at or near peak” (while pointing to potential for more tightening if necessary).
Stock and bond markets popped on the back of those updates, with the 10-year US Treasury yield dropping below 4% for the first time since the summer. Optimism from the latest Fed update has led the market to price in 130bps of rate cuts through year-end 2024.
However, Fed communication throughout the week painted a less clear picture, as New York Fed President John Williams suggested the central bank “isn’t really thinking about rate cuts right now.” Later that same day, Atlanta Fed President Raphael Bostic pointed to cuts likely starting in Q3.
Despite the favorable price action in the bond complex, bank usage of the Fed’s BTFP facility made another all-time high this week, as yields still sit roughly where they were immediately prior to this spring’s banking crisis.
Overseas, European economic data continued to worsen, with the latest Eurozone PMI printing at 47, down M/M and below expectations. Elsewhere, Argentina devalued its official peso/dollar exchange rate by 50% overnight as part of new president Javier Milei’s “emergency measures” to address the country’s mounting economic headwinds.
The US administrative state had a very busy pre-holiday week. Most notably, Senator Elizabeth Warren attempted to resurrect her “Digital Asset Money Laundering Act” (first proposed last December), this time with new cosponsors including several members of the Senate Banking Committee.
The latest version of the bill would seek to expand the (already constitutionally unsound) Bank Secrecy Act to extend KYC requirements to essentially anyone interacting with cryptocurrencies, including node operators and potentially even open source software developers. The bill also attempts to add more regulatory burden to institutions interacting with self-hosted wallets.
Warrant’s record of legislative success is quite poor, but this bill should still be staunchly opposed by anyone interested in preserving the few remaining vestiges of the First and Fourth Amendments. In any case, this is clearly yet another legislative attempt to shift the Overton Window toward draconian surveillance of Americans’ financial lives.
Even more concerningly, this year’s National Defense Authorization Act – passed by Congress this week and now awaiting President Biden’s signature – contained an obscure provision that would significantly expand the government’s surveillance capabilities in a variety of invasive scenarios.
On a more encouraging note (at least for corporate adoption of bitcoin), the Financial Accounting Standards Board (FASB) officially updated its guidance for bitcoin held on corporate balance sheets, which will allow for more favorable accounting treatment for the asset.
SEC Chairman Gary Gensler commented in an interview that the agency is “taking a new look” at spot bitcoin ETF vehicles following recent court rulings.
Stablecoin issuer Tether proactively froze all wallets on OFAC’s sanctions list. The move comes just a few weeks after Tether froze $225 million of assets with alleged ties to criminal activity, once again highlighting the vulnerabilities of permissioned, centrally issued assets.
Just a week after reports of extensive user data collection taking place within the Ledger Live app, a major vulnerability in Ledger Connect Kit was exploited to drain funds from Ledger wallets interacting with crypto “dApps.” The incident is the latest illustration of the value of bitcoin-focused products with minimized complexity and attack surface.
Developers behind the Ark protocol launched a new, work-in-progress resource hub with information on Ark’s design.
Bitcoin transaction fees have consistently been higher than normal this past week. Over the past few days, the transaction fee portion of the block reward has been greater than the next halving’s block subsidy, leading to a few questions: Is this the new normal? Can business models built on minimal on-chain fees survive? How high is the dust limit going to be in the future? Whatever the specific answers are to these questions, a maxim to adhere to should be “Master UTXO Management: Minimize Fees, Maximize Privacy, Maintain Efficiency”.