WEEKLY, Jan 27, 2024

BTC on the move, Argentina and new currencies, Apple's loss could be crypto's gain

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.

If you’re not a premium subscriber, I hope you’ll consider becoming one! It would help me continue to explore the deepening intersection of the crypto and macro landscapes - given what’s going on in the world, it matters now, more than ever. With a premium subscription, you’ll get a daily update on relevant progress along with some market commentary and deep dives into trends, narratives, experiments, opportunities and obstacles. There are also charts, links to interesting podcast episodes and long reads, and a running commentary on some of the craziness out there.

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Note: I’m speaking at BlockWorks’ upcoming Digital Asset Summit conference in London on March 18-20. Normally I say no to conferences, but this is one of the very few worth travelling for. If you’re thinking of going, it’d be great to say hi, and here’s a discount code you can use: CIMN10.

In this newsletter:

• BTC on the move again

• Argentina and new currencies

• Apple opens up, can crypto benefit?

Some of the topics discussed this week:

• The BTC wash-out

• BTC and institutional allocation

• Retail interest in Bitcoin – a long way to go

• It’s bitcoin’s market again

• Texas, snow and bitcoin

• Geopolitical risk and economic data

• Don’t lose sight of bigger-picture signals

• What the Purchasing Managers’ Index is really saying…

• The race for space

• The race for the metaverse

• The Chinese mirage gets a bit sharper

• The US GDP surprise

BTC on the move again

Just as it was starting to look like the post-ETF slump was going to drag on, BTC jumped yesterday in what looks like a short squeeze – no clear news that I can see, and an almost vertical slope. Intriguingly, it has held at the higher levels since then.

(chart via TradingView)

This doesn’t necessarily mean that the GBTC outflows are over. Yesterday, they were $255 million, which sounds like a lot but is the lowest outflow since launch day. Total net inflows from all spot BTC ETFs was slightly positive, after four days of net exit. But flows can be volatile, as we have seen.

(table via BitMEX Research)

Rather, the move up reminds us that flows matter but are not the main driver of the BTC price. I’ve been talking a lot this week about how macro influences are still significant, especially as the Fed pivot approaches. On Thursday, assets reacted favourably to the strong GDP combined with what looks like controlled inflation (more on this below). BTC didn’t, and could be doing some catch-up here.

We also saw on Thursday that the US government filed a notice of its plan to sell $117 million worth of seized BTC. This is likely to reassure investors that the almost $8 billion-worth of BTC that the US government reportedly holds will not be “dumped” on the market. It will be sold piecemeal, with plenty of notice. This removes a potential overhang.

And the delay by the SEC of yet another ETH spot ETF proposal, adding Grayscale to those already issued for BlackRock and Fidelity, could be unwinding some of the BTC=>ETH rotation we saw after the spot BTC ETFs started trading. The rotation came largely from speculators and crypto native investors who rode the BTC price up on anticipation of approval, and who then wanted to lock in profits and ride the next ETF wave (for spot ETH). Some may have decided that the ETH run-up is a ways off yet, might as well bet on the BTC outflows fading, allowing the continued build-up of tailwinds to start doing their thing.

After an adjustment downwards, BTC market dominance (BTC.D) is increasing again, at the expense of ETH.

(chart via TradingView)

Argentina and new currencies

Just when you think government financing couldn’t get any crazier…

Bloomberg reported last week that the La Rioja region in Argentina is considering issuing its own currency. The province’s governor has been granted authorization from its legislature to launch the BOCADE (an abbreviation of “Bono de Cancelación de Deuda”, or “Debt Cancellation Bond”), colloquially known as the Chacho, to pay part of public servants’ salaries. This comes in response to protests from health workers and a strike by the local police force who presumably are not happy with President Milei’s announced spending cuts.

There are several astonishing aspects to this. One is that, in La Rioja, government workers outnumber private sector workers. So, keeping public sector workers happy and employed is obviously important.

