WEEKLY, Feb 17, 2024
BTC's supply/demand + the documented erosion of trust
Hi everyone! You’re reading the free weekly edition of Crypto is Macro Now, where I update and/or re-share a couple of things I wrote in more detail about during the week. If you’re a premium subscriber, you’ve probably already read them, so feel free to scroll all the way down for some non-crypto links.
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In this newsletter:
The BTC supply/demand imbalance
The documented erosion of trust
Some of the topics discussed this week:
BTC is a risk-on asset, and also a risk-off asset
Signs of long-term BTC accumulation
BTC breaks through a nice round number
Not a store of value, you say?
Legacy banks and crypto custody
This cycle is still early
The CPI circus
The split narrative of rates expectations
The knee-jerk market reaction that didn’t correct
What recession? Oh, that recession…
Why the global trust issue is so important
The BTC supply/demand imbalance
Since their launch, the spot BTC ETFs have seen an average daily net inflow of ~3,800 BTC. As the GBTC redemptions fade, this number is increasing, and over the past four days has averaged almost 9,000 BTC.
(table of ETF inflows in BTC terms, via @BitMEXResearch)
Meanwhile, the number of new BTC entering the market every day is just 900.
So, where is the BTC flowing into the ETFs coming from? It’s obviously not from new supply. Assuming most of the basic product rotation is behind us (investors preferring to swap their current holdings for a more convenient ETF position), this leaves sellers. Who is selling? Possibly Bitcoin miners, raising cash to finance machine upgrades ahead of the halving (with lower BTC rewards, profitability depends on machine efficiency).
We’re obviously also seeing selling from holders or traders who believe that BTC is near a top. Markets need disagreement in outlook.
As the BTC price continues to move up, however, conviction in a coming price correction will most likely decrease, further drying up supply for new entrants. The Fear and Greed Index suggests that this has already started, with market sentiment moving into “greed” territory.
(chart via LookIntoBitcoin)
What’s more, the number of new BTC entering the market every day is set to drop by 50% in late April, when the four-year halving reduces the rewards paid by the algorithm to miners. Previous halvings have been a bullish catalyst for BTC, as selling pressure from new supply is lessened – and this was even without the boost to demand from US listed spot ETFs and possibly soon similar products listed in Hong Kong.
Demand for the spot BTC ETFs could start to settle down soon – but, more than a month in, this strength is unusual for new products, and the marketing machines have not really kicked into full force yet.
Of course, turmoil in traditional markets could send some large BTC holders scurrying into cash.
But for now, the supply/demand balance is looking positive.
(chart via TradingView)
The documented erosion of trust
Trust matters. This is something that everyone in the crypto ecosystem knows, to varying degrees. One of the reasons Bitcoin has the following it does is because of lack of trust in centralized systems, especially in jurisdictions with weak property protection from the law. Unfortunately, weakening trust is also an issue in regions with a strong democratic foundation and supposedly robust institutions. And it’s hard not to miss signs in our feeds and on our streets that polarization is deepening the chasm that divides, further undermining the sense of community that is supposed to hold us together.
Since the year 2000, PR agency Edelman has published an annual report that aims to measure global trust in key public institutions. It canvasses more than 32,000 respondents in 28 countries on their views on government, media, business and non-governmental organizations (NGOs).
And every year, the numbers paint an alarming picture of a degradation of one of the key pillars of society: trust in those institutions.
The latest survey is unfortunately no different. Some highlights (or should I say lowlights?):
In terms of overall trust, the US slipped from ninth from the bottom to sixth from the bottom, at the opposite end of the league tables from China, India, UAE, Indonesia and Saudi Arabia (!!). The UK has dropped into last place. Note that the survey does not explore whether institutions should be trusted, just whether or not they are. In the US, Germany, South Korea, Argentina, Japan and the UK, they’re not.
(all screenshots from the 2024 Edelman Trust Barometer)
In terms of trust in government, Saudi Arabia and China are at the top of the ranking, while the US and the UK are near the bottom, which is an alarming statement on how respondents view democracy. Argentina is last, not surprising given its dire economic situation.
Perhaps even more worrying, not to mention astonishing, China tops the league of countries whose people trust the media. The UK is last, with the US near the bottom.
The majority of respondents not only do not trust journalists, they believe journalists are purposely trying to mislead them, notably more so than in early 2023. Journalists and reporters have pushed out government from the number one “not telling us the truth” slot. So, where do people get their information from? Tucker Carlson’s almost 200 million views on his Putin interview on X alone (there are probably also countless millions of views on Tucker’s website) give a hint, as does the growing percentage of those who rely on TikTok (almost a third of 18- to 29-year olds, according to Pew Research).
Peers are just as reliable as scientists when it comes to getting “the truth” about new technologies.
Climate change is still a key societal fear, but it is joined by nuclear war, hackers and an “information war” (presumably related to our distrust of media).
Here’s a chart that breaks down a country’s trust in its government’s ability to effectively manage innovation. The US – traditionally the mecca for innovators, with a strong history of entrepreneurship and invention – easily tops the list of least-trusted governments in this respect. This feels significant.
Also worrying is the finding that the majority of respondents believe that capitalism “as it exists today” does more harm than good.
These findings are alarming in that they paint a picture of a sharp tilt toward authoritarian regimes and away from the pillars of a democratic society (via weak trust in government and media). However, like all surveys, they capture only a snapshot.
Nevertheless, the findings remind us that trust is a complex yet undervalued commodity whose uneven distribution can have meaningful economic and political consequences. The weaker a community’s trust in its leaders, the less power the leaders have, and the more likely they are to hold on to it by whatever means are available.
The survey also raises the uncomfortable question that trust is not only the source of power, but sometimes is the result of it. If you live in the US or Europe, for example, you may blink in disbelief that China and Saudi Arabia easily outrank more democratic countries in terms of trust in government. But the survey doesn’t ask you what you think of those two regimes; it asks locals.
The takeaway here is that weakening trust is something that investors and entrepreneurs should plan for. Given the political turmoil in much of the world and the shifts we are likely to see in polls and in economic outlooks this year, decentralization could end up becoming more of a core tenet of business models as well as portfolio decisions. Crypto assets could benefit.
After all, many investors believe that bitcoin is a hedge against inflation, or currency depreciation. I would go even further: it’s also a hedge against the erosion of trust.
HAVE A GREAT WEEKEND!
I woke up in a strangely heavy-metal mood this morning (not my usual genre) and am starting to think that maybe I should take a short holiday soon. Yeah, right.
Meanwhile, I want to share a music video which marries the energy I was looking for with the wild remoteness of a different world, and can think of none better than “Wolf Totem” by Mongolian rock band The Hu (which Wikipedia helpfully reminds us should not be confused with “The Who”).
A stunning production with breathtaking photography and extraordinary instruments, the video just exudes atmosphere and power. While the song itself may not have much in the way of a melody, what it has is unexpectedly catchy, and the result is a rare balance of angry and soothing. I’m hooked – I hope you enjoy it, too.