The Fed Has Lost Control & Bitcoin Knows It
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Bitcoin price action can be explained by a huge net outflow week for the ten-spot ETF vehicles—combined, they had $637.25 million flow out of the funds, the first week of net outflows since their launch on January 11th.
This data does not include Friday, as I'm writing this before the flows are reported at the end of the trading day.
GBTC led the charge, as every other vehicle had net inflows this week and has historically been supported by investors these past 2 months. Note below, on the bottom pane, that outflows from GBTC have picked up in March after shrinking throughout February. GBTC outflows totaled $358 million yesterday which is around ~5700 BTC. At that daily rate, outflows can persist in bitcoin terms for 61 more trading days:
This uptick in outflows after initially falling is due to Gemini and Genesis being approved by courts to begin liquidating their GBTC holdings. The holdings break down like this:
Gemini: 30.9 million GBTC shares worth $1.75 billion
Genesis: 35 million GBTC shares worth $1.98 billion
Genesis is the bankrupt lender who was the primary banking partner in Gemini's now-defunct Gemini Earn product, and both entities are liquidating their respective GBTC holdings which served as collateral held on behalf of users of this product.
Their combined 65.9 million GBTC shares are 16.7% of the 392.8 million shares outstanding, so its no wonder why the approval to begin liquidations at the end of February has coincided with increased GBTC selling pressure, forcing Grayscale to sell the underlying BTC at the same rate. Once this liquidation subsides, GBTC outflows will likely die down and serve as less of a headwind on bitcoin's spot price.
Nevertheless, at the current rate of selling, and only selling on weekdays, GBTC could fully exhaust itself of supply in ~87 days, with bitcoin's halving in just 27 days. Summer 2024 is shaping up to be a rager for bitcoin.
In the meantime though, bitcoin has settled in for consolidation. It chopped around this week bet week $68,000 and $63,000, par for the course in a bitcoin bull market. Post-FOMC meeting where Powell forecasted rate cuts and all but declared victory over inflation with it still raging hot, bitcoin surged from sub-$61,000 all the way back to $68,000.
This is the perfect illustration of one of bitcoin's unique attributes that it shares with other monetary metals, it is especially great at forward discounting changes in monetary policy. Bitcoin's surge, which you can clearly see on March 20th in the 5-day chart for BTC below, can be rightfully seen as a reaction to even easier financial conditions on the horizon:
Don't be surprised by the extreme choppiness and seemingly out-of-place price drawdowns in a raging bull market, they happen all the time. Look at the diagram of bitcoin's price drawdowns from all-time-high. Bitcoin had 10 drawdowns of 10% or more during the 2017-18 bull, and 15 drawdowns of 10% or more during the 2020-21 bull. Periods of consolidation as sellers take profit and buyers take advantage of the dip are part and parcel with bitcoin bull markets, so sit back and relax:
The Fed made a historical blunder by forecasting rate cuts too early. What was intended as preventative of funding stress in US financial markets has been met with financial conditions that are easier than when the Fed started tightening. Jerome Powell's pre-emptive cut forecasts were supposed to act as a cushion for the US economy coming into land, and have instead served the function of a Bunson burner in re-heating financial easiness, with skyrocketing asset prices and elevated price inflation as a result:
High rates have exacerbated our large fiscal deficit by pushing interest expense on government debt higher, driving more government spending to pay it down, spending more money into the economy and negating the visible impacts of the Fed's tight monetary policy.
Our runaway fiscal spending is only accelerating. An omnibus bill, termed that way for its size when stacked up on paper resembling an omnibus, hit the desks of lawmakers at 2 AM EST and outlined an insane $1.2 trillion in spending for the 6 remaining months in the government's 2024 fiscal year. It was voted on just hours later and passed the House. For context, this puts the deficit for FY2024 above $3 trillion, which is almost double Congress' initial estimate of $1.6 trillion.
Overnight, we've added another $1.2 trillion to the debt, which is almost half the size of the entire US debt load just 25 years ago. We are in the looting stage of the empire collapse, wherein the elected leaders abandon any notion of austerity and take as much as they can as quickly as they can:
The good news is that people are catching on. It is evidenced in bitcoin's tight relationship with the global money supply, and we're reminded of it constantly as recently as this Wednesday with the aforementioned post-FOMC spike on the back of forecasts for further easy money.
People know how to protect themselves, with BTC serving as a kind of financial salvation for the people who are impacted by reckless spending.
Final thought: the greatest act of defiance you can make in the war on money is to buy something they can't make more of.
Take it easy,
Joe Consorti
Theya is an app for simplified Bitcoin self-custody. With our Modular Multisig solution for self-custody, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.
Download Theya on the App Store and secure your bitcoin with ease.