Konza Capital Newsletter #8
Institution Week
Earlier this week the markets welcomed with open arms an 8.5% inflation print for the month of July. It was the first time in months that inflation did not surprise to the upside and that was all it took for a continued rally upwards, with the S&P 500 up 3% in the last week and 12% in the last month. Bitcoin and Ethereum also rallied, with Bitcoin and Ethereum up 5% and 13% in the last week. This brings the rally for the two assets in the last month up to 26% and 86%, respectively.
In other news, well-regarded hedge fund manager Brevan Howard (over $20B AUM) marked their first foray into crypto with a bang as sources say they raised over $1 Billion for their flagship fund. As far as forays into an asset class go, it rarely gets more sizable than this and it is a strong signal of further institutional adoption in this asset class. Most notably, the limited partner base of Brevan Howard likely consists of entities with little to no crypto exposure, meaning that new participants in this vehicle are apt to be crypto first-timers. As far as I can see it, this is good news for the growth of the asset class and is likely a harbinger of things to come. On an absolute return basis hedge funds have underperformed for the last decade with the 2011-2020 time period marking one of their weakest 10 year stretches as the average hedge fund returned 5.0% annualized compared to the 14.4% of the S&P 500 over that same time period. Digital asset investing may very well be the big break that some of these asset managers need in order to not only raise new capital but also outperform.
Off the back of an exciting partnership with Coinbase last week, BlackRock continued to keep their momentum in crypto rolling by announcing a Bitcoin private trust for their institutional investors. I suspect that in a few years BlackRock’s move into crypto will be regarded as a seminal point in the asset classes maturation process. BlackRock’s stamp of approval has typically led to a flurry of growth in many categories with a recent example being the worlds love for all investments ESG. If the SEC won’t approve a spot ETF to democratize access for all, then BlackRock will put their own spin on it to make sure their investor base has access to the next best thing. Keep an eye out for other asset managers such as Vanguard to follow suit in the coming quarters.
In Other News
Keep those tax returns spick and span or the IRS will get you. The Inflation Reduction Act includes nearly $80 Billion in funding for the IRS over the next 10 years, and around half of that value will go to enforcement.
The U.S. Treasury department blacklisted Tornado Cash on Monday, a well known crypto mixer used to help anonymize transactions and lower your blockchain “footprint”. Unfortunately, good actors that have interacted with the application may also liable. Since you can’t reject an asset transfer to your wallet, people are now sending transactions that went through Tornado Cash to well-known wallets to technically incriminate them.
The UN Conference on Trade and Development thinks crypto challenges states’ authority in monetary matters and wants higher taxes on crypto transactions, a curb/prohibition on crypto ads, and required registration with regulators for wallets and exchanges. Why? To prevent the supposed “leakage” of development funds.
Bitcoin Mining Metrics
Bitcoin Price: ~$24,200
Hashrate (amount of computing power used by the Bitcoin network): 209EH/s
Hashprice (expected value of 1 TH/s of mining power per day): ~$0.113
ASIC Prices (the computing machines used to mine BTC): $34.93/TH
The first month of Q3 began with Bitcoin being sold in droves, as Hut 8 and Marathon remain some of the only publicly traded hodlers. Of those that sold Bitcoin in July, Riot is the only miner that sold less than it mined. Colin Harper from Luxor reported on this in more detail and of the reported production numbers from major miners, 3478 BTC was mined and 5767.9 was sold.
As Q2 reports have begun to trickle in we are able to see things were as rough as we initially expected. Given that it is earnings season, here are just a few notable highlights from this week across the industry:
Hut 8 loses around $69 million in Q2 but continues to hold bitcoin.
Marathon loses $192 million
Cipher loses $29 million
CleanSpark buys a 36MW facility in Georgia for $16.2 million and another 3400 miners for $8.9 million at about $26.20/TH
Riot delays their earnings report to buy more time to calculate how much the crypto drawdown devalued their asssets
Expect one more round of updates next week as the laggards get their reports out and share their high/lowlights.