11/14/24 Roundup:
Price Discovery is Here
Onramp Weekly Roundup
Written By Mark Connors & Brian Cubellis
Before we get started…
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And now, for the weekly roundup…
Mark Connors’ Macro Corner…
- Price Discovery is Here
Chart of the Week…
- Record-setting bitcoin ETF flows
Quote of the Week…
- Bitcoin is a tool, like the internet
Podcasts of the Week…
- The Last Trade / Scarce Assets / Wake Up Call
Price Discovery is Here
First the scorecard, then the explanation.
Bitcoin is yet again the leader in the clubhouse MTD, YTD, and over most any time frame as illustrated below.
Some attribute bitcoin’s November rally through $93,000 to the ‘Trump Bump’.
Maybe. But we think a large component is endemic, as our colleague Jesse Myers articulated in a recent post.
We are roughly seven months into bitcoin’s fifth epoch. Historically, major price moves have ensued in the 18 months following new epochs (or reward halvings). So, we remain in a period of price discovery as market participants push the price to new levels until an equilibrium is reached.
Of course, there are also exogenous factors that impact this trajectory, such as inflation and potential demand shocks.
Yesterday, the CPI print came in a modesty higher, but overall as expected at +2.6% with Core CPI (ex-food & energy) at +3.3%. While 2.6% seems like a small number, the compounding of these steady price increases are material over time, as the chart below shows.
Second, there are reasons to believe the CPI calculation is not representative of actual household spending including, but not limited to, shelter at +4.8%, which is based on a contrivance dubbed “owners’ equivalent rent” as well as other methodologies such as substitution, which is rife with assumptions.
Market reactions diverged as a 25 basis point Federal Funds rate cut in December is still the consensus expectation, while a steepening yield curve and rising USD suggest higher rates.
So market participants DO think the Fed will cut in December, but believe that the general level of rates are going higher, fueling the pop in the USD to a critical level of resistance.
Markets are clearly pricing in more inflation with Trump given the 15 basis point steepening in the US Yield curve as measured by the 2Y vs 10Y. The curve was flat on November 6th, and now stands at 18 basis points.
The USD index (DXY, 106.48) is in the 95th percentile based on the past 20 years of data. Odd, because USD strength is often a result of a high Fed Funds rate relative to the rest of the G-10.
Something does not add up or markets are saying that both will happen. The Fed will cut AND the US yield curve will move higher in a bear steepener. The rise in U.S. rates will augment the already large U.S. deficit of ~7% of GDP, which may have fueled bitcoin’s recent rally through $93,000. At this morning’s price of ~$91,300, it is the 7th largest asset in the world, just ahead Saudi Aramco.
Higher rates, a stronger USD, and a bullish equity market pressing new ATHs, is unusual, but manifesting from the expected business friendly and profligate fiscal policy by the Trump administration.
Among these muddled market signals in TradFi and potential for an increased US deficit from interest expense, we are not surprised to see the clear and constructive signal from bitcoin’s price.
Chart of the Week
“$IBIT has hit the $40b asset mark (a mere two wks after hitting $30b) in a record 211 days, annihilating prev record of 1,253 days held by $IEMG. It’s now in Top 1% of all ETFs by assets and at 10mo old it is bigger than all 2,800 ETFs launched in the past TEN years.”
Quote of the Week
“Remember that until 1991, commerce on the Internet was illegal. Lawmakers were concerned that the open exchange of information would facilitate money laundering, terrorism, scams, and use up lots of energy…
The proliferation of the Internet was a deliberate policy choice by the United States. We got rid of bad laws, passed good ones, and poured tens of billions of dollars into internet research, development, and access.
Our investment has paid for itself countless times over. The Internet led to incredible economic growth and spread democratic values across the globe.
Now we have the same opportunity with Bitcoin, a network which does for value what the Internet did for information.
The argument isn’t that Bitcoin will be used exclusively for salutary ends. It’s a tool.
The argument is that the U.S. can safeguard its financial future, drive economic growth, counter its rivals, export its values, and promote human rights… all by investing in Bitcoin.”
Podcasts of the Week
The Last Trade E073: The Orange Wave with Larry Lepard & David Foley
In this episode of The Last Trade, Larry Lepard & David Foley join to discuss the orange wave, strategic bitcoin reserves, the sound money imperative, govt policy implications, asymmetry & market cycles, & more!
Scarce Assets E022: Eric Weiss – Accelerating Bitcoin Adoption
In this episode of Scarce Assets, the great Eric Weiss joins hosts Andy Edstrom & Jesse Myers to discuss corporate & nation-state adoption, bitcoin as the hurdle rate, the future of energy production, navigating price discovery, & more!
Wake Up Call (11.12.24): Kristin Stroud & Matt McClintock
In this episode of Wake Up Call, hosts Rich Kerr & Mark Connors are joined by Kristin Stroud & Matt McClintock to discuss the importance of tax & estate planning in bitcoin ownership, the custodial realities of the asset, & more!
Closing Note
Onramp provides bitcoin financial services built on multi-institution custody. To learn more about our products for individuals and institutions, schedule a consultation to chat with us about your situation and needs.
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Until next week,
Mark Connors & Brian Cubellis