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Welcome to the On the Margin Newsletter, brought to you today exclusively by Ben Strack.
Here’s what you’ll find in today’s edition:
- A look at the plan for a US strategic bitcoin reserve: Its impact (whether implemented or not), and is it even a good idea?
- Where things stand in the crypto markets after BTC’s dip last week.
- What we’re monitoring — CPI, PPI, a historic presidential debate.
Debating the ‘strategy’ of BTC reserves
We’ve talked about the possible near-term catalysts for bitcoin. Included further down in this newsletter include the data drops (and debate) we’re keeping an eye on this week.
We know the markets react to such events and BTC’s price fluctuates. But the type of price prediction made by VanEck analysts of bitcoin reaching nearly $3 million per coin by 2050 hinges on something more.
It’s been about a month and a half since Sen. Cynthia Lummis, R-Wyo., floated a plan for a US government-managed strategic bitcoin reserve — the type of “something more” that would bring broad awareness to the investment case for digital assets.
“Regardless of whether this idea is ever implemented, it has now moved from fringe conversations to mainstream public policy debates, and is likely forcing many governments to better understand bitcoin,” Hashdex CIO Samir Kerbage told Blockworks.
Indeed, presidential hopeful Donald Trump pledged at the same time Lummis proposed this reserve (during a July speech at the Bitcoin 2024 conference in Nashville) to “keep 100% of all bitcoin the US government currently holds or acquires.” VP Kamala Harris, the Democratic nominee, has yet to share details about her crypto stance.
To be clear, growing education around bitcoin is not an accident, Kerbage noted.
You had the highly successful launch of US spot bitcoin ETFs in January, spurring asset management titans like BlackRock and Fidelity to start marketing their own products (and the broader use case of BTC in a portfolio).
Then there are the pension plans allocating to (or considering holding) these products — a fact Kerbage notes has a clear effect.
“This type of continued adoption will force policymakers to better understand bitcoin, and could certainly help accelerate the timeframe for the consideration of BTC as a strategic reserve asset,” he noted.
That said, educational efforts are in the early stages.
“The knowledge gap among lawmakers, along with the unanswered implementation questions and the fact that the legislative process takes time, is why it could be years before the idea becomes a reality,” Kerbage added.
Then there’s the truth that not all think this is necessarily a good idea.
Ananya Kumar, deputy director for future of money at the Atlantic Council’s GeoEconomics Center, noted in a blog post last month that crypto markets lost about half a trillion in market cap (with BTC dropping below $50,000) not long after the Lummis/Trump statements.
“Creation of a strategic bitcoin reserve rests on the premise that bitcoin can be a successful bulwark against inflation and market volatility,” she argued. “But recent days have put this argument to the test.”
While gold stayed relatively stable amid last month’s weak jobs report and a rate hike in Japan, crypto volatility has proved persistent, Kumar said. BTC sometimes “recovers slower” than traditional markets, she added.
“This proposal is at best, premature, and at worst, out of touch with the reality of markets and US national security objectives,” Kumar wrote. “Bringing bitcoin into mainstream use is not reason enough to create a strategic bitcoin reserve.”
It’s unclear how other countries might react if the US chooses to move forward with this idea.
“But if the government of the world’s largest economy decides that BTC should be held on its balance sheet, the impact to the global credibility of bitcoin cannot be overstated,” Kerbage said.
More crypto-related remarks from Trump and Harris ahead of Nov. 5 could help us gauge the actual likelihood of such a plan. Or we could be left waiting much longer.
$1.2 billion
The amount of investor capital that exited US spot bitcoin ETFs over the past eight trading days, according to Farside Investors data.
That eight-day net outflow run — coming amid a bitcoin price dip — is the longest such streak since the funds launched in January (breaking the two seven-day net outflow streaks in April and June).
The cumulative net inflows for the ETFs, in their nearly eight months on the market, have dipped back to just below $17 billion.
Bloomberg Intelligence downplayed the recent outflows in an X post, noting that “close to 99% of the investors have hung tough, yet again.”
A look at where we stand
There’s that saying: You don’t know where you’re going until you know where you’ve been.
Or something like that.
Even if knowing where you’ve been (and are) doesn’t precisely tell the future, it’s worth understanding how things stand regardless.
Crypto and equity markets pulled back last week after “a softer-than-expected jobs report and comments from Fed officials downplaying the likelihood of a 50-basis point rate cut this month,” Grayscale research head Zach Pandl said in a Monday statement.
Pandl told Blockworks last Friday that the August jobs report hit the “sweet spot” for BTC given a slowing labor market (allowing the Fed to cut rates) combined with a lack of recession signs.
CME Group data shows the market putting the probability of an interest rate cut of 25 bps at 71% (with a 50 bps cut probability at 29%).
Bitcoin dropped to the $52,500 “support level” late last week, analysts noted, before bouncing back toward $55,000. BTC was trading at about $56,500 at 2:30 pm ET Monday — up 3% from 24 hours prior.
It’s not just about the simple BTC price figure.
Last week’s crypto investment product outflows totaled $726 million, CoinShares data showed — matching a high set in March.
YouHodler risk manager Sergei Gorev cited that outflow figure before noting: “The extremely pessimistic sentiment of the crowd prevails in the markets.”
There’s also bitcoin’s relative strength index — designed to measure the speed and magnitude of directional BTC price movements — dropping to its lowest level since September 2023. The correlation, too, between BTC price and TradFi markets persist.
“Such a pessimistic sentiment in the markets provides an opportunity for local growth — so far, in the form of a corrective movement,” Gorev said. “There are many negatively-minded traders on the market pushing the price lower now; a significant rebound in price may follow next.”
On Our Radar
When crypto prices are down, industry watchers are curious about the potential upcoming catalysts.
A few stand out this week:
- The Bureau of Labor Statistics will publish the Consumer Price Index (CPI) report for August on Wednesday — data expected to shed light on inflation trends. Last month’s report showed US prices rose slightly less than anticipated the month prior (2.9% in the 12 months ending in July). BTC and ETH initially dropped by about 4% and 5%, respectively, in the two hours or so after the print — showing the effect such reports can have, even if just in the short-term.
- In addition to CPI, an update on the Producer Price Index (PPI), set to be released Thursday, will be “crucial,” BRN analyst Valentin Fournier said in a statement. “These indicators will heavily influence the Federal Reserve’s upcoming interest rate decisions,” he added, noting that a 50 bps rate cut might induce a short-term market selloff. A reminder that we won’t know the Fed’s rate cut decision until next week.
- Beyond economic data, Tuesday night marks the first debate between presidential hopefuls Kamala Harris and Donald Trump. Kyle Bligen, director of financial policy at tech industry coalition Chamber of Progress, last week wrote a letter to ABC News’ Linsey Davis and David Muir, calling on them to ask a crypto question. “Both candidates should shed more light on their positions and explain how we can nurture digital assets while also providing greater consumer protection,” Bligen wrote.
Bulletin Board
- We talked about the outflows from US spot bitcoin ETFs. As for the ether funds, they saw roughly $91 million leave their coffers during last week’s four trading days. The ETH ETFs have collectively seen $569 million of negative net flows since their July 23 launches.
- PitchBook’s Robert Le told Blockworks editor Katherine Ross he thinks “we’re in a new cycle.” Check out what he means.
- Head over to Blockworks.co tomorrow for a presidential debate preview. Then check back in (on the site and in the newsletter) on Wednesday and Thursday for a breakdown of that economic data.