Rates Cycle Shifting & Miner Capitulation: TBL Weekly #18
Recapping the action in bitcoin and macro.
Welcome to TBL Weekly #18—here are your highlights!
Markets Analysis
Our monitor for the week ending Saturday, October 29th, 2022:
The rapidly rising hash rate in the face of stagnant price is forcing miner capitulation across the bitcoin network, in the form of selling. Core Scientific, one of the largest publicly held bitcoin miners, revealed that it won’t be fulfilling some of its October and November debt obligations, and may seek to file for bankruptcy. This is due to the falling profitability of its mining operations, and the embattled Celsius’ inability to repay loans written by Core Scientific. The company also has been a forced seller of its physical bitcoin holdings to try and maintain its operations, depleting its bitcoin reserves to essentially zero, after selling 1,000+ bitcoin over the last month.
As the price to mint bitcoin rises beyond what miners can sell it for, especially if those miners have higher-than-average electricity costs, those miners are forced to sell spot bitcoin just to keep the lights on, and eventually capitulate from the network entirely. This is bitcoin mining’s free market at work: those who aren’t allocated with maximal efficiency are pruned, leaving only those who can fund efficient operations. Core Scientific looks to be a casualty of this dynamic.
For now, we view rising difficulty as a sign that miners want to secure the network and earn bitcoin—a net positive. We’ll see if there is any additional selling pressure from inefficient miners. Thankfully for the bitcoin market, Core Scientific appears to be out of bullets from that standpoint.
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Now, here are your quick links to all of the TBL content for the week:
Tuesday
Layered Money spotted in South America for the first time!
How far is he willing to go? And does the motive stretch beyond inflation fighting?
Tuesday’s post presents the crossroads at which Jerome Powell finds himself today. A rapidly slumping housing market, the Senate Banking Committee Chairman reminding Powell of the Fed’s other mandate, and indications of a Yellen-led US Treasury market intervention all have us monitoring the money markets for signs of the end of tightening.
But are there larger, geopolitical forces at play?
Nik breaks it down in Tuesday’s Substack:
Is the US Fed At War With European Banks?
Wednesday
If you’re looking for the “Fed-at-War” dynamics to be discussed in video format, we’ve got you covered. We apologize for the technical difficulty with Nik’s camera, but there are important charts that go along with the analysis, making it worth a watch on YouTube. Reminder that all our video content is now also available via your favorite podcast platform.
In this episode, Nik discusses the premise that Jerome Powell and the US Federal Reserve are attempting to reclaim dollar monetary policy away from European banks:
Thursday
As we close in on the fourth consecutive 75 basis point interest rate hike from the Federal Reserve, there has been a shift in the markets. In Thursday’s post, we welcomed back global bond bulls and explain why the recent action in rates is so important to understand. A few crucial charts are included. Get mentally positioned for next week’s FOMC.
Nik breaks it down in Thursday’s Substack:
Welcome Back, Bond Bulls. Your Absence Was Noted.
Friday
Nik sat down with Brent Johnson, CEO of Santiago Capital. In this episode, Brent explains his Dollar Milkshake Theory and why the Eurodollar system is a global game of musical chairs:
Have a great weekend everybody! Do not miss our LIVE coverage of Wednesday’s FOMC meeting on Twitter Spaces:
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