Welcome to the Friday edition of the Ecoinometrics newsletter.
Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets.
Today we'll cover:
MicroStrategy is winning big.
Bitcoin is getting its best month in a long time.
Inflation strikes back.
Each topic comes with a small explanation and one big chart. So let’s dive in.
In case you missed it, here are the other topics we covered this week:
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MicroStrategy is winning big
How long have you been buying Bitcoins? I started in 2016. (but first time I heard about BTC was 2013 and yes I feel like a dummy for not buying a truckload back then).
Until I had a large enough position for my taste I mostly did dollar cost averaging although not always with the exact same amount.
And for my kids, I'm still doing DCA to this day.
Well MicroStrategy's strategy is pretty much the same. They only do it at a different scale though.
Since 2020, when they started buying, they have added to their stack 33 times. They deployed millions of dollars every time.
As you can see on the chart the value of their position went through wins and losses, highs and lows.
But as of now they have transformed $6 billion worth of cash to 193k BTC worth $12 billion.
There is some lesson here. Probably best summarized by a Ernest Shackleton:
"By Endurance, We Conquer"
It pays to stick to your macro thesis.
Bitcoin's best performing month in a long time
I didn't expect that the launch of the Bitcoin ETFs would boost Bitcoin's price so fast.
My guess was that it would take months for the Grayscale situation (the outflows) to resolve before we get any solid growth of the BTC supply captured by the ETFs in aggregate.
Yes GBTC is still getting daily outflows but Fidelity and BlackRock more than compensate for that.
Given the current amount of net inflows over the past week, if Bitcoin's price was to stay where it is around $60k, the combined ETFs would be able to capture the equivalent of 5-10% of the total supply in just one month.
That's an insane buying pressure (this is SHOCKING as the AI influencers would say). And the result is that February 2024 is the best February Bitcoin had in the past ten years. Not only that, it is also the best performance in one month of the past three years.
As long as the financial conditions remain loose and there is no economic downturn there is no reason for that dynamic to stop.
Inflation strikes back
Now there is one reason the financial conditions might stopped getting more loose. It is if the Federal Reserve decide they have not done enough to fight inflation.
They would not even have to raise rates higher for real. I think it would be enough for Jerome Powell to just allude to the possibility of this happening. That would probably raise serious doubts in the financial markets.
Why would they do that though?
Well inflation is a bit of a mess now. Broadly inflation has come down a lot. And for most sectors inflation is arguably back (or at least clearly transitioning) to a pre-COVID regime.
But not for services. The problem is that services is most of the economy in the US. So that’s a big deal.
And the preferred measure of inflation by the Federal Reserve (PCE inflation) is showing that core services (services without the most volatile parts) is completely out of hands in January.
The month-on-month change in PCE core services inflation is the highest since the start of the inflation spike after COVID and also the highest in 25 years.
If this is not a blip in the data then it is concerning.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.
Cheers,
Nick
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