State of the Market #48

5/3/2020 - 5/9/2020

Texas Blockchain

Max Bibeau, Preston Sledge, Matthew Kimmell

The third Bitcoin halving is tomorrow. Bitcoin’s inflation rate will be cut in half, making it 2X as scarce. These supply shocks tend to remind people that Bitcoin is the only thing in the world with a truly fixed supply and, perhaps more importantly, nobody can change that.

Market Summary

Dotted lines represent non-trading days (weekends, holidays, etc.)

Top Stories

Bitcoin Revenue in Square’s Cash App Tops Fiat Revenue for First Time in Q1


According to Square’s Q1 2020 letter to shareholders, CashApp generated 58% of its $528M in total revenue from Bitcoin services, with only 42% of its revenue coming from traditional services. However, allowing users to buy Bitcoin comes at a price… the price of Bitcoin. To turn a profit, CashApp charges a small fee on every Bitcoin purchase. When considering their bottom line, these fees made up only 4% of CashApp’s $183M in total profit. While CashApp’s outsized Bitcoin revenue reflects an increasing volume of interest, its measley Bitcoin profit reflects the low margins on managing cryptocurrency for users.

Open interest in CME's bitcoin futures is now at an all-time high of $400 million

The Block

Chicago Mercantile Exchange (CME) is the largest exchange for futures contracts in the world. CME began offering Bitcoin futures contracts in December 2017, due to increasing client interest. Since then, these contracts have steadily increased in trading volume. “Open interest” measures the total value of outstanding contracts that are yet to be settled. This month, the open interest of CME’s Bitcoin futures reached an all-time high. This signals an inflow of capital from institutional investors, which have been skeptical of Bitcoin’s legitimacy. Until recently, the Bitcoin market has always been dominated by retail investors, who trade Bitcoin through exchanges often in legal gray areas. 

Paul Tudor Jones Buys Bitcoin as a Hedge Against Inflation


Paul Tudor Jones is a hedge fund manager with $7B in assets and is the 131st richest American, according to Forbes. This week, PTJ announced his allocation to Bitcoin while revealing his investment thesis. In it, he describes the coming “Great Monetary Inflation” and compares Bitcoin to other stores of value like gold, cash, and financial assets. “The best profit-maximizing strategy is to own the fastest horse… If I am forced to forecast, my bet is that it will be Bitcoin… It is literally the only tradeable asset in the world that has a known fixed maximum supply… Future halvings will likewise… slow the rate of supply increase… This brilliant feature was designed by the anonymous creator of Bitcoin to protect its integrity by making it increasingly near and dear, a concept alien to the current thinking of central banks and governments.”

Zoom Acquires Keybase to Get End-to-End Encryption Expertise


In the aftermath of Zoom’s many security concerns, they have acquired Keybase, an encryption-based startup. Zoom CEO Eric Yuan announced that the acquisition should enhance user security and scalability. Keybase has recently partnered with Stellar (XLM) to “link strong cryptography to real-world identity.” Keybase’s users are now also reportedly concerned about Zoom encroaching on their privacy.

Tron Foundation Reportedly Tapped US COVID-19 Business Relief Program for $2M


The Paycheck Protection Program (PPP) is a US program intended to “provide small and medium firms with low-interest, forgivable loans to meet their urgent liquidity needs for covering payrolls and other expenses.” However, many critics of the program claim that it caters to the needs of large corporations, including Trump re-election lobbyists. Justin Sun’s Tron Foundation has reportedly received up to $2M in relief from the program, sparking outrage from CEOs like Bryce Weiner, who was interviewed in a NYT piece addressing PPP controversies. Weiner stated in a tweet: “This is *exactly* the kind of sh*t the @nytimes was talking about in my interview. This isn’t even an American company. If it is a company, it’s not decentralized and TRON is a security.” This is not Sun’s first brush with controversy, as he has also been criticized for his $4.5M lunch with Warren Buffet, copycat coding, and hostile takeover of Steem.

Top Charts

This chart shows the dominance of the US Dollar, reflecting its “reserve currency” status. The dollar was named the reserve currency of the world in the post-WWII Bretton Woods agreement in 1944, because the US had accumulated so much gold that holding dollars was the next-best thing to holding gold itself. But, since we went off the gold standard in 1971, the dollar’s reserve currency status has been called into question.

