TheBRRR’s Thoughts

Risk asset prices have leaked lower this week. There’s no single catalyst but rather a smattering of headlines driving the action:

-Powell says inflation battle is taking longer than expected
-Fed’s Barkin says inflation data “not supportive” of rate cuts
-Israel pledges retaliation

Today we’re previewing this Saturday’s bitcoin “halvening” event, where the rate of new coins earned by miners programmatically gets slashed in half. The event has served as a catalyst to strong price action in previous cycles.

What’s unique about this year’s event is that bitcoin recently set a new all-time high above $70,000 and currently sits just 15% lower, while the price was 60% below its all-time high at the time of the last halvening in 2020.

Bitcoin went on to surge 5x over the subsequent 9 months after the last event.

The 2020 setup was much closer to the norm than this year’s immense strength, leaving speculators unsure where we go next (we think $100k by end of year).

Media coverage has been fairly wide with notable pieces from both NPR and the Wall Street Journal.

Bitcoin Halvening On Deck For April 20th

• WHAT HAPPENED:

  • Bitcoin Halving: The upcoming halving event will reduce the bitcoin reward for miners from 6.25 to 3.125 bitcoins approximately every 10 minutes, impacting profitability for mining operations.

  • Miners Diversifying: In anticipation of reduced earnings from mining, companies like Marathon Digital Holdings and Bit Digital are exploring new revenue streams. They are focusing on artificial intelligence (AI), leveraging their computing capabilities and selling technology to AI companies.

  • Introduction of Ordinals and BRC-20 Tokens: These protocols have been implemented on the Bitcoin network, enabling functionalities like NFTs and decentralized finance (DeFi), which traditionally were not possible. This has significantly increased the use of block space, driving up transaction fees.

  • Miners' New Fee Revenue Stream: the increased transaction fees from Ordinals and BRC-20 tokens are proving vital for miners. Ordinal inscriptions have contributed over $438 million in fees to miners.

  • Transactional Fees: During the height of the initial Ordinals craze in May 2023, transaction fees accounted for 43% of the total income per block. Additionally, fees on individual transactions spiked to as high as $37 during a later surge in demand for Ordinals in 2023.

  WHY IT MATTERS:

  • Impact on Supply and Price: The halving event is critical as it further limits the new supply of bitcoin, potentially driving up prices if demand remains strong.

  • Survival and Strategy: The ability to adapt through diversification will be crucial for miners. With the cost of operations high and the reward halving, only well-capitalized and innovative companies are likely to thrive.

  • Long-Term Industry Changes: The shift towards AI and other technologies indicates a significant pivot in the business strategies of crypto miners, aiming to create resilient multi-revenue stream businesses.

  Additional Insights:

  • Energy and Operational Costs: Companies are not just diversifying but also optimizing their existing operations to cut costs, such as Marathon buying up facilities to reduce reliance on third-party services and selling back excess energy.

  • AI as a Safety Net: The increasing involvement in AI by companies like Bit Digital showcases a strategic move to hedge against the volatility of cryptocurrency markets.

  • Market Trends: The ongoing trend of severe price fluctuations in mining stocks reflects investor uncertainty about the future profitability of these companies post-halving.
    
    WSJ, Coindesk

Report: Trump Team Considering Dollar Devaluation Strategy

WHAT HAPPENED:

• Dollar Devaluation Strategy: Economic advisers associated with former President Donald Trump, including former trade chief Robert Lighthizer, are considering strategies to intentionally weaken the U.S. dollar to boost competitiveness of U.S. exports. This approach could potentially be implemented if Trump is re-elected.

• Policy Advocates: Lighthizer, a key figure in Trump's previous tariff policies and a potential Treasury Secretary candidate, supports this strategy, viewing it as a way to correct what he sees as an overvalued dollar contributing to the U.S. trade deficit.

WHY IT MATTERS:

• Impact on Risk Assets: Devaluing the dollar could lead to a significant revaluation of risk assets. A weaker dollar typically boosts the price of assets like stocks and real estate, as it could lead to lower interest rates and cheaper funding costs. However, this might also inflate asset bubbles if not managed carefully.

• Dollar Debasement Concerns: Such a policy could lead to a debasement of the dollar, diminishing its purchasing power. This can erode savings and reduce living standards for average Americans, especially if inflation accelerates as a result.

• Global Financial Stability: The dollar's role as the global reserve currency underpins international financial stability. A significant devaluation could undermine this status, affecting global markets and reducing the efficacy of U.S. sanctions and international agreements.

Politico

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll