Ten31 Timestamp 846,057
It was another week of divergence between asset markets and the underlying economy, as equity indices generally held in near all-time highs (with another strong Nvidia print offsetting carnage in the broader software space) despite a slew of headlines pointing to continuing pressure on many US banks and the commercial real estate sector. Many bank balance sheets remain under pressure on the back of unrealized losses in securities portfolios and growing loan delinquencies; meanwhile, the latest PCE print was unchanged M/M and showed the metric holding near 3%, still stubbornly above the Fed’s ostensible target for consumer price inflation and another data point likely to bias interest rates higher in the near-term.
The major shift in the US regulatory climate for bitcoin that began last week continued to great fanfare this week, as presumptive Republican Presidential nominee Donald Trump made various widely-publicized promises to protect bitcoin and bitcoin development in an appearance at the Libertarian National Convention. This represents a significant reversal for the former President, who was previously an outspoken opponent of bitcoin during his first term. However, the Biden Administration threw some cold water on this sense of momentum Friday evening via a veto of Congress’s vote to repeal controversial accounting rules that prevent banks from custodying bitcoin (despite bipartisan encouragement to let the repeal stand). We expect rhetoric and promises on these issues from both sides of the aisle to heat up over the summer and into the fall, particularly as more Americans – including JP Morgan’s own Jamie Dimon – grow uneasy about the rising risk of stagflation.
Portfolio Company Spotlight
Fold offers a suite of bitcoin-linked financial services, including the most comprehensive bitcoin-denominated consumer rewards programs. Fold offers both free and premium debit cards that accrue cash-back rewards in bitcoin that can be withdrawn to customer-controlled wallets, as well as a rotating set of gift cards and promotions for top retailers with different levels of bitcoin benefits. Rewards, gift cards, and promotions are managed through an intuitive app that also offers easy bitcoin buying and DCA plans, as well as tools to allow users to leverage their bitcoin in a variety of ways for paying bills and much more.
Selected Portfolio News
In collaboration with the University of Austin, Unchained announced a first of its kind long-term university endowment fund held in bitcoin:
Fold launched a new “Direct to Bitcoin” feature allowing users to receive some or all of their direct deposits in bitcoin:
Mutiny announced the development of Harbor Wallet, a desktop wallet leveraging the team’s recent developments in ecash tools:
Strike added support for LNURL payments directly from users’ Strike accounts:
Fedi added a new global chat feature uniting communications across different federations:
Media
Fold Founder and CEO Will Reeves was featured in a Bitcoin Magazine profile highlighting the company’s strategic roadmap. Will also appeared on a Twitter Spaces diving deeper into Fold’s product suite.
Strike Founder and CEO Jack Mallers appeared on the ITM Trading show with Daniela Cambone to discuss bitcoin, the US banking system, and his personal move away from holding US dollars.
Mutiny Wallet Co-Founders Tony Giorgio and Ben Carman joined the What Bitcoin Did podcast to delve into recent innovations in the field of ecash.
StatMuse published the latest edition of the company’s monthly Muse Letter.
Market Updates
The week was filled with bearish updates for Western banks, particularly those with outsized exposure to the challenged US commercial real estate sector. Shares of BMO and Bank of the Ozarks took large dips as the former missed earnings estimates by a wide margin due to increasing loan loss provisions, while the latter was tagged with a sellside double-downgrade on the back of growing concerns about the bank’s CRE loan portfolio.
Meanwhile, the latest data from the FDIC showed continued elevation in credit loss provisions at US banks and a quarterly increase in unrealized losses in banks’ securities portfolios. The data also showed that the number and total assets of the agency’s “Problem Bank List” increased once again Q/Q, with problem bank assets reaching their highest level since 2014.
Elsewhere, the St. Louis Fed published a new report surveying the oncoming maturity wall for outstanding commercial real estate loans over the next two years, and the Wall Street Journal ran a feature on the weakening commercial property market’s impact on major US pension funds.
Data also looked worse on the residential side this week, as US pending home sales fell by the most in three years and overall activity clocked in at the lowest level since spring 2020.
The latest core PCE reading for the month of April – the Fed’s favored gauge for price inflation – was up 0.2% M/M and +2.8% Y/Y, in line with last month and consensus expectations; however, the metric has now been trending in that range for the past six months, another recent data point potentially indicating stickier than hoped inflation.
At the same time, the Chicago PMI fell to its lowest level since May 2020, marking the index’s sixth consecutive month in contraction territory.
JP Morgan CEO Jamie Dimon said at a conference that the current US fiscal backdrop has him bracing for stagflation in the years ahead.
It wasn’t all doom and gloom for US markets this week, though, as shareholders of GPU giant Nvidia got another post-earnings bump that pushed the company’s market cap to a level exceeding the entire Canadian stock market. The Dow Jones index, meanwhile, closed the week with its best day of the year.
Overseas, new data from Japan’s Ministry of Finance confirmed the market’s suspicion that the Bank of Japan intervened in currency markets for the first time in two years last month following the JPY’s decline to 34 year lows against the dollar. After spending over $62 billion on the intervention, the currency pair remains at ~157, just a few ticks below its recent lows.
Another public US company got onboard the MicroStrategy train this week, as medical technology company Semler Scientific announced the purchase of 581 bitcoin ($40 million) for its balance sheet. The stock immediately jumped nearly 40% before cooling off later in the week.
Global spot bitcoin ETFs surpassed over 1 million bitcoin in net inflows this week, meaning the vehicles now hold nearly 5% of bitcoin’s total fixed supply. At the same time, BlackRock’s just-launched IBIT overtook Grayscale’s long-established GBTC as the largest bitcoin ETF.
Regulatory Update
After months of shifting his tone to a more pro-bitcoin stance, Republican Presidential candidate Donald Trump gave a keynote speech at the Libertarian National Convention where he pledged to protect the right to bitcoin self-custody, to commute the sentence of Silk Road founder Ross Ulbricht, and to support bitcoin development in the US.
The Biden Administration announced it would send a delegation to the inauguration ceremony for El Salvador’s outspokenly pro-bitcoin President Nayib Bukele.
A bipartisan group of US Congressmen and Senators sent a letter to the President urging his office not to veto the recent repeal of the SAB-121 accounting rule that has historically inhibited banks from custodying bitcoin.
The President’s office responded by vetoing the legislation on Friday night, citing a need to protect the “well-being of consumers and investors.”
Noteworthy
The New York Federal Reserve published a report this week surveying the dollar’s declining share in FX reserves of central banks. The report reassures the public that only a “small group of countries” (such as geopolitically minor nations like China, India, and Russia) is actively reducing its dollar preference at this time.
A University of Wisconsin professor argued this week that the state’s flagship pension fund remains underinvested in bitcoin despite its recent purchase of over $160 million in bitcoin ETFs this past quarter.
Marathon Digital, the largest publicly traded US bitcoin miner, announced an agreement with the Kenyan government to optimize the country’s surplus energy resources.
Travel
Austin BitDevs, June 20
Bitcoin 2024, July 25-27
BitcoinMENA, Dec 9-10