Another is Milei’s reaction, via X (of course): “Go ahead!”, he said. “Good luck!” Ok, I’m paraphrasing, what he actually said was “welcome to currency competition!”, “don’t expect a rescue!”, and “long live freedom, dammit!”, this last exhortation in the obligatory all-caps.  

This has worked as a short-term fix before: during the country’s 2001 debt crisis, several provinces including Buenos Aires issued local bonds that were used for payments and salaries. These were eventually phased out as the economy stabilized and the disadvantages of having many different circulating currencies began to outweigh the advantages.

We could be on the brink of a similar situation again. Milei’s austerity measures are unsurprisingly unpopular. Accusations of authoritarianism are flowing. Argentina’s largest trade union called for a general strike. The Patagonian provinces have joined forces to slow Milei down.

Only this time, there are new digital technologies that make issuing new currencies easier than ever. This is not necessarily good: different regions issuing different tokens for different uses sounds chaotic, and could end up adding friction and lowering overall activity. But, not getting paid is also not great for activity.

And if a community comes to rely on certain assets that then plunge in value because of poor design, a code bug or some other unforeseen force, people get hurt. The crypto ecosystem knows a thing or two about this.

The benefit is the experimentation and the financial independence, something that Milei can surely get behind. One of the appeals of crypto tokens is the flexibility and speed with which they can be created to solve specific problems. And I still believe that the chaos of a multi-token society can be solved through design.

A bigger concern is the colossal difficulty governments around the world will have when it comes to reigning in government spending, especially in an era of radical economic experimentation.

Not happy with the necessary budget cuts? No problem, just spin up a new token, bond or other asset that can be accepted as payment – after all, you just need two parties to agree on a value and an exchange for something to be a valid form of payment albeit not necessarily a legally recognized one. There’s no rule to stop me from offering my neighbour a bag of flour in exchange for a bag of sugar. There could be limitations on the use of the term “currency”, but that’s down to semantics and perhaps some legal definitions. In Argentina, for instance, the Constitution says that only the government can issue currency – but the local regions weren’t issuing currency, they were issuing bonds… with the intention of using them for payments.

Apple opens up, can crypto benefit?

This could be a big deal for crypto apps that want to enable peer-to-peer payments: Apple’s next operating system upgrade, expected in March, will allow users to download software from outside the App Store, and to use alternative payment systems.

Up until now, most crypto apps beyond wallets and some trading platforms have not been able to operate on Apple devices, due to Apple-imposed limitations on the number of price points that can be offered, the minimum that can be charged, and the exorbitant fees (30%) for in-app purchases. Plus, peer-to-peer payments were just not allowed, all transactions had to be routed through Apple’s centralized providers.

This significantly limited the functionality and economic viability of crypto app developers; removing this barrier could end up encouraging more blockchain games, peer-to-peer services, and other functionalities to reach Apple’s captive market.

For now, this only affects European users, and Apple is apparently adjusting pricing so as to not suffer economically – this means that developers will get hit with other costs. Also, Apple will no doubt make a big deal of the additional risks to users from Europe’s insistence on a more open platform.

And I am generally not a fan of regulatory meddling in business models, or of the EU’s tendency to come up with laws that end up having the opposite effect to the original intention.

But this is an intriguing step forward in the breaking down of walls when it comes to commerce and especially when it comes to blockchain-based applications.

HAVE A GREAT WEEKEND!

Have you seen the movie “Network”? Until last weekend, I hadn’t, even though my son had often told me it was one of his favourite movies of all time. Set in the 1970s, it’s a satire about a news network and the characters that run it. It’s also about the build-up of social anger, the lure of personality, and the corruption of media business models. In other words, it’s astonishingly relevant, and the shock of realizing that the zeitgeist has not changed that much in 50 years is only muted by the vintage aesthetic. Although even the clothes look fashionable now.