MSTR Bitcoin and Risk On
Veterans Day here in the United States and we always thank our Veterans and current soldiers who sacrifice their lives in providing security and protecting American values. Thank you to all the patriots who continue to keep the greatest nation on earth ready, willing and able to take action at any given moment! I would not be here today if it wasn't for American Forces liberating my fathers home land. He always said the reason he came to the United States as a medical surgeon was to give back to the country that saved him and his family. He had many stories of swapping eggs for Coca-Cola and Hershey's Chocolate bars and SPAM if you can believe it! Our family holds a deep admiration for America, American values and the price that is paid for freedom and the endured sacrifices made so that we exist today! This is something that will never be forgotten and no generation in my family will ever forget! Hard times create strong men, period!
Ok onto the markets where today’s muted trade due to the US bond market being closed has led to volatility in the crypto risk assets with Bitcoin performing spectacular running up toward $90k!
Honestly though, and crazy as it may seem, but the alt coins are outperforming this time around look at the 7 day % change on some of these! DOGE +141%
Alright so we know this is FOMO and we have seen this play out before, but we also know that more and more companies are most likely taking the MicroStrategy approach and swapping US Dollar Debt for Bitcoin. MicroStrategy is up massively this year an astounding 400% :
Now we know this is a highly leveraged move and very risky, but its working for now, but what should be a concern is the US dollar has begun to breakout and strengthen:
In the long run, this will most likely prove problematic for the MicroStrategy leveraged trade. Who really knows at this point, its working for them now, so its not on the radar of caution yet. However if BTC does start to turn, his levered trade could turn the equity down very quickly.
Anyway Wall Street is all in on accumulating Bitcoin and doing so with retail flows and capital. Now we have seen this before as well and there is no doubt ETF buyers are taking massive counterparty risk. We also know that the Big Wall Street dogs will most likely keep all the BTC and payout in fiat any ETF redeemers. In fact they hope to push the price high enough to get people to actually sell. We know the float of actual BTC available is much smaller than many think. So this is bullish for the price, but in the long run, accumulation by whales is a detriment to the decentralized platform. The whales currently control 82.1% of the total supply:
We suppose 3m is a possible float outstanding but considering the amount of BTC held by dormant accounts, some 18.48M the actual float may honestly be less than 1M!
What this means is that the accumulation of 1M more Bitcoin by the whale group will most likely limit the price action because as Bitcoin’s market cap grows and more and more trading is done with a much fewer float, then we should see the price start to stagnate and stabilize. Once that occurs it is possible to see the price actually fall as new money fails to materialize and incentivize more trading. As I have said before, I do not see the value in the HODL mechanism. The real value is in the utility of the Bitcoin network to transfer value, to never have to convert to fiat! Anyway for now it seems like FOMO is in full effect!
In other news, we wanted to touch upon the US interest rate market which has seen rates back up a bit, but have stabilized. We feel that the FOMC will have no choice now but to continue the path lower with the Trump Administration undoubtedly going to pressure them to cut the US Treasury’s interest expense. Also it is not just the US Treasury that could benefit from lower short term rates, we know there are trillions of dollars in corporate debt that needs to be refinanced over the next 2 years! Now you can see this maturity wall is massive and every basis point will count especially if we see a recession on the horizon:
S&P global has a great graphic of this below:
Nearly $7 Trillion in the next 24 months every 100bps is worth $70Bn in interest costs now imagine if we can drop get rates to fall from 4% to 2%, this will be a massive savings for these debtors.
Alright let’s take a look at the MEGA8s as they have backed off from their recent market cap highs. Tesla is leading the way and we will look for a decent up move to set any new hedges on this grouping:
The total market cap chart is backing off slightly on muted trade today but let’s see how tomorrow shakes out:
Now the run up has been fast and furious, but eventually we will need to see some profit taking and some pain for the new found longs. When things seem too one way this is when you get the systematic rug pulls, so don’t be surprised at a few days of profit taking!
As we said the US Dollar strength is very curious and the metals have seemed to have backed off, so someone is looking at asset price risk and saying wait a minute!
Alright we leave you guys with the settlements and net changes. We rolled the energies and we updated our roll pricing for most contracts. We have conflicting data with some of the databases we use, so we had to cleanse a bit. Most online data sources account for rollovers in certain ways that do not jive with our way of quantifying things, so we have to adjust it to our structures. When it comes to futures rolls there are some nuances and we try to keep our data as clean as possible. Ok we provide last Friday and today’s information and today US Treasury cash was closed so we used equivalent futures basis to price it:
We can’t help but think Risk has become too Easy…Then again there is so much concentration of wealth in these sectors, maybe nobody ever has to sell! WE doubt that is the case, so we figure the bulls can stay in control until supports give way, we aren’t under any threat of that yet, but that doesn’t mean you should chase!
Anyway that is it we will be back with more, keep the wheels turning and always stay on your game. The markets are in FOMO so don’t get too caught up, the snap back is always severe and unforgiving so just be smart and be patient and take quantitative risks with a game plan for your exits. Till next time. Cheers.