Ten31 Timestamp 855,247

Aug 03, 2024

Volatility violently reared its head again for the first time in nearly a year this week as jobs, manufacturing, and commercial real estate data all rolled over just as the Bank of Japan put further pressure on popular carry trades that have likely given some lift to US equity markets in recent months. The unemployment rate came in well above expectations as the Nasdaq entered correction territory and calls for an imminent recession abounded in mainstream news outlets. With the Fed now finally poised to cut benchmark rates right on the cusp of what could be a significant slowdown, we wouldn’t expect bitcoin to escape any near-term broad market drawdowns totally unscathed, but all fundamentals for the network continue to look stronger by the block, with total hashrate reaching a new all-time high this week, major financial advisors increasingly opening up access to bitcoin ETFs, and politicians of all ideological bents looking for new ways to appeal to bitcoin users.

Portfolio Company Spotlight

Stakwork is a cloudsourcing platform that combines the power of humans, AI, and the lightning network. Stakwork empowers a globally distributed ecosystem of workers, predominantly in emerging markets, who can opt in to automated microtasks driven by algorithmic tools designed to aggregate the completion of complex, repetitive work on behalf of customers seeking to outsource tasks. Stakwork’s services range from data annotation to image and video processing, which pair AI-based processing with human oversight as appropriate. The human input from these microtasks feeds into a Reinforcement Learning from Human Feedback (RLHF) mechanism for various machine learning models and toolkits, helping to train these tools and expand the scope of what’s possible with automation. Anyone can opt in to complete Stakwork’s tasks and can be paid in bitcoin over the lightning network without needing a bank account or even an email address.

Selected Portfolio News

Strike rolled out a new target orders feature:

Media

Fold’s recent announcement about its upcoming public listing was featured in a New Money profile.

Ten31 Managing Partner Matt Odell joined the latest ARK Bitcoin Brainstorm podcast to discuss funding and supporting open source developers.

Mempool.space Co-Founder and CEO Wiz gave a keynote presentation at the Bitcoin 2024 conference to discuss the company’s new Mempool Accelerator.

The Mempool.space team also joined Matt Odell on a recent episode of Citadel Dispatch.

Unchained’s Trey Sellers was a featured guest on a panel at the Bitcoin 2024 conference.

GRIID CSO and Ten31 Advisor Harry Sudock appeared on a recent episode of the Galaxy Brains podcast to discuss bitcoin mining and bitcoin’s increasing mainstream acceptance.

Market Updates

Wall Street’s eyes were firmly fixed on the Fed once again this week, as the central bank maintained its benchmark interest rate to mark nearly a year with rates unchanged. Fed Chairman Jerome Powell noted more confidence on recent progress with reported inflation and suggested a rate cut could come at the next meeting in September.

However, positive news for the market’s long-awaited rate cut was not enough to offset what looked like rapid deteriorations in key macro indicators this week, including a jobs report that pointed to much worse than expected payrolls and an unemployment rate of 4.3%, the metric’s highest reading since October 2021.

Unsurprisingly, prior headline jobs figures were once again revised down, with job growth still almost entirely explained by part-time work.

The latest data for a closely watched gauge of US manufacturing showed similar pressure, as the ISM’s PMI metric declined to 46.8, sharply below both consensus and last month’s reading. This marks the fourth consecutive sequential decline and nearly two years of <50 readings (which indicate general contraction).

Chapter 11 bankruptcy filings have also continued to spike, pushing to levels last seen since 2011.

These updates drove a brutal few days for equity indices to close out the week, with the Nasdaq down 11% from July highs. Meanwhile, the 10-year US Treasury yield fell to lows not seen in nearly a year as the flight to safety trade took hold and investors ramped up bets on faster rate cuts.

Amid the bearish headlines, US national debt eclipsed $35 trillion this week, adding about $1 trillion over just the last six months. Federal debt and deficits relative to GDP are already the highest in history outside of recessions, putting government finances in an awkward position if recent headlines are pointing toward an imminent slowdown.

The US commercial real estate backdrop isn’t getting much better either, as commercial foreclosures have inflected upward to nearly 10-year highs. While the Wall Street Journal tried to call a bottom on the market, Bloomberg suggested the sector’s pain is just getting started based on a slew of negative headlines that hit this week.

Macro pain was intensified by overseas developments, with the Bank of Japan raising benchmark interest rates and driving a steep upward move in the Yen, which has strengthened 10% in the past month, combining with falling US yields to unwind a prominent carry trade that has been a tailwind to US asset markets.

Despite the macro noise and a move to the lower end of its recent trading range, bitcoin saw several fundamentally positive headlines this week. Most notably, global network hashrate ripped to new all-time highs after a mid-summer pullback.

Meanwhile, Morgan Stanely became the first major bank to allow advisors to actively pitch bitcoin ETF allocations to clients, opening the vehicles up to proactive solicitation by a network of ~15,000 advisors.

Regulatory Update

A week after his hotly anticipated stump speech at the Bitcoin 2024 conference, Republican Presidential candidate Donald Trump suggested the federal government could use bitcoin to tackle the US’s ballooning national debt.

In the latest sign of officials on both sides of the aisle seeking to curry favor with bitcoin users and businesses, California Congressman Ro Khanna will host another meeting focused on helping Vice President Kamala Harris better appeal to the bitcoin and cryptocurrency industries.

Russia passed two new laws related to bitcoin which will legalize mining activities in the country (though under the auspices and surveillance of the Bank of Russia and other regulators) and establish a pilot program allowing authorized companies to conduct cross-border settlements with bitcoin (though, again, these transactions will require licenses, and bitcoin transactions within the country’s borders remain illegal).

Noteworthy

Goldman Sachs CEO made incrementally positive comments on bitcoin this week, saying it “could be a store of value” akin to gold, the latest example of prominent finance executives growing warmer on the asset.

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