Ten31 Timestamp 861,314
In two parallel developments we think may be related, both US federal interest expense and bitcoin network hashrate have continued to move parabolically up all year, with both reaching notable new all-time highs this week. Interest on federal debt broke $1 trillion for the fiscal year for the first time in history (after surpassing that mark on an annualized basis last year), and at the current growth rate the interest line item will likely surpass Social Security spending to become the single largest federal outflow sometime in the first half of 2025. While the US may still be the cleanest dirty shirt – as signaled again this week by China’s announced plans to raise its retirement age in response to structural demographic issues – the reality of compound interest and the unavoidable need to avoid technical default at all costs seems to point to only one release valve, which may be on display as the Federal Reserve prepares to finally cut benchmark interest rates at its upcoming meeting this week. Regardless of near-term Fed policy tweaks or upcoming Presidential election results, we think the nearly unstoppable increase in bitcoin network hashrate – even amid historically low hasprice levels – clearly signals that more market actors are recognizing that reality every day.
Portfolio Company Spotlight
Coinkite develops and manufactures best in class consumer tools for interacting with bitcoin, including the Coldcard Q and Mk4 – two highly secure hardware signing devices that set the standard for private key custody – physical bearer instruments (Opendime and Satscard), an NFC-enabled card for signing transactions (Tapsigner), and much more. The company’s product portfolio balances security with usability and includes some of the most widely used products in the bitcoin ecosystem among both consumers and institutions.
Selected Portfolio News
Coinkite announced a new firmware upgrade with an extensive set of new features for the Coldcard:
Unchained launched new options for setting up and managing donor-advised funds:
Media
Ten31 Managing Partners Grant Gilliam and Matt Odell hosted a panel with Block CEO Jack Dorsey, Strike CEO Jack Mallers, and Debifi CEO Max Keidun at last month’s Baltic Honeybadger conference.
Grant also participated in a discussion on early-stage investing with Cathie Wood at July’s Bitcoin 2024 Conference.
Market Updates
The CPI print for the month of August – the last key inflation data point ahead of the Federal Reserve’s next meeting in the coming week – came in roughly in line with consensus at 2.5%, down 40bps M/M for the lowest reading since February 2021.
Stock indices slumped on the report as “core” inflation (CPI ex-food and energy) remained stuck well north of 3%. However – and stop me if you’ve heard this one before – the market quickly recovered, with the S&P500 ending the week once again near all-time highs.
Ahead of the Fed’s next FOMC meeting this coming week, investors have largely positioned for the first benchmark rate cuts since 2020, and the market is now pricing in a ~50% probability of a 50bps cut in a few days.
The Wall Street Journal’s Nick Timiraos – generally considered to be the central bank’s key press contact – reported this week that many officials are leaning toward 50bps.
As the Fed prepares for its long-awaited first rate cut, the 2s10s yield curve just “dis-inverted” (i.e. returned to positive territory) for the first time in over two years, a reversal often considered a heuristic for near-term recession.
Meanwhile, Ally Financial’s CFO flagged growing stress among the bank’s borrowers, noting that “credit challenges have intensified” over the course of this quarter.
As the federal government continues to pile up record peacetime deficits and adds roughly $1 trillion to the US’s national debt every 100 days, US federal interest payments surpassed $1 trillion in a single fiscal year for the first time this week (with ~1 month still left in the year).
Overseas, the European Central Bank cut its benchmark interest rate for the second time in three months, though suggested it would not cut again soon without evidence of further economic deterioration.
Elsewhere, in a signpost for the governments of many developed economies, China announced it will increase its retirement age for the first time since the 1950s starting next year, the latest sign of the country’s growing strain from poor demographic trends and lingering post-Covid stagnation.
Bitcoin mining difficulty set another all-time high this week as network hashrate has continued to scream higher even as hashprice remains historically low.
Regulatory Update
US Congressman John Rose introduced the BRIDGE Digital Assets Act, a new bill seeking to create a joint committee between the SEC and CFTC to preside over cryptocurrency regulation.
The Federal Reserve sent a cease and desist order to United Texas Bank related to the institution’s handling of accounts linked to cryptocurrency activity, the second such order from the Fed in the past month.
Prominent exchange Kraken removed support for bitcoin’s lightning network in Germany, prompting speculation of growing regulatory headwinds in the country (though Kraken later indicated the change was related to unspecified technical concerns).
Noteworthy
TEPCO, Japan’s largest electricity producer, announced the expansion of bitcoin mining activities by one of its subsidiaries following the start of its pilot program in late 2022.
OpenSats announced new long-term support grants for the creator of WireGuard, a secure VPN protocol, and Mike Dilger, a forward-thinking developer focused on the Nostr ecosystem.
Travel
Austin BitDevs, Sep 19
Portfolio Company Retreat, early October
Lugano Plan ₿ Forum, Oct 25-26
BitcoinMENA, Dec 9-10