Ten31 Timestamp 842,053
Both the macro and the regulatory picture grew murkier in the US this week. The Fed’s master planners once again tried to press the brakes and the gas at the same time, as the central bank held the world’s benchmark cost of money steady at 20-year highs – with Fed Chairman Jerome Powell indicating that recent upticks in inflation data will continue to constrain potential rate cuts – while also announcing it would begin reducing the pace of Quantitative Tightening, a relatively pro-liquidity move. The market struggled to digest this news until Friday, when equity indices popped and bond yields plummeted on very disappointing jobs data for April, the latest good news is bad news print for investors desperate for any hint of monetary easing. Meanwhile, important debates about the boundaries of money transmission laws continued to accelerate this week, including new statements from the Department of Justice, advocacy group CoinCenter, and US Senator Cynthia Lummis.
Portfolio Company Spotlight
Hoseki is a platform allowing bitcoiner holders to express proof of ownership to legacy financial and legal institutions without selling or moving their bitcoin. Users can easily and selectively link on-chain addresses or custodial accounts to Hoseki’s interface and create credible ownership proofs similar to brokerage statements commonly requested by lenders and similar counterparties. This capability allows users to unlock bitcoin as a source of capital (e.g. to improve creditworthiness when applying for a loan) without incurring any risk to the underlying asset, addressing a major unmet need for bitcoin users. The platform also allows enterprises to dynamically monitor counterparty balances and to make their own credible public attestations.
Selected Portfolio News
Hoseki rolled out Hoseki Verified, a tool to enhance the transparency of underlying bitcoin holdings for ETFs:
Media
Ten31 Co-Founder and Managing Partner Grant Gilliam gave a talk at last month’s Bitcoin Takeover on Ten31’s investment thesis and process.
Unchained released a video walkthrough for setting up Coinkite’s new Coldcard Q signing device.
Market Updates
All eyes were on the Japanese Yen at the start of the week, as the USD exchange rate – already down over 12% YTD – spiked to 160 for the first time since 1990, only to quickly gap back down to ~155 following the Bank of Japan’s latest intervention. Whether this ongoing pressure on the yen will become more of a source of selling pressure for US asset markets remains to be seen.
Following several recent prints pointing to accelerating price inflation, the FOMC elected to hold its benchmark interest rate steady once again. Fed Chairman Jerome Powell indicated the central bank would not look to reduce this range until it gains greater confidence in inflation moving toward the Fed’s ostensible 2% target.
However, Powell also suggested the next change in rates is “unlikely” to be a hike and confirmed that the Fed will slow the pace of its balance sheet runoff from $60 billion per month to only $25 billion, a relatively pro-liquidity update.
A variety of retail-linked companies painted a bearish picture on consumer activity during first quarter earnings calls this week, as McDonald’s, 3M, and Newell all suggested that entrenched inflation has led to tightness among customers. Perhaps most notably, Starbucks had its worst trading day since March 2020, falling 16% after the company reportedly saw spending retrenchment in several customer cohorts.
As rates continue to hover around 15-year highs and inflation remains stuck well above target levels, the Treasury Department released its latest quarterly borrowing estimate, which pointed to expected borrowing of $243 billion in Q2, a $41 billion upward revision from prior estimates.
Markets were flattish through most of the week as investors digested these headlines, but stock indices popped and bond yields fell on Friday after the latest Non-Farm Payrolls report came in substantially below consensus and unemployment moved higher, reviving bets that rate cuts could still materialize before year-end.
Notably, the latest jobs report showed M/M net gains in both non-government and full-time work for the first time in months, though both metrics are still well off long-term trends.
Over the weekend, Republic First Bank (not to be confused with already-defunct First Republic), a regional bank with ~$4 billion in deposits, went into FDIC receivership and was then acquired by Fulton Financial in a deal that avoided a haircut for depositors (about half of whom were partially uninsured as of year-end 2023).
Ratings agency Fitch indicated this week that hundreds of US banks may still be at risk of failure. That said, beleaguered New York Community Bancorp – down ~70% YTD and the poster child for commercial real estate headwinds to the banking industry – popped this week following a better than expected Q1 earnings report.
The spot bitcoin ETF complex – including BlackRock’s IBIT and Fidelity’s FBTC – saw substantial outflows for the first time during several days this week as bitcoin’s price fell below $60,000 for the first time since February before recovering to ~$62,000 on Friday. However, BlackRock’s head of digital assets suggested the asset manager is continuing to see bitcoin diligence from large institutional pools of capital.
Meanwhile, first week inflows to the new Hong Kong bitcoin ETFs were substantially more muted than early flows into the US vehicles.
Bitcoin mining hashprice reached new all-time lows again this week, as total network hashrate continued to hover near-all time highs and the spike in fees following the fourth halving appears to have fully dissipated (for now).
Regulatory Update
The Department of Justice submitted a filing in its case against Tornado Cash suggesting that even services which do not take custody of user funds can be considered Money Services Businesses, which would potentially make those businesses subject to additional licensure, reporting, KYC, and other requirements.
Policy think tank CoinCenter published a statement shortly thereafter which responds to this view and lays out a variety of policy considerations for the issue.
Wyoming Senator Cynthia Lummis also released a public statement on the issue.
Presidential candidate Donald Trump’s advisors are reportedly weighing sanctions policies for any countries seeking to reduce exposure to the US Dollar.
In the United Kingdom, new powers enabling law enforcement officials to more easily seize cryptocurrencies without making an arrest went into effect this week.
The Arkansas state legislature passed two new bills aimed at regulating aspects of bitcoin mining operations in the state.
Noteworthy
Wasabi Wallet operator zkSNACKs and ACINQ’s Phoenix Wallet both announced they will stop serving US customers this month, and Wasabi will entirely wind down its coinjoin coordinator.
Coal miner Alliance Resources (which trades at a market cap of ~$3 billion) reported on its Q1 earnings call this week that it has been mining bitcoin using excess power at its facilities since the second half of 2020. The company said it now holds ~425 bitcoin on its balance sheet.
As part of its first quarter earnings release, payments and fintech stalwart Block (formerly Square) announced it will regularly dollar cost average 10% of its gross profit from bitcoin products into bitcoin held on the company’s balance sheet.
New 13F filings released this week showed that BNP Paribas, the second largest bank in Europe, has dipped its toe into bitcoin ETFs with a small allocation to BlackRock’s IBIT.
OpenSats announced an additional $21 million donation from Jack Dorsey’s #startsmall philanthropic initiative.
Following the leads of Kraken, CashApp, Binance, Bitfinex, Strike, River, Bitnob, and OkCoin, Coinbase launched its lightning network integration this week.
Travel
Austin BitDevs, May 16
Bitcoin 2024, July 25-27
BitcoinMENA, Dec 9-10