Ten31 Timestamp 843,988
Investors heard echoes of 2021 this week as GameStop – the poster child for “meme stonks” and arguably the zenith of ZIRP insanity – surged nearly 300% in a short-lived short squeeze. While the stock closed the week much lower, the overall market fully reversed the shallow losses of the past month to break new all-time highs once again thanks to *checks notes* a CPI inflation print 140bps above the Fed’s ostensible target range. Inflation expectations among consumers and businesses continued to push higher and Fed Chairman Jerome Powell poured more gasoline on the “higher for longer” narrative, but investors largely shrugged all that off as M2 growth threatens to flip positive again for the first time in nearly two years. Meanwhile, 13F season closed with a bang for bitcoin ETFs, as the last wave of quarterly filings this week pointed to notable exposure to the vehicles among large allocators including major long-only asset managers and state pension funds.
The week also saw several noteworthy regulatory updates. On the positive side, Senators Lummis and Wyden published a letter to the DOJ expressing concern with the direction of the government’s recent arguments about money transmission businesses relative to historical precedent. Elsewhere, both houses of Congress have now passed a resolution to overturn SAB121, a controversial piece of accounting guidance that effectively makes custodying bitcoin impractical for large financial institutions (though the Biden Administration has already indicated its intent to veto). Less encouragingly, Tornado Cash developer Alexey Pertsev was found guilty of money laundering charges in a Dutch court this week on arguments that could raise concerns for the future of financial surveillance requirements if adopted by Western governments more broadly. We expect all of these questions to get more airtime as the US Presidential election cycle heats up over the next 6 months, particularly if inflation remains entrenched and Americans continue to seek out new ways to preserve their wealth.
Portfolio Company Spotlight
Unchained is a bitcoin financial services platform offering a suite of products to consumers and enterprises for securing and managing bitcoin holdings through a multi-signature, collaborative custody model. Unchained’s infrastructure allows users and institutions to hold anywhere from 0 to 2 of 3 keys in a multi-sig quorum, offering customizable custody experiences to meet a variety of personal, family, and business needs. Clients can either remain in full control of their bitcoin while leveraging Unchained for backup signing and technical support or delegate custody to a quorum of three reputable institutions within Unchained’s network of key partners, creating an ETF-like experience while eliminating single points of failure and increasing transparency. Unchained offers a variety of additional financial services on top of its custody platform, including integrated trading services, bitcoin-backed lending, IRA and inheritance products, a mobile app for easy access to the platform, and much more to come.
Selected Portfolio News
Strike enabled automatic purchases for customers in Europe:
El Salvador unveiled a custom instance of Mempool.space that tracks the country’s bitcoin holdings:
Media
Fold Founder and CEO Will Reeves and GRIID CSO Harry Sudock joined the latest episode of ARK’s Bitcoin Brainstorm to discuss the latest bitcoin halving.
Coinkite Co-Founder and CEO Rodolfo Novak appeared on the What Bitcoin Did podcast to discuss bitcoin’s long-term political and economic impact.
Ten31 Managing Partner Marty Bent, Giga Co-Founder Matt Lohstroh, and Unchained Co-Founder and CEO Joe Kelly all gave talks at this year’s Bitcoin Takeover event in Austin.
Start9 Co-Founder and CEO Matt Hill joined Ten31 Managing Partner Matt Odell on the Citadel Dispatch show to discuss the tools Start9 is building.
Mutiny Wallet published a new article delving into Mutiny’s technical approach to federated lightning addresses.
Market Updates
Following a hotter than expected CPI update last month, this week’s latest CPI reading was in line with consensus and decelerated slightly to +0.3% M/M (+3.4% Y/Y).
Notably, core inflation (excluding food and energy) was “only” up 3.6% Y/Y for its lowest reading since April 2021. On the flipside, the Producer Price Index (PPI) rose at an above-consensus 0.5% rate on the month (2.2% Y/Y).
After a month of turmoil on the back of renewed inflation concerns that saw equity indices drop a whopping 6%, the S&P500 recovered to another all-time high this week on the in-line inflation print.
Despite the in-line inflation update and the market’s renewed optimism this week – which partially manifested in another massive, short-lived rally in meme stocks like Gamestop – the New York Fed’s latest inflation expectations survey pointed to increasing consumer inflation expectations, with the median one-year expectation rising to 3.3%.
Fed Chairman Jerome Powell suggested in public remarks this week that his confidence in a near-term decline in inflation is lower and that rates will likely remain high in the near term as a result.
Various institutional investors sounded a sour note on the US’s commercial real estate backdrop at a conference this week, with Fortress Investment Group’s Steven Stuart indicating an expectation for more bank failures this year on the back of persistently high rates and deteriorating office exposure.
Overseas, China unveiled another set of aggressive new measures to support its ailing property market, including 1 trillion yuan ($138 billion) of incremental financing from the PBOC and direct government purchases of homes by local state-owned enterprises.
Meanwhile, new data from the US Treasury showed China offloading a record amount of Treasury and US agency bonds in the first quarter of this year.
Filing season for 13Fs closed out this week, revealing a wide variety of large institutional participants in spot bitcoin ETFs. Most notably, the latest filings showed the State of Wisconsin Investment Board – the state’s flagship pension fund managing over $156 billion in assets – allocated $162 million to IBIT and GBTC during the first quarter.
All told, the ETF complex amassed over 400 unique reported holders during the quarter, putting the vehicles in a class of their own relative to most other recent and historical ETF launches.
Regulatory Update
Senators Cynthia Lummis and Ron Wyden sent a bipartisan letter to the Attorney General expressing significant concern with the Department of Justice’s recent policy arguments regarding federal money transmission laws.
Alexey Pertsev, a developer behind the noncustodial Tornado Cash software used in the Ethereum ecosystem, was found guilty of money laundering in a Dutch court this week. The guilty verdict – for which Pertsev was sentenced to five years in prison – was partially based on an argument that Pertsev did not include sufficient controls in the noncustodial software to prevent illicit activity.
The White House issued an executive order to force a Chinese-owned mining operation in Wyoming to vacate the area within 120 days. While the order appears related primarily to the site’s close proximity to sensitive US military assets, its language includes some implications that bear monitoring.
Despite threats of a veto from the Biden Administration, the US Senate followed the House’s lead from last week by voting to overturn SAB121, an accounting regulation that inhibits large financial institutions from custodying bitcoin and other cryptocurrencies.
The latest periodic update on the SEC review process for spot Ethereum ETF filings suggested that the agency is once again prepared to argue that Ethereum constitutes a security.
Noteworthy
New reports this week suggested that CME Group, the world’s largest futures exchange, is considering plans to launch spot bitcoin trading capabilities.
Bitcoin ASIC manufacturer Canaan unveiled its latest device, which promises nameplate hashrate of 185TH/s and efficiency of 18.5 J/TH.
Travel
Austin BitDevs, June 20
Bitcoin 2024, July 25-27
BitcoinMENA, Dec 9-10