Ten31 Timestamp 924,715
Investors decided it was time to do the meme again, as rising volatility in traditional markets helped send bitcoin “crashing” all the way to $80,000, a level that virtually all mainstream financial pundits would have deemed absurdly unachievable just a few years ago. Bears who have been ardently assuring everyone that bitcoin is a digital tulip bubble since $100 came out of the woodwork to take their customary victory laps on the drawdown, all while the federal government continues to roll $550 billion (with a “b”) in short-term Treasury bills per week and equities whipsaw around trillions in daily notional value based on the closed-door utterances of career academics who have never held a private sector job. We tend to avoid any prognosticating on near-term price action, but with the geopolitical game board continuing to fracture; a divided Fed continuing to waffle in the face of tightening liquidity and a weakening labor market; and the President continuing to ramp up his push for direct stimulus payments to voters (while apparently deciding that New York’s socialist mayor has some good ideas, actually), the case for a neutral, scarce, permissionless reserve asset has never been clearer in our minds. The best thing to do now is probably just to stop watching the charts and grab a beer with the Treasury Secretary at DC’s new bitcoin bar.
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Selected Portfolio News
Despite the volatility, Strike saw record volumes on Friday of this week:
Debifi introduced its new bitcoin-collateralized prepaid Visa cards:
Media
Strike Founder and CEO Jack Mallers joined Kitco News to discuss this week’s bitcoin volatility:
Market Updates
A turbulent week dominated by Fedspeak tea leaves kicked off with Fed Governor (and Fed Chair shortlist nominee) Christopher Waller publicly endorsing another rate cut at the central bank’s December meeting due to signs of labor market deterioration, contrary to the swiftly developing market consensus for no cuts that has hammered risk assets in the past couple weeks.
However, Waller’s comments were also much more restrictive on the Fed’s balance sheet, as he noted the central bank should have stopped its decade-long QE program much sooner, and he believes markets are capable of “taking a beating” just fine without Fed support. We’re interested to see how much conviction Mr. Waller might have in that view if and when equity volatility bleeds into Treasury volatility, as it has on every single material drawdown in the past five years.
New York Fed Governor John Williams – whose views may be more influential than some of the more hawkish members of the Fed Borg – came out in agreement with Waller’s rates commentary on Friday, noting he sees “room for further adjustment” to rates on the back of labor market concerns.
Mr. Williams’s comments were enough to spark a late-week rally after a brutal intra-day reversal in equities on Thursday, as the market failed to sustain strength from the latest blowout Nvidia earnings print (partially because everyone is now apparently an expert on GPU depreciation schedules).
All that said, the latest Fed minutes from last month’s meeting point to clear reluctance toward a cut in December, so it remains uncertain where the final decision will land, particularly given a large gap in official data due to damage to the “federal statistical system” sustained during the shutdown.
In particular, the Bureau of Labor Statistics said it will not be able to publish employment or inflation data for October, so the next set of updates will come in mid-December, after the upcoming FOMC decision.
For what it’s worth, the long-delayed September Non-Farm Payrolls figures came back better than expected, though the unemployment rate ticked to its highest level since October 2021 and August figures were revised down slightly. On a rolling six month average, private payrolls growth hit a cycle low in September.
As the Fed waffles back and forth on their vision for the world’s price of time, President Trump indicated he has made a decision on his pick for the next Fed Chair. While he didn’t specify a name, he suggested it would be a “politically correct” choice, potentially hinting at current Governors Waller or Michelle Bowman (though Kevin Hassett remains the Polymarket frontrunner).
The President continues to have an itchy trigger finger on this point, reiterating in a speech this week that he’d love to fire Jerome Powell now, but Treasury Secretary Scott Bessent (whom he also joked about firing) is holding him back.
Whatever the final decision, the administration’s focus on lower rates may continue to be frustrated next year, as Fed Whisperer Nick Timiraos published a piece in the Wall Street Journal highlighting growing divisions at the central bank that may persist regardless of who holds the Chairman’s role next. For our part, we continue to feel like this is somewhat linear thinking that underappreciates what time it is.
Outside the beltway, some signs of green shoots in the real economy were apparent, with an extremely strong Atlanta Fed GDPNow reading pointing to 4.2% growth in Q3 and the highest reading for the Empire State Manufacturing Index all year (offset by some less encouraging elements under the hood).
On the flipside, Kevin Hassett acknowledged that the growing adoption of AI could be causing a “quiet time” (i.e. just a little gully) in the labor market, which stands to further aggravate the nation’s growing K-shaped economy.
