First Mover: As Wall Street Fixates on Inflation Hedges, Good Luck Finding Bitcoin

A wave of new bitcoin buyers is arriving just as easily obtained supplies of the cryptocurrency fall to their lowest levels in more than three years. 

AccessTimeIconFeb 10, 2021 at 3:28 p.m. UTC
Updated Sep 14, 2021 at 12:10 p.m. UTC

Price Point

Bitcoin (BTC) was lower, after an intraday price spike on Tuesday took the largest cryptocurrency to a new all-time high of $48,226.25, based CoinDesk 20 data.   

$50K in sight: "Bitcoin needs a couple more big endorsements, and that could be the key to take prices above the $50,000 level," Edward Moya, senior market analyst for the foreign-exchange broker Oanda, wrote Tuesday. 

Inflation watch: European shares and U.S. stock futures were higher as Bloomberg News reported that "inflation has quickly become the biggest issue in markets on speculation the Federal Reserve will let the economy run hot out of the pandemic." The U.S. Labor Department's Bureau of Labor Statistics reported Wednesday in its monthly CPI report that the consumer price index rose 0.3% in January, for a 1.4% increase over the past 12 months. The headline reading was in line with economists' expectations.  

The News

Argo Blockchain plans new bitcoin mine in western Texas: The publicly-listed company has agreed to buy 320 acres of land to build the 200-megawatt data center, at a cost of $17.5 million to be funded via the issuance of ordinary shares. Argo will use a $100 million credit facility to fund the construction of the site, which ostensibly would be one of the world's largest bitcoin mines.  

Bitcoin "can’t be stopped": Nigerians look to peer-to-peer exchanges after crypto ban. Some Nigerians plan to continue using bitcoin and other cryptocurrencies despite a directive issued by the Central Bank of Nigeria last week ordering banks to close down accounts associated with cryptocurrencies. going remote: The company is the largest private employer in San Francisco and occupant of the city's tallest building, known as the Salesforce Tower, and yet it's planning for most employees to work remotely part- or full-time after the pandemic, the Wall Street Journal reports. First Mover has written previously about how a permanent shift toward remote working could represent one of the biggest labor-market trends in generations, and yet the Federal Reserve and other economic authorities have barely begun to address the transition. 

Market Moves

Everybody wants bitcoin, but where will it come from? 

The number of bitcoins held on cryptocurrency exchanges, ostensibly ready for a quick sale if the price is right, has declined over the past year to levels not seen since mid-2018.
The number of bitcoins held on cryptocurrency exchanges, ostensibly ready for a quick sale if the price is right, has declined over the past year to levels not seen since mid-2018.

A collision course is setting up in the bitcoin market: a wave of new buyers appearing just as easily obtained supplies of the cryptocurrency fall to their lowest levels in more than three years. 

Electric-vehicle maker Tesla's announcement this week that it had bought $1.5 billion of bitcoin triggered a new round of wagering that more corporate treasurers might soon follow CEO Elon Musk's lead. 

At least one Wall Street analyst argued that iPhone maker Apple, the world's largest company, should push into the game. There's also speculation that software giant Oracle might be next, partly fueled by CEO Larry Ellison's service on Tesla's board of directors. Facebook, Amazon, Netflix, Google and Microsoft could all be candidates, suggests Mati Greenspan, founder of the foreign-exchange and cryptocurrency analysis firm Quantum Economics.  

Even the obstreperous CNBC personality Jim Cramer weighed in on Tuesday: "Every treasurer should be going to boards of directors and saying, 'Should we put a small portion of our cash in Bitcoin?'" Cramer said on the financial-news network. (A JPMorgan analyst, for what it's worth, argues that corporate treasurers are likely to be turned off by bitcoin's notorious price volatility.)  

Yet, if companies start buying bitcoin en masse, finding fresh supplies of the cryptocurrency is likely to come at a cost, according to professional analysts in digital-asset markets. 

The number of bitcoins sitting on cryptocurrency exchanges – ostensibly ready for a quick sale if the price is right – has fallen to about 2.3 million, the lowest since July 2018, based on data from Glassnode, a blockchain analysis firm. It's down from about 3 million as recently as early 2020.

The decline may reflect the activity of big investors who bought bitcoin over the past year and then swiftly transferred their holdings to custody providers or offline "cold storage" solutions, awaiting long-term gains, according to Arcane Research, a Norwegian cryptocurrency-analysis firm.  

"A proper supply crisis is taking place in front of our eyes," the Arcane analysts wrote. 

Bitcoin's year-to-date returns versus the Standard & Poor's 500 Index and gold.
Bitcoin's year-to-date returns versus the Standard & Poor's 500 Index and gold.

