GameStop is back, bitcoin still has tread in the tires, and miners are doing well
An all-encompassing risk, bitcoin, and mining update for you this morning.
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Good morning readers,
Today I’ve prepared several charts covering GameStop and risk sentiment, bitcoin spending behavior that we can see on-chain, and will wrap up with some thoughts on mining economics and the downward difficulty adjustment arriving in 9 days.
GameStop spiked 69% on Monday, driven by the return of meme trader RoaringKitty, and saw its trading halted three separate times throughout the morning for volatility. The market is awash with a sense of déjà vu of the speculative Reddit frenzy of early 2021, halfway through the post-COVID bull market. Speculative mania has well and truly returned, and it adds to the already extremely high-risk appetite in financial markets right now:
This surge in risk-taking is mirrored in the current state of credit spreads. Both high-yield and investment-grade spreads remain at cycle lows. Confidence in corporate creditworthiness is persistent with spreads as tight as they are. The Fed's political imperative to maintain favorable conditions in an election year doesn’t hurt, either.
This election-year and fiscally dominant backdrop that we’ve been hammering here at TBL for months now leads me to believe the market will remain stable and choppy in an upward direction as we move through the summer months and into November despite Treasury issuance putting pressure on the yield curve, long-term rates, and potentially risk markets themselves. Even though spreads are at cycle lows, I believe they can stay here for some time:
Shifting gears to bitcoin movement on chain, the explosion in risk-taking is also very apparent. Let’s look at a metric called the Value Days Destroyed Multiple created by our good friend TXMC.
The Value Days Destroyed (VDD) Multiple is an on-chain metric that helps us gauge the state of bitcoin cycles by comparing recent spending behavior to the yearly average. When older coins are increasingly spent and eventually overpower demand, it signals a market top may form. When accumulation dominates and older coins remain dormant, market bottoms may form. Unlike Coin Days Destroyed, VDD accounts for both the age of coins being spent and the economic impact of their value, offering a better view of market overheating or undervaluation.
VDD printed a high of 4.1 back in March a couple of weeks after bitcoin hit $70,000—very overheated. This spike marked a near-term peak but doesn’t necessarily mean the market has topped. Past cycles showed similar overheated VDD and only marked corrections, like during the 2017-18 bull where VDD spiked twice and bitcoin still had 5x more upside, and in 2021 where bitcoin still had 1.5x more upside. It is now declining as bitcoin enters 10 weeks of consolidation. Going off of history, bitcoin likely still has one or a couple of final runs left in it before it calls it quits for this cycle:
Let’s shift gears and look at miners. The Difficulty Regression Model estimates the all-in-sustaining cost of bitcoin production. Currently, bitcoin’s market price is trading at a big premium to its production cost. This is a favorable environment for miners, even after an event like the halving in which rewards are cut in half, with stable profit margins giving them plenty of breathing room. Miners are operating comfortably, and as long as bitcoin’s price remains largely where it is, we won’t see a capitulation event wherein miners are forced to shutter their operations or sell BTC to keep the lights on any time soon:
Miner revenue is slashed in half after bitcoin halvings, placing added strain on their operations in a very competitive, already tight-margin industry. Thanks to mining remaining highly profitable with bitcoin’s market price well above incremental production cost, no major miners have had to shut down operations or liquidate significant bitcoin holdings to stay afloat. The upcoming difficulty adjustment 9 days from now is set to raise the mining difficulty by 2.15% to account. This will slow block times closer to their ~10-minute target, keeping Bitcoin’s monetary policy on track:
Occam’s Razor is a rule of thumb that says the explanation that posits fewer variables is preferred to the explanation that posits more. Basically, don’t overthink it. We view bitcoin in a bull flag, and with the macro backdrop during an election year, with a government that is spending like crazy and a central bank with one finger hovering over the stimulus button in case of an emergency, we’re in for upward stairstep chop for the summer at the very worst:
Until next time,
Joe Consorti
River is our Bitcoin exchange of choice.
Securely buy Bitcoin with zero fees on recurring orders, have peace of mind thanks to their 1:1 full reserve multisig cold storage custody, and withdraw at any time. Need help? They have US-based phone support for all clients.
Now introducing River Link 🔗allowing you to send Bitcoin over a text message that can be claimed to any wallet. Give a gift, pay a friend for dinner, or orange pill your friends, completely hassle-free.
Use River.com/TBL to get up to $100 when you sign up and buy Bitcoin.
According to your mempool screenshot, mining difficulty is scheduled to increase, not reduce ;)
That last chart "The Bitcoin Bull Flags" says it all...HAS to only go down from here, right?