Week of June 17th
Another week of Bitcoin range-bound trading with a negative bias. Alt coins had a difficult week and the lack of positive narratives, combined with low volumes, contributed to negative sentiment. This week we look at the macro picture, go into some depth on the Microstrategy convertible and have some comments on the political machinations of the week.
Weekly Crypto Watch
Macro Watch
In the News
CPI moderates but Fed talks tough
Last weeks CPI print of 3.3% vs an expectation of 3.4% led to a risk asset rally until the Fed statement, hours later threw cold water on the party. The aggregate result is rate cut expectations continue to moderate while the Fed "dot plot" of member forecasts continue to wide. While it seems clear that the weakness in Crypto assets is somewhat linked to the perception that the Fed is going to continue their hawkish stance, it is equally possible, considering the low volumes that Bitcoin is just meandering down (slowly) towards the bottom of its recent trading range, Ethereum continues to be volatile as investors wait for clarity of its ETF filings and ALT coins such as Solana continue to sell off as the fast money crypto crowd pulls its money into cash to await the "next big thing". In short, we are still in an intermezzo between the excitement of the Bitcoin ETF and the halving and the post summer resumption of volume/interest in the market.
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Microstrategy launches another Convertible Note
Microstrategy launched another convertible note last week for what was originally thought to be $500 million, but the offering was upsized to over $700 million. The note, which carries a 2.25% coupon has a conversion price set at roughly a 35% premium to MSTR common stock at the time of the closing. This note is significant because of the demand for it, the precedent that it is setting and how it provides a path for future Bitcoin price appreciation.
The demand for the note is unsurprising to me, as there are many investors who want to gain upside exposure to Bitcoin, which many analysts can grow 1000% or more from these levels, without taking substantial downside risk. This type of strategy has historically been extremely popular with large capital pools in emerging markets and, in my opinion, Mr. Saylor is tapping into that demand.
Meanwhile, when considering the precedent, it is important to note that Mr. Saylor has held multiple conferences for 200+ corporate treasurers on the benefits of bringing Bitcoin onto their balance sheets. At the same time, the FASB rulechanges in 2024 enable firms to mark their Bitcoin holdings to market for the first time. Combining these events, it is easy to imagine multiple companies seeing the ability to leverage Bitcoin's volatility and potential to raise money at low cost. Also note, the handful of firms that have bought Bitcoin onto their balance sheet have seen their stock appreciate significantly. This matters, since the incentives for corporate insiders is heavily skewed towards increasing stock prices.
It is important to note, however, while this is long term bullish for Bitcoin, corporate treasury changes take a great deal of time. As a result, I wouldn't expect much to happen until later this year, but it is worth keeping an eye on some of the most cash rich companies.
The political machinations continue
In the past week, there have been a number of victories by nationalist (anti immigration) candidates in Europe, while Macron has called for a "snap election" in France. In the U.S. the Republicans continue to make support for Bitcoin and crypto an issue and the Democrats remain divided. Notably, Biden has proposed a renomination of Catherine Crenshaw as an SEC Commissioner, despite Ms. Crenshaws virulent anti-crypto stance. Readers may remember she wrote a badly constructed dissent to the Bitcoin ETF, which I criticized point by point. Plus, there have been widespread complaints of the administration continuing Operation Chokepoint 2.0 against the crypto industry. At the same time, Democrat Ro Khanna is holding a roundtable for unnamed Biden staffers with Mark Cuban and others. Mr. Cuban has notably worried publicly that the Biden administrations anti-crypto stance could cost him the election. While all of this has not resulted in much of anything, yet, it is worth paying attention. If (when) the U.S. changes course to be neutral or supportive of crypto entrepreneurs instead of hostile, it would likely ignite a significant amount of activity.