Meanwhile, a BlackRock CLO portfolio that contained the written-off Renovo loan discussed in this newsletter last week failed a key overcollateralization test as underperforming loans in the book have started to mount.
In a similar vein, a new Bank of America research report showed that ~25% of all Americans (and over 30% of lower-income Americans) are now living paycheck to paycheck, reflecting a steady increase over the past few years.
To counter potential pressure on the lower-income part of the market (and, incidentally, shore up his voting base for midterms), President Trump said that his proposed “tariff dividends” will be paid out by the middle of next year, and Senator Josh Hawley officially introduced legislation to bring this into reality.
On a potentially related note, the President hosted Zohran Mamdani – New York City’s recently elected socialist mayor – at the White House and commented that their ideas have more similarities than many people realize.
Internationally, US-China relations moved slightly toward a quiet détente this week, as China ramped up US soybean purchases in a sign of commitment to October’s trade truce, while sources suggested the Trump administration is considering opening up Nvidia H200 accelerator shipments to China.
Tellingly, the Trump administration has reportedly offered a peace plan to Ukraine that will include major territory concessions to Russia, once seen as a red line for the country. This outcome is difficult to square with the ostensible dominance of a military whose strength implicitly backs the dollar system (unless, of course, said military can’t reliably outproduce its rivals, which a cynical observer might see as somewhat problematic for that same dollar system).
At the same time, the US is turning its military intimidation tactics south, with the New York Times running an op-ed making the case for regime change war in Venezuela (as with the Iraq debacle 20 years ago, we look forward to the memoryholing of this editorial once it’s politically expedient in a couple years).
To be fair to the Strategery at play, there’s a non-zero chance the Ukraine deal and Venezuela escalation are directly related.
Elsewhere, the USDJPY cross rate is ripping higher once again, now testing 30+ year highs put in late last year. This may or may not have implications for the “Yen carry trade” that became a focal point for investors after last August, though several factors look very different this time around.
All the uncertainty was too much for bitcoin to bear this week, as the orange coin fell close to the $80,000 level for the first time since this spring, exacerbated by record ETF outflows so far in November.
By many metrics, this month’s performance marks the worst month for the corn since FTX collapsed, though interestingly this is all happening with bitcoin over 5x above the moment of that particular capitulation. There may be a lesson in there.
Despite the falling knives, Bloomberg ran a notable feature this week on Abu Dhabi’s recently disclosed bitcoin investment, including a quote from the group that they “view bitcoin as a store of value similar to gold” and see bitcoin as part of the fund’s “near and long-term strategy.”
Meanwhile, Harvard’s massively increased bitcoin position was featured in Pensions & Investments magazine, and El Salvador’s pro-bitcoin leader Nayib Bukele indicated the country has purchased another $100 million bitcoin slug.
Finally, famed hedge fund manager and Long-Term Debt Cycle noticer Ray Dalio said in a CNBC interview that he’s had 1% of his portfolio in bitcoin “forever,” but also said it won’t ever be a major reserve currency because something something quantum computing.
Regulatory Update
New Hampshire approved the world’s first $100 million bitcoin-backed municipal lending facility, which could eventually pave the way for a more straightforward bitcoin-backed municipal bond.
Congressman Warren Davidson introduced the Bitcoin for America Act, which would allow citizens to pay taxes directly in bitcoin without creating an additional tax liability.
Senator Tim Scott indicated the Upper Chamber will hold a vote on the “market structure bill” in December.
Noteworthy
JP Morgan research flagged growing concern that index provider MSCI – whose various indices indirectly influence the composition of many ETFs held in brokerage and retirement accounts – may remove MSTR from its equity baskets as it reevaluates the “digital assets treasury” strategy, prompting increased consternation among an already beaten-down shareholder base.
Strategy Executive Chairman Michael Saylor publicly responded on Friday, listing all the reasons MSTR should continue to be included in the MSCI baskets.
The Financial Times reported that Swiss banking giant UBS and Treasury Secretary Bessent have discussed moving the bank’s domicile to the US in response to what UBS views as excessive regulatory requirements in Switzerland, a move that – while far from guaranteed to take place – could potentially have significant implications for US liquidity expansion.
A team at Starkware published a blog post on adding zero-knowledge proofs to the Cashu protocol, potentially adding further programmability to bitcoin-based ecash without sacrificing privacy.
Travel
Bitcoin MENA, Dec 8-9