Ten31 Timestamp 863,225
After several years of attempts at global tightening, the liquidity dam seemed to break open this week with China moving to aggressively stimulate its stagnant economy, driving the biggest moves for local stock indices in over 15 years. The US M2 money supply also continued its recent uptrend and is now approaching its all-time high as the S&P500 once again set new records and bitcoin broke $65,000 for the first time in several months. We make no near-term price predictions, but with global rates cresting and the Executive Branch likely to be occupied by one of two profligate spenders, bitcoin looks set to repeat its historical post-election trajectory. However, the week also brought several unwelcome developments on the legal and regulatory fronts, most notably a judge’s opinion from the ongoing Tornado Cash trial that control of funds is not a required condition for money transmission and that code is not protected speech under the First Amendment (which appears, in our amateur interpretation, to be a departure from a key precedent set in the 1990s). A final resolution to these questions is still likely years away, but in the meantime we highly recommend all readers peruse Ross Stevens’s well-timed essay released just this week on bitcoin’s firmly established First Amendment protections.
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
Fold announced a partnership with BitGo that will revamp Fold’s custody and trading capabilities while reopening service for users in Texas:
Media
Unchained’s VP of Product Marketing Phil Geiger joined Ten31 Managing Partner Matt Odell on a recent episode of Citadel Dispatch.
Ten31 Managing Partner Marty Bent appeared on BlazeTV to discuss key policy differences heading into the November Presidential election.
StatMuse published the latest edition of its monthly Muse Letter.
Market Updates
The broad market euphoria touched off by last week’s first Federal Funds Rate cut in over four years was amplified this week by newly announced initiatives from the People’s Bank of China aimed at stimulating lending and asset prices.
In addition to the typical rate cuts and easier lending standards, the PBOC’s new measures will also include direct loans to investment funds to buy Chinese stocks. China’s CSI300 Index closed the week up more than 15% on the news.
The latest data points suggest the US is swiftly taking a more stimulative stance as well, as the M2 money supply grew by 1% in August and is now less than 3% away from the all-time high set in early 2022.
Meanwhile, Democratic Presidential candidate Kamala Harris outlined a plan for $100 billion in new tax incentives for US manufacturing to go along with her $25,000 subsidy for first-time homebuyers announced last month, the latest reminder that neither Presidential candidate is likely to be a deficit hawk.
After a slew of negative macro headlines over the past month, the US saw several positive updates on the week, including lower initial jobless claims and pending home sales finally inching up from record lows.
Additionally, the PCE index, the Fed’s favored barometer for price inflation, continued to fall sequentially last month, coming in at +2.2% on the year for the lowest reading since February 2021.
Following rumblings pointing in this direction last week, BNY – the world’s largest custodian – confirmed this week that it has been approved to serve as a custodian for bitcoin ETFs and will not have to follow the SAB-121 accounting guidance that has effectively restricted traditional banks from serving this market.
BNY initially indicated that its approval was limited to the narrow ETF use case, but SEC Chairman Gary Gensler suggested later in the week that BNY’s proposed custody structure would be approvable outside the scope of ETFs as well.
The 6-month “HODL wave” – a measure of the percentage of bitcoin UTXOs that have not moved in at least 6 months – has taken a sharp upward turn and is nearing all-time highs.
Regulatory Update
The US government’s case against the developers of Ethereum-based privacy tool Tornado Cash took a troubling turn this week, as the court’s decision to move the trial forward included opinions that money transmission does not require custody of funds and that code is not protected speech under the First Amendment (contrary to a landmark case from 1996 establishing the opposite).
SEC Chairman Gary Gensler once again publicly reiterated that bitcoin is not a security.
Unfortunately, Gensler also indicated this week that he would shortly rule on proposed amendments to the Securities Exchange Act which would expand the definition of “exchange” and resulting registration requirements to any system or actor that provides “communication protocols,” a change that could impact a broad array of software.
Noteworthy
NYDIG Founder and CEO Ross Stevens published a comprehensive and aptly timed essay detailing the robust case for bitcoin’s protection as speech under the First Amendment.
BOLT12 – a long-awaited enhancement to bitcoin’s lightning network that adds new functionality including reusable invoices and recurring payments – was merged into the lightning specification.
A group of developers demonstrated the first set of live transactions using the Ark protocol on bitcoin mainnet.
Bitwise CIO Matt Hougan published a piece detailing his observations of rapidly growing interest in bitcoin among the financial advisor community.
Following the arrest of Telegram’s founder last month, the messaging platform updated its privacy policy to state that it will provide user data, including IP addresses and phone numbers, in response to a valid court order (in contrast to the prior policy whereby Telegram would only provide such information in the case of suspected terrorism).
Travel
Nashville BitDevs, Oct 8
Austin BitDevs, Oct 17
Portfolio Company Retreat, early October
Lugano Plan ₿ Forum, Oct 25-26
BitcoinMENA, Dec 9-10