Ten31 Timestamp 865,318
The US equity market continued to surge this week, as the ongoing federal spending binge and expectations of falling rates kept the party going even while Treasury yields continued pushing higher and overextended Chinese markets saw a large downdraft. Signs of a two-tiered economy have continued to pile up, including rising credit card delinquency (currently at its highest level since 2011 and potentially going higher based on major bank commentary this week) joining an array of concerning headlines including a frozen housing market in key areas like Florida and a growing category of high-earners feeling increasingly pinched by interest rates and the cumulative impact of this decade’s inflation. With government debt set to continue ballooning regardless of which candidate takes the reins and reported CPI moderating the pace of its decline, we continue to expect more frustrated small businesses, larger corporations, and individual savers to seek out alternative avenues for wealth preservation like bitcoin.
Portfolio Company Spotlight
Fold is a financial services platform providing the most comprehensive bitcoin-denominated consumer rewards programs and a suite of services bridging bitcoin and traditional financial rails. Fold offers debit cards that accrue cash-back rewards in bitcoin that can be withdrawn to customer-controlled wallets, on top of unified checking and bitcoin custody accounts allowing users to seamlessly combine their USD and bitcoin activities to better preserve and grow their wealth. Fold has an exciting product pipeline and is set to achieve a public listing in the near-term with over 1,000 bitcoin on its balance sheet, giving the company one of the largest corporate bitcoin treasuries in the world.
Selected Portfolio News
Fold filed its S-4 as part of the SPAC process with FTAC Emerald Acquisition Corp:
Strike announced pricing tier updates for EU users:
Media
Strike Founder and CEO Jack Mallers led a discussion on bitcoin adoption at the Bitcoin Amsterdam conference.
Ten31 Managing Partner Matt Odell recorded an overview video summarizing why Nostr matters.
Market Updates
In an awkward data point following the Federal Reserve’s first rate cut in over four years, CPI for September came in at +2.4% Y/Y this week, north of expectations and good for the first M/M increase in core CPI since early 2023.
Under the hood, “supercore” inflation ticked notably higher on surging auto insurance costs.
Initial jobless claims also jumped to the highest level in over a year last week (with some of that increase likely driven by Hurricane Helene disruption), though the latest PPI was flat M/M and in line with consensus.
The US budget deficit for the just-ended 2024 fiscal year officially clocked in at $1.8 trillion. This figure came in just below the CBO’s most recent projection back in June, but still represents more than 6% of annualized GDP, an unprecedented level outside of wars or (declared) recessions.
As the US closes out another year of historically profligate spending, a new study out this week suggested the budgets proposed by both Presidential candidates would boost federal debt by $4-8 trillion over the next decade (in addition to the $22 trillion increase already on tap from current budget trends).
On the back of inflecting debt growth and pockets of stickier inflation, yields on US government debt have continued to move higher despite Fed rate cuts, with the benchmark 10-year Treasury breaking above 4% again for the first time in several months. The 10-year is now up nearly 50bps in under a month.
Despite some consternation in the Treasury market, equities continued to barrel higher this week, with the S&P500 making still more new all-time highs to close out the week. The index is now substantially above even the highest year-end forecast published by any of the major banks.
As part of their Q3 earnings updates this week, major banks JP Morgan and Wells Fargo reported that their credit card delinquency rates have returned to 2019 levels. While these are still relatively low rates historically, they align with an ongoing trend of rising delinquencies, which are broadly back to 2011 levels and appear to be moving higher.
Florida’s housing market has seen increasing stress even before this month’s wave of hurricanes, with inventory for single family homes rising more than 50% Y/Y in key markets like Tampa and Orlando following a huge net migration several years ago.
Following a remarkable 25%+ rally since mid-September, Chinese equities took a breather this week after a lack of updates on further government stimulus, leaving the CSI300 down 13% and the Hang Seng down 11%.
MicroStrategy – the enterprise software company that adopted an aggressive bitcoin treasury strategy four years ago at a ~$1 billion market cap – reached market cap parity with Coinbase this week.
Regulatory Update
The United Arab Emirates announced that bitcoin and other cryptocurrency transactions would be exempt from the local value-added tax, with retrospective effect going back to January 2018.
Former Presidential candidate Hillary Clinton argued that the US should repeal Section 230 of the Telecommunications Act (a cornerstone provision that protects digital platforms from liability for the speech of users), extending a line of commentary she and other formerly prominent politicians have been touting in recent months.
Elsewhere in digital speech control, Brazil agreed to lift its ban on Twitter after CEO Elon Musk acquiesced to the local government’s demand for the platform to more tightly control content among Brazilian users.
Noteworthy
TD Bank pleaded guilty to multiple charges related to its failure to monitor money laundering activity in its accounts, resulting in a $3 billion fine (less than half of last year’s net income). These incidents seem to occur with growing regularity among major banks, once again calling into question the efficacy of KYC/AML regulations.
In a similar vein, Fidelity, one of the world’s largest and most sophisticated asset managers, confirmed that a data breach compromised the personal information (including social security numbers and driver’s licenses) of over 77,000 customers, just the latest in a long string of incidents showing the vulnerability of centralized pools of sensitive user data.
Prolific eCash and Nostr developer Calle released a tool for improving automatic audits of Cashu mints.
Bitcoin Core disclosed three vulnerabilities affecting versions prior to v25.0.
Bitcoin developers Josie Baker and Ruben Somsen announced the launch of 2140 Foundation, a charitable organization focused on long-term support for bitcoin protocol developers and maintainers.
The Wall Street Journal ran a feature this week on the emerging phenomenon of HENRYs – Americans described as High Earners, Not Rich Yet – who report feeling increasingly pinched by debt and rising inflation despite nominally high salaries.
Travel
Austin BitDevs, Oct 17
Lugano Plan ₿ Forum, Oct 25-26
BitcoinMENA, Dec 9-10