Ten31 Timestamp 856,187

Aug 10, 2024

The fragility of legacy financial markets was on full display this week, with Monday’s near-record spike in volatility dwarfing the prior week’s turbulence. A mere 25bps rate hike by the Bank of Japan was the straw that broke the highly leveraged camel’s back, and the ensuing chaos spurred leading financial pundits to call for massive emergency Fed rate cuts before the market had even opened on Monday morning. The Bank of Japan quickly backed off its more aggressive rate-hiking tone in the wake of the meltdown – which pushed the country’s Nikkei index to its worst one-day session since 1987 and entirely reversed all its YTD gains – raising questions about just how aggressive global central banks can really be in trying to combat inflation or speculative excess.

As we projected last week, bitcoin was not immune to the global selloff pressure, and it absorbed most of its panic selling over the weekend while every other market was closed, dropping nearly 20% to lows just under $50,000 before whipsawing back above $60,000 shortly thereafter. As always in a panic, investors sold what they could, not necessarily what they wanted, but the important point to us is that through the brief (but likely incomplete) crisis, bitcoin was the only monetary network in the world open 24/7/365 with no discretionary monetary policy to tweak up or down. Every volatile drawdown in the supposedly safe assets underpinning global retirement accounts brings further attention to bitcoin continuing to produce blocks every 10 minutes with no regard for swings in investor sentiment and no central planning committee to beg for a sudden, ad-hoc change to its issuance policy. We expect the world will only continue to better understand this key value proposition as the amplitude of market gyrations grows from here.

Portfolio Company Spotlight

StatMuse is a platform for online search powered by proprietary natural language processing (NLP) technology purpose-built to answer trillions of conversationally phrased queries. Users can query StatMuse with highly specific, conversational searches and receive instant answers rather than scrolling through databases or parsing through less relevant articles produced by traditional search tools. StatMuse was well ahead of the curve in its approach to natural language search, integrating this model years ahead of Google, and now offers an unmatched repository of sports data on the NBA, NFL, MLB, and more. The site also offers a growing data set for finance queries and has an exciting pipeline of new features. StatMuse has achieved explosive organic engagement, with over 100 million searches in just the first quarter of this year and many more to come as the platform expands into other search verticals and new applications.

Selected Portfolio News

Fedi officially launched the full release of its app, which will give global communities user-friendly access to bitcoin-linked payments as well as stable balances, integrated chat features, and more:

StatMuse rolled out new data for La Liga:

Media

Ten31 Managing Partner Matt Odell hosted an interview with Michael Saylor at Bitcoin Park during last month’s Bitcoin 2024 conference.

StatMuse’s rapidly growing Muse Network was featured in SLAM, a major outlet for basketball fans worldwide.

Strike’s engineering team published a blog post detailing the company’s approach to efficiently scaling on-chain sends.

Market Updates

This week opened with a bang as the VIX index – a popular gauge of stock market volatility – spiked to its highest level since March 2020 on the back of rapidly changing overseas market conditions.

This latest round of turbulence seemed to be touched off by the Bank of Japan’s decision to increase its benchmark interest rate by *checks notes* 25bps and its incrementally tougher stance on monetary policy, a move that sent the USDJPY ripping higher and the Nikkei stock index cratering to its worst one-day move since 1987’s “Black Monday” crash. Both the Yen and the Nikkei have now almost completely round-tripped their respective losses / gains on the year.

Macro pundits everywhere quickly came out of the woodwork to bemoan in unison the unwinding of the Yen carry trade, which may or may not have run its course after Monday’s cascading liquidations.

Thanks to the volatility, the Bank of Japan assured markets later in the week that it would not tighten further “while markets are unstable” (raising the question of when they’ll ever be able to successfully and aggressively tighten).

Back in the States, Wharton professor Jeremy Siegel took to the airwaves before Monday’s opening bell to declare the need for an immediate emergency rate cut of at least 75bps, and the Fed’s Austan Goolsbee assured the market that if the US economy falters, the central bank will simply “fix it.”

Meanwhile, after the S&P500 had its worst day in months to start the week – ending Monday down a whopping 3% – the index had recovered almost exactly to its closing level one week prior by Friday’s close.

Weekly initial jobless claims declined and came in better than expected on the week, which drove some additional relief for markets following last week’s gloomy non-farm payrolls report (though this might have just been an artifact of seasonality).

Additionally, after the latest ISM manufacturing data came in well below expectations last week, the latest US services index beat consensus slightly this week.

US Treasury yields continued to fall precipitously as the traditional “safe haven” trade took hold early in the week, with the 10-year yield going as low as 3.66%, down ~100bps vs levels just seen just two months ago. However, the latest 10-year auction this week was the weakest in nearly two years, as demand was light for longer-dated US debt with a <4% yield. The 10-year closed the week just under 4%.

Regulatory Update

Following the Trump campaign’s more positive overtures toward the bitcoin community over the past several months, various Democrats and party supporters launched a “Crypto for Harris” campaign to target voters in the ecosystem.

A new report this week suggested the SEC has sent subpoenas to at least three “crypto” venture capital firms this week focused on those firms’ involvement in proprietary token deals, suggesting the agency is not backing off its view of non-bitcoin cryptocurrencies as unregistered securities.

Noteworthy

Hudson Bay Capital published a paper by economists including noted bitcoin skeptic Nouriel Roubini arguing that the US Treasury Department has effectively been performing “stealth QE” via substantial changes in the mix of its debt issuance toward shorter-term notes with less interest rate risk.

A group of bitcoin researchers disclosed a hardware wallet security vulnerability dubbed “Dark Skippy,” which could allow malicious firmware to compromise the entropy of signatures produced by the wallet and effectively open a path for an attacker to learn a wallet’s private key through broadcasted transactions. Mitigations against this potential attack include maintaining physical security of devices, using a multi-signature wallet, using only source-viewable firmware with reproducible builds, and more.

Several UK citizens were arrested this week due to social media posts ostensibly spreading “misinformation” or inflammatory sentiments amidst recent social unrest in the country, and the UK government posted an ominous warning to “think before you post” online.

Meanwhile, Pakistan is ramping up efforts to enforce a national firewall and crack down on the use of VPNs, increasing the local government’s capacity for online surveillance. These developments in both the UK and Pakistan point to a growing appetite for online speech controls around the world that highlight the need for decentralized, anonymity-preserving communication protocols like Nostr.

OpenSats continues to support that mission, announcing its latest wave of grants to Nostr projects and developers this week.

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