Bitcoin & Macro Drama To Continue In 2023: TBL Weekly #25
Recapping the action in bitcoin and macro.
Welcome to TBL Weekly #25—here are your highlights!
Markets Analysis
Our monitor for the week ending Saturday, December 24th, 2022:
Refer to TBL’s Bitcoin & Macro Term Glossary: thebitcoinlayer.com/glossary
Looking for a last minute gift and were just going to buy an Amazon gift card? Give the gift of global macro and bitcoin research, analysis, and education instead!
The US Treasury two-year yield is on top of Fed Funds (inverted to the upper bound of 4.5%), bitcoin and stocks remain materially correlated, and bitcoin remains at historically significant discount to its realized value (given to us by the MVRV ratio). The Fed has enough lagging economic data to remain hawkish, while the front end of the yield curve is assuming dovish policy will be unleashed at any moment.
Bitcoin is experiencing a round of significant news while its price muddles along. With Grayscale and GBTC exploring certain measures to sustain life at parent Digital Currency Group, FTX attorneys claiming they have found at least $1 billion in client funds, and Binance (read: CZ) doing anything it can to assure the market of its solvency, there is no shortage of potentially price-negative headlines. We are biased to believe this is “depths of the bear market” activity, but when taking a step back and assessing just how much misallocation of capital was present during 2022, it makes sense that sudden upside and a resumed “all-in” mentality from swing traders would be absent for another several months.
Does that make 2023 a boring slog for bitcoin? Not if you have a colorful imagination for what the next bull market will bring. Marty Bent’s comments this week (see below for video) on adoption in Southeast Asia present an exciting prospect, while his assessment of the mining industry’s current default wave should extend the period of consolidation. A boring year is far from our base case.
Once we get past the turn, focus will shift to asset valuations and if the stock market can hang on. How will the Fed react to further recessionary data? How will the US housing market play out with mortgage rates severely affecting activity? Will bitcoin stay correlated to stocks, and what does that mean for bitcoin’s evolution? And what in the world is going to happen to GBTC and the billions locked in that vehicle?
We’ll have no shortage of topics on which to write, and we are extremely grateful that you’ll be along for the ride. If you’re after the most timely research and analysis on all things bitcoin and global macro, consider supporting us by becoming a paid subscriber. As a paid subscriber, you get full access to all research as it drops.
Now, here are your quick links to all of the TBL content for the week:
Wednesday
We had a Substack-YouTube double feature for you midweek!
Nik sits down with Bitstein for a discussion on the ethos of bitcoin, Austrian economics, central bank distortions, and bitcoin's ability to realign market pricing with reality once more.
Check out Part I of The Economic Philosophy of Bitcoin Series:
And to send the year off in style, we have a comprehensive, end-to-end analysis of global markets, revolving around the observable risk of Fed overtightening:
In 79 AD, Mount Vesuvius located in Southern Italy erupted for the first time in nearly 300 years. The volcano’s molten lava destroyed the city of Pompeii, along with thousands of residents within minutes of eruption. The residents of Pompeii hadn’t lived to see an eruption, and neither did their parents or grandparents before them—the dormancy of Mount Vesuvius was mistaken for safety, with cities and populations nonchalantly expanding along the base of the volcano.
In markets, inactivity is also mistaken for safety, when in actuality, pressure may be building under the surface unbeknownst to the casual observer. Every cycle, participants take on an increasingly higher risk profile during periods of stability. Like the citizens of Southern Italy that continue building grand cities at the foot of Mount Vesuvius, markets will be caught offside eventually.
Things are calm now, but if a gradual release of that pressure can’t be achieved, the build-up may give way to a massive, uncontrollable release. As the Fed continues tightening financial conditions to fight inflation, it risks elevating stress beyond a point that markets can deal with. If the Fed overtightens, what is the release valve, and how extensive will the fallout be?
Nik and Joe break down:
Parallels in markets today and the conditions that caused Black Monday in 1987.
The risk of the Fed overtightening as it restricts policy faster than ever before.
Analysis of rates, credit, money markets, and economic data to gauge market pressure.
Should the Fed hold policy restrictive, what is the timeline for an eruption?
Check out—The Risk & Fallout of Fed Overtightening
Friday
Nik sits down with Marty Bent, the host of the popular bitcoin podcast TFTC and the author of Marty's Bent. Marty discusses bitcoin's mining landscape, lessons learned by bitcoin market participants each cycle, global adoption, and the economic philosophy of bitcoin.
Check out Part II of The Economic Philosophy of Bitcoin Series:
Our videos are on major podcast platforms including Apple Podcasts, Spotify, and Fountain.
Holiday Merch Sale!
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For a limited time through the end of the holiday season, enjoy 15% off all TBL merchandise.
Use the promo code: XMAS15 for all merch at our store: TBL Merch Store
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We’ll be off Substack and YouTube next week for Christmas and the New Year, but keep an eye on Twitter—@timevalueofbtc and @JoeConsorti—we’ll be analyzing markets and providing our insights and commentary as per usual there.
That’s all for our bitcoin and macro recap—we wish you all a Merry Christmas, and enjoy the holiday season with friends and family! Catch you next year!
The Bitcoin Layer does not provide investment advice.
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