FMF: BTC & ETH SUPPLY SHOCK, BURRY’S APOCALYPSE, SIMONS SAYS AMC
The 5-minute newsletter covering the important stuff in finance — explaining what’s going on, and why.
Let’s see what’s going on this week:
- DeFi’s Community is Stronger than its Vulnerability to Hacks
- ETH & BTC Centralized Exchange Supply Continues to Fall
- Breakdown of Crypto-Holding Demographics
- Burry and Wood: Clashing Macrotrend Narratives
- Heavyweight Mathematician Jim Simons Bets on AMC
DeFi Hacks Evolve, but So Has the Digital Asset Ecosystem
- In contrast to previous large hacks, the biggest one yet — Poly Network at $611 million dollars — had no discernible impact on any part of the crypto market. (link)
- Following Uniswap, 1inch decentralized exchange (DEX) aggregator joins Optimistic Ethereum, in the promise to reduce gas fees by up to 10x. (link)
DeFi’s One Step Back, Two Steps Forward
When something is new, it’s untested. And when something is untested, it doesn’t instil confidence. This explains the crypto space in a nutshell. Both hacks and harsh words had previously caused major market crashes. With Mr. White Hat having returned the spoils to Poly Network, it seems we are leaving this period of uncertainty behind us.
Bucking the trend, the biggest crypto hack in history is indiscernible from regular price fluctuations.
Blockchain analytics tools have become more powerful, making it difficult to withdraw money without exposing real-world identity. Likewise, there is greater coordination between DeFi participants, as Tether showed by quickly freezing $33 million USDT. Bug hunting has intensified as well.
Within the same week, San Francisco-based Paradigm white hats may have saved SushiSwap from a potential $350 million loss. At the same time, some of DeFi is getting an overhaul with the Optimistic Ethereum (OE) implementation. Akin to adding more lanes to a highway, OE will enable 2,000 transactions per second once fully deployed, with significantly lower gas expenditures.
As the latest beneficiary of the OE upgrade, 1inch is another wind in DeFi’s sail, clearing up uncertainty on what DeFi will look like. In the ideal world, there would be no hacks, but as such a utopia doesn’t exist, we can only gauge success by making more steps forward than back.
Ethereum and Bitcoin See Supply Shocks — What’s Next?
- Ethereum balance on exchanges reached ~15 million ETH, the lowest level since 2018, representing 13% of total circulating supply. (link)
- Grayscale, the world’s largest digital asset manager, doubled its crypto holdings, from $20 billion at the beginning of the year to $40 billion. Ethereum’s share increased by 5x, to $9.5 billion. (link)
Centralized Exchange Supply Continues to Decrease
Both Bitcoin (BTC) and Ethereum (ETH) are getting scooped off exchanges at a rapid pace. As it stands now, the two dominant cryptocurrencies have about 13% coins left in circulation. As their supply lowers, their illiquidity increases. Meaning, a low liquidity could make the market more volatile, prone to price spikes.
As noted by blockchain analyst Will Clement, previous Bitcoin supply shocks were accompanied by price actions.
Source: Will Clemente, Twitter
As the smart-contract landscape continues to heat up, Ethereum’s transition to 2.0 is well underway. Following the success of the London hard fork, Ethereum now has the potential to become deflationary as it set gas fees on fire.
ETH has already had a successful year, rising by 330% in year-to-date market performance. With the growing demand for NFTs coming from blockchain gaming, this could continue. After all, the top NFT marketplaces require ETH for fees.
And Bitcoin is, well, Bitcoin. With a year-to-date performance of roughly 60%, and the likes of Michael Saylor continuing to stack sats like it’s going out of style, several indicators suggest that couldn’t be farther from the truth. In fact, BlackRock just revealed it owns $382 million in Bitcoin mining stocks — joining the ranks of Fidelity and Vanguard in this latest Bitcoin mining venture.
Supply continues to fall, but demand moves in another direction. We’ve seen this movie before.
Crypto Becomes Increasingly Popular Among American Minorities, and Vietnam Leads Global Adoption
- Three major groups in America — Blacks (50%), Asians (50%), Hispanics (49%) — have greater crypto awareness than White Americans (37%). (link)
- Asia is the leading region for digital asset adoption, with Vietnam as the most enthusiastic country with 41% of its citizens owning crypto. (link)
Bitcoin Signifies Financial Liberation Across the World
Although the creator of Bitcoin is still unknown, it is safe to say BTC was created within academic circles engrossed in cryptography and math. From this origin, it follows that the majority of crypto holders are White (71%) and male (74%), according to Gemini’s State of U.S. Crypto Report.
However, we also know that Bitcoin was created as a disruptive monetary force. Its very first data block, Genesis Block, had the following message embedded: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” — referring to the Financial Crisis that birthed the Occupy Wall Street movement.