Prices for bitcoin are already up 62% year-to-date, versus 4.1% for the Standard & Poor's 500 Index of large U.S. stocks. That track record alone might be enough to tempt more companies, investment firms, endowments, pension plans, governments, endowments, pension plans and regular people – especially at a time when bitcoin is increasingly viewed as a hedge against currency debasement, during an era of easy-money policies from central banks around the world.  

"If you think bitcoin is lively now, wait till there's a liquidity crunch," says Matt Blom, head of sales and trading for the cryptocurrency exchange firm EQUOS.

Some 900 new bitcoins are minted each day by the underlying blockchain network, worth roughly $42 million at current prices

Compare that with the $2.02 billion that has flowed into bitcoin-focused investment products so far this year, based on a report Tuesday from the digital-asset manager CoinShares. That works out to an average $51.9 million per day.

And the CoinShares report doesn't even cover demand from investors or corporate treasurers who may be buying bitcoin directly through their own accounts, or from retail traders who are looking for a piece of the action. 

The math is pretty simple: There's not a lot of bitcoin for sale at current price levels.

"Holders are not selling their bitcoin in response to price increases," says Philip Gradwell, chief economist for the blockchain-forensics firm Chainalysis. "If this behavior continues, then price should continue to rise if demand continues."

Bitcoin Watch

"Doji candle" signals indecision, CoinDesk's Omkar Godbole writes

Bitcoin price chart showing "Doji" candle.
Bitcoin price chart showing "Doji" candle.

Bitcoin's daily price chart shows signs of indecision in the form a Doji candle. The range play is typical of price consolidation seen after a notable rally.

  • If buyers fail to defend Tuesday's low of $45,060, bitcoin may revisit the former record high of $41,962, now perceived as a new level of support. 

Token Watch

Ether (ETH): Second-largest cryptocurrency by market capitalization hit fresh all-time high Tuesday of $1,824, according to CoinDesk 20 data. “We expect some exhaustion on ether coming from the price itself, above $2,200, but also from the fees to use the network itself while solutions are being built to tackle this issue,” Jean-Baptiste Pavageau, partner at quantitative trading firm ExoAlpha, told CoinDesk's Daniel Cawrey. 

Litecoin (LTC): Alternative cryptocurrency hits 3-year highas network activity picks up, with the number of new addresses climbing to the highest since 2019.  

DeFi Soars: Collateral locked in decentralized-finance protocols closes in on $40 billion, up from about $1 billion a year ago, according to DeFi Pulse:

Collateral locked in decentralized finance has soared to about $40 billion.
Collateral locked in decentralized finance has soared to about $40 billion.

First Person

Opinions and observations

Has Ethereum already passed threat from Ethereum killers? Sure, other "smart-contract" blockchains might eventually do what Ethereum does, and do it faster and cheaper. But "Ethereum's immense intangible assets are the real moat behind its dominance," including a cryptocurrency brand second only to Bitcoin's and a "fanatically loyal community," Zabo co-founder Alex Treece writes for CoinDesk Opinion

End of "Petrodollar" era could loosen U.S. dollar's domination as global reserve currency, according to Reuters column by Mike Dolan. 

"Investors who have grown accustomed to central banks always coming to the rescue could find themselves in serious pain" if inflation ticks up and the Federal Reserve steps in to tighten monetary policy, columnist James Mackintosh writes for WSJ.  

Bitcoin to Keep Dominating? David Russell, an analyst for TradeStation, emails First Mover to say: "Lots of people expected a rally in altcoins this year, and there are legitimate reasons to like smaller coins associated with the growth of DeFi. But investors shouldn’t overlook the much bigger trend of institutional adoption, which could channel hundreds of billions of dollars into the market much faster than anyone thought. It’s a completely different catalyst that could disproportionately favor bitcoin at the expense of altcoins. DeFi and Altcoins offer a steady trickle of innovation and excitement. But institutional adoption could represent a tsunami of cash. Risk-averse corporations and institutions are doing the buying. If they’re just now getting the courage to enter a market that was previously viewed as risky, they will favor the safest asset in that market. This is similar to global investors in a new emerging market. They often target the biggest and most mainstream companies like banks and telecoms rather than smaller industrials."

Opportunism is alive and well in crypto: After just two days, it appears that a website called The Doge Store is already selling a T-shirt for $19.99 with the words "Elon's Candle" and an image of bitcoin's price chart (candle view) leading up to the moment earlier this week when Tesla announced its $1.5 billion purchase of the cryptocurrency. By the way, the 19.5% price jump over the course of Feb. 8 was the largest daily move in percentage terms since Dec. 7, 2017, and  also represented the largest-ever daily price increase in absolute dollar terms, at more than $7,500, according to Arcane Research. (EDITOR'S DISCLAIMER: We know absolutely nothing about this retailer.) 

"Elon's Candle" T-shirt from The Doge Store.
"Elon's Candle" T-shirt from The Doge Store.
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