Market Views
March was a challenging month for the US banking sector. Three leading crypto friendly banks Silvergate, Signature, and Silicon Valley Bank all failed. Interestingly Silvergate and Signature were solvent and were capriciously seized by the NY and CA State regulators. That is as far as I can tell an unprecedented situation. Following these bank failures, deposit runs accelerated on other small and medium size banks. A total of $400bn bank deposits were removed from small/medium banks in March. We are currently seeing a sharp contraction in bank lending domestically which will take months to work through the system.
During these events, Bitcoin rallied. I see this as a defining moment for the asset class. Amid an old-fashioned fractional reserve banking panic, BTC performed well. Bitcoin, a bearer asset that resides outside of the traditional banking system and is not a liability on a counterparty’s balance sheet, separated itself from the pack. This was a good liquidity stress test for BTC.
A new Era as the Answer
We have been following a unique market condition since October of last year. Namely the measurable increase in BTC network hashrate. Since our strategy’s inception, hashrate has increased 126% while the price of BTC has fallen -28%. The current amount of expenditure and ongoing investment in mining bitcoin is near an all-time high, while the price of bitcoin is nearly two thirds off its all-time high. Usually, commodity miners curtail expenditure to align cost of production with lower expected mining revenue. Presently we see the exact opposite. Some actor/actors are investing in mining at an immense scale.
The 22 publicly traded bitcoin miners in the US/Canada are under pressure currently and are not growing hashrate in aggregate. The sheer size of the mining onboarding would require somewhere in the high nine figure dollar value range of investment. This situation has the hallmarks of nation- state activity rather than commercial targeted profitability. It would seem reasonable for sanctioned entities to abrogate curtailed dollar transmission lines and augment trade and financialization by utilizing the 21st century digital gold. Time will tell, but we may well already be in the era of nation- state BTC mining. Central banks around the globe have been on a gold buying spree, and a digital bearer asset commodity alternative (BTC) could well serve their objectives.
As we emerge from the depths of a protracted bear market, it is positive to see BTC continue to lead other digital assets. I am confident that Bitcoin, as a digital unit of account will continue to attract capital in these turbulent times and that the digital asset space can grow in excess of the legacy systems that it is currently supplanting.
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