Over the years, Bitcoin filled these disruptive shoes to sprint across the globe. Nigeria is Africa’s leader with 32% of its population holding digital assets. In the US, crypto ownership among some minorities outpaces the majority by over two times — 23% among Blacks vs. 11% among Whites.
Globally, Vietnam is leading crypto adoption at an impressive 41%. Interestingly, in both Nigeria and Vietnam, cryptocurrencies are banned by their central banks, to some extent. It is quite telling that despite such bans, cryptocurrencies thrive as mobile virtual banks, meeting neglected financial demand.
Burry Pours Cold Water Over Cathie Wood’s Disruptive Tech
- Dr. Michael Burry of “The Big Short” fame bets $31 million against Cathie Wood’s ARKK ETF, and $731 million against Musk’s TSLA. (link)
- Cathie Wood defends against shorting her fund, dismissing negative sentiment as being too “short-term oriented”. (link)
Sometimes, Obsession with Gloom & Doom Can Lead to Missing Out
Among some economists and politicians, it is a common refrain that the lessons from the 2008 Financial Crisis were never learned. Such thinkers argue that the underlying problems were postponed, as regulators just kicked the can further down the road. Dr. Michael Burry certainly thinks so.
He made his fortune by predicting the housing market crash that triggered the global recession of 2007–2009. After a long hiatus from public predictions until 2017, Burry started making forecasts anew.
Many of them failed to materialize. Nonetheless, Burry’s main theme is that meme stocks will trigger the mother of all stock crashes because — “We’re running out of new money available to jump on the bandwagon”. From this perspective, it would then be a matter of timing, not how many times he got it wrong.
On the other hand, Cathie Wood thinks such a bearish outlook comes from exaggerating the effect of inflation. She counts on the deflationary power of disruptive technologies, chief among them — blockchain and AI. Whichever scenario may unfold, it would have to bet against the Fed’s power (and seemingly go-to strategy) to deluge the market with cash.
Meme Reversal — AMC Gains Institutional Favor Over Tesla
- Jim Simons’ hedge fund, Renaissance Technologies (RenTech), tripled its stake in AMC, going from 516,000 shares to over 1.8 million. Simultaneously, he ditched 75% of TSLA shares. (link)
- Sean Goodman, AMC’s chief financial officer, sold 45,405 shares worth $1.57 million. (link)
Simons Follows Burry’s Lead with Tesla, Takes Opposite Angle to AMC
Mathematician, NSA codebreaker and billionaire hedge fund manager. By holding this combo, Jim Simons reveals a unique approach to his investment strategies. Managing $160 billion in assets, RenTech gained a reputation for using mathematical models that leverage market data as far back as the 1700s.
Reversing on Tesla (TSLA) is no surprise, as many analysts view it as an incorrectly valued tech stock, instead of a car manufacturer stock. However, crunching the AMC numbers seems to have revealed a continuation of a trend. Let us remember that in 2021, AMC stock gained 1,500% growth.
Over the last 3 months, AMC outperformed TSLA by 7.5X, (source: Yahoo Finance)
Recuperating from the lockdowns, AMC reported $445 million in revenue for Q2 2021, a 44% YoY increase. No doubt, this wouldn’t have been possible without its ‘ape army’ of retail traders hailing from Reddit, the largest social media platform serving as a springboard for financial activism.
Was their prolonged holdout against AMC short-sellers the final factor that churned out the numbers necessary for RenTech to jump in? Only Jim Simons and his 90 employees with PhDs know for sure.
Tweets of the Week
“We recently received board approval to purchase over $500M of crypto on our balance sheet to add to our existing holdings. And we’ll be investing 10% of all profit going forward in crypto. I expect this percentage to keep growing over time as the cryptoeconomy matures.”
“$HOOD Robinhood getting 25% of revenue from $DOGE is reminiscent of when $eBay had “at times” approximately 7% of their listings “involved” in Beanie Babies.”
“Suggested topics for first date. Ask. 1. Are you long or short gold? 2. Do you think transitory inflation will affect Tech valuations? 3. Should I keep N60,000 in Bonds, Banks, BTC or a Building? 4. Is Tesla overvalued? 5. What’s your FICO score?”
“9/ This year NFTs and gaming were the next wave of blockchain apps to break out: NBA Top Shot, CryptoPunks, Axie Infinity, etc. You can see this reflected in the rapid growth of gross sales at OpenSea, the largest NFT marketplace:”
“BlackRock pressured Tesla and @ElonMusk about #Bitcoin mining carbon emissions. @ElonMusk then suspended #BTC payments for Tesla, precipitating a fall in Bitcoin’s price. Then BlackRock buys $382m worth of Bitcoin mining stocks.”