After the halving tomorrow night, Bitcoin will have a lower inflation rate than gold, which is considered the scarcest resource on the planet.

The value of Bitcoin can be modelled using the strength of HODLers. In this chart, the colored regions indicate the percentage of the Bitcoin supply that hasn’t moved for the corresponding time period. Red/orange dominance indicates that a majority of the supply is being actively traded, while blue/green dominance indicates that a majority of the supply is being held. When people hold (or lose) Bitcoin, they effectively remove these tokens from the supply. The HODL waves model originated from Unchained Capital, but was modified here by @typerbole to reflect Bitcoin’s realized cap instead of market cap.

The volume of Bitcoin futures contracts is relatively evenly spread across exchanges like OKEx, Bitmex, CME, and Huobi. However, the market for Bitcoin options contracts is being dominated by Deribit. An options contract gives the holder the right to buy/sell an asset at a certain price (strike price) anytime before a certain date (expiry). However, a futures contract requires that the holder buy/sell an asset at the strike price on the date of expiry.

Top Tweets

@udiWertheimer pokes fun at @BlockGeekDima for his truism on Bitcoin vs. Ethereum development.

@xmrhaelan and @_Checkmatey_ troll Bitcoin maximalists for their secret altcoin hedges.

@BrendanEich, creator of JavaScript, Mozilla Firefox, and now Brave Browser and Basic Attention Token (BAT), refuses to distance his project from the source of coronavirus.

@basedkarbon mocks the small business stimulus plan that ran out all too quickly for small businesses, as it was diverted to seemingly non-crucial endeavors (like Tron). 

From @CryptoCharles__: “This shit right here is why we’ll never go mainstream.” Bittrex, one of the largest US cryptocurrency exchanges, responds to a complaint from a user with, ‘Why you mad thou?’

Spaghetti anyone? From @redford.

@hasufl alludes to the fact that most of the fiat money we use today is credit issued by commercial banks, which must be paid back eventually. Bitcoin = digital money. Dollars = digital credit.

The State of the Market AKA what happens when we use credit as money. From @archillect.

In March, credit card volume fell by ~31% annual rate (biggest since 1989). People aren’t spending money. So, the Federal Reserve must keep the money flowing or borrowers will default and the economy will break. This is why people refer to the Fed as the lender/buyer of last resort ‒ or, more accurately, the “first instance debtor.”

@CryptoCobain’s shameless attempt to scam users. Natural selection, really. 

Grad school meme.

Can’t wait to graduate so I can start learning!

According to a picture of a spreadsheet taken with a brick, users of CashApp and Grayscale (Bitcoin trust fund listed on Nasdaq as GBTC) bought ~50% of the amount of newly mined bitcoins in Q1 2020. Call it the HODLer vacuum.

Incredible story about a Bitcoin holder, the BearWhale, succumbing to Bitcoin FUD as he sold at the bottom of the last bull run after the 2016 halving. Here is a live-action video of BearWhale’s massive sell wall being chewed through. Order book porn, if you’re into that.

@CryptoHayes, CEO of Bitmex, sees that Paul Tudor Jones has opened the door for other hedge fund managers to invest in Bitcoin by removing its “career risk”. Now, using PTJ as an appeal to authority, smaller fund managers can avoid being laughed out of the room or scolded when investing in magic internet money. Here come the institutions.


Top Videos

Bitcoin hype video. Get pumped for pumps.

Press Secretary Kayleigh McEnany destroys a journalist that tries to corner her. “We may be shit but so are you.” -@shootermcnugget

Plandemic (coming Summer 2020) is a movie that attempts to explain some of the questionable causes and effects of the coronavirus. Last week, the team behind the movie released a 26-minute sneak peek that attracted hundreds of thousands of views, while being censored from every large social media platform. For the faint of heart, instead check out this article from The Atlantic, titled “If Someone Shares the ‘Plandemic’ Video, How Should You Respond?” It’s a great way to build your defense mechanisms and cope.

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Texas Blockchain’s ‘State of the Market’ is a student-led editorial. None of the views expressed by the authors should be taken as the view of the University of Texas at Austin or the Texas Blockchain organization. Furthermore, none of the views expressed should be taken as financial advice in any circumstance.