Double Down
Market Recap
Bitcoin took another week to consolidate, initially trading heavy in line with $SPX, limping to a low of ~$17,600 before recovering above $19,000 in the weekend amidst thinner volume. $18,000 seems to be the line in the sand, with each dip below the level bought back furiously. Institutional narrative continues to be solid, as new participants (Mass Mutual announced $100M investment in Bitcoin) enter and existing ones double down their size; MicroStrategy announced plans to raise US$ 400mio via convertible senior notes with the intent to “invest the net proceeds from the sale in Bitcoin in accordance with its Treasure Reserve policy”, adding to 40,000 BTC it already purchased. MicroStrategy’s stock (Ticker: MSTR) is perceived by some as the best way to buy Bitcoin exposure via the U.S. stock market (Citron Research), and has seen outperformance of BTC QTD, as the stock rallied +90% vs. 69% for BTC. Michael Saylor seems to be steering his company in the direction of Naspers-Tencent, but even after the fundraising the company would only own 0.3% of total BTC supply, as opposed to 2.7% owned by GBTC, and BTC might need new catalyst to break above $20,000 sustainably.
On the macro side, markets mostly traded sideways with risk-off tone towards later half of the week. Inflation continued to march on, with Nov core CPI coming out at 0.2% MoM, and initial jobless claims higher than expected at 853k. For this week, market is focusing on potential further guidance in FOMC meeting on Wednesday, and US$ 900mio stimulus bill. On the COVID front, FDA did issue emergency use authorization for Pfizer COVID-19 vaccine, but with daily cases continuing to exceed 200k, the announcement did little to buoy equity prices.
What is Happening?
China further expanded its central bank digital currency (“CBDC”) trial — JD.com announced that it would be the first online platform to accept the country’s digital currency and UnionPay announced that that it would be working on CBDC trials with PBoC’s Digital Currency Research Institute. China’s CBDC trial is credited as one of the most advanced so far, with the eCNY designed to replace cash in circulation, and plans to expand into 28 cities beyond the current 3 of Shenzhen, Chengdu, and Suzhou. At the start of November, the trial had already seen >4 million transactions with a total value of over RMB 2bn.
Japanese conglomerate SBI Holdings (TYO Ticker: 8473) announced partnership with SIX Digital Exchange (“SDX”) to establish a joint venture in Singapore. The JV aims to drive institutional digital asset liquidity through a Singapore-based digital issuance platform, exchange and CSD venue, and plans to go live by 2022 subject regulatory approvals from the Monetary Authority of Singapore. SBI has been aggressively involved in the digital assets space, ranging from direct investment in companies, such as its 10.5% investment in Ripple in Jan’16, to strategic partnerships, such as its partnership with the Sygnum Group to establish an early-stage digital asset-focused private equity fund in Oct’20. However, the firm’s stock price (+24% YTD) has failed to meaningfully capture the digital asset tailwind, in contrast to companies such as Galaxy Digital Holdings (TSE Ticker: GLXY, +480% YTD) and MicroStrategy (+100% YTD).
Conclusion
At the risk of sounding like a broken record, we continue to advocate buying Bitcoin on dips as this asset class is supported by a thick wall of currency waiting anxiously to pounce. Price corrections has been “healthy” and getting “shallower”. We believe once Bitcoin pierces through key psychological level of $20,000, price action could turn parabolic. Good Luck!
