View from the Arch #13

$GBTC sell pressure, the Magnificent Seven’s earnings, and the return of SoftBank

January 26, 2024

We don’t want to bore you to death with more ETF commentary, but there is a puzzle here that we can’t quite get our head around, and it doesn't seem like anyone else can either. Elsewhere, the S&P made new ATHs, and layoffs across tech companies continue.

This Week in Crypto

Bitcoin has dropped around 20% from its recent high - and as we explored in last week’s edition, this can be largely attributed to what was a highly telegraphed “sell the news” event as well as $GBTC selling.

We wrote about the three different types of $GBTC sellers - those moving to cheaper ETFs, arbers closing, and those taking profit - with the latter being the only category leading to a net sell effect. We also, perhaps incorrectly, speculated that those profit-takers were in the minority.

Of the $4.5bn GBTC sold so far, JPM came out and estimated that $3bn was profit-taking and $1.5bn was Bitcoin moving into other ETFs, such as IBIT (Blackrock) and FBTC (Fidelity), which are 125bps cheaper p/a. They are the two biggest winners so far. However, their explanation for arriving at this figure is somewhat hand-wavy and no distinction is made between profit takers and arbers (who have to buy back their short positions and so have no net effect). The bottom line, in any case, is that we just don’t know what the composition of $GBTC sellers is.

Well then, what do we know? We know that GBTC still has $20.28bn in assets. And we know that the GBTC outflows are slowing each day, but are still significant (down to c.$340m per day from $430m). Heyapollo has a helpful dashboard here.

Conclusion? We favor a short-term weak bear bias - price is a function of supply and demand at the margins, and right now the risk of further $GBTC selling/profit taking leading to net sell pressure is more pertinent than the prospect of any sudden new demand. We will wait for more information over the coming week to revise our view. Our longer-term bias remains strongly bullish (given reasons we frequently allude to; the halving, 2024 being an election year, rates) and we believe dips are for buying.

In other news, the ETH ETF deadline got a push from the SEC - as we’ve said before, we will expect this to go all the way to the latest deadline of May. Further, approval here will be somewhat more complex than Bitcoin’s, given Gensler has never explicitly said Ethereum is not a security and the numerous outstanding lawsuits against exchanges offering staking services.

For you on-chain fiends, we suggest you take a look at the guide below to stake $SUI for some future airdrops this year.

Alt-coins had a mixed week, with many being >20% off their recent highs. MANTA (+39.9), TAO (+37.6) and HNT (+17.5) were some notable out-performers.

Finally, despite ATHs for the S&P, crypto-related equities remain depressed. We will continue to argue that a basket of well-selected equities here will be strong out-performers in 2024.

News from Crypto Markets

This Week in TradFi

It took three weeks. Some were deep in thinking in terms of false dawns for risk and overcooked markets. But the bullish tone has arrived and the melt-up in risk asset prices saw the S&P race through its all-time high. The index is the benchmark all markets look to and with retail investors apparently still largely side-lined, 5,000 is looking like a real Q1 possibility. The earnings season has delivered mixed (many were looking for generally worse-than-expected) results to date, although the big-7 are carrying all - only Tesla being the big casualty this week. Now we are into the meaty cohort of corporates delivering their earnings, but we don't think that the numbers will massively disappoint, leaving every reason for the markets to continue inching upwards.

In fixed income, there is high levels of corporate bond debt issuance, as borrowers look to get funding away while the bid lasts and are not too concerned about leaving a few bps on the table. Credit spreads are tightening, and the going is good. Financing now will leave a less stressful funding dynamic further down the line. US rates markets, though, are treading water, having backed-up since the beginning of the year, There is ongoing weakness in Europe which has offered support for rate markets, leaving bond yields to shift lower. The ECB kept rates unchanged this week at 4%; rate cuts must be coming sooner rather than later.

The economic picture shows a diverging dynamic on either side of the Atlantic. In Europe, the latest batch of data had German business confidence at its lowest level since the Covid-era and UK retail sales falling off the proverbial cliff in January. The force though is with the US as GDP growth (3.3% Q4) and durable goods growth (0.6% January) highlight a continued resilient US market. And welcomed no doubt by Biden.

Elsewhere, Chinese authorities made some additional tentative steps to try and shore up a battered stock market and economy. Cutting the banks' reserve requirement will help but rate cuts and other measures will also be needed. At least we have some action finally suggesting that a sense of urgency is needed to get the broader Chinese economy back on track.

This Week in Tech

Tech headlines these days bounce back and forth like an air-hockey puck between layoff announcements and fundraising news. This week was fairly skewed towards the continuing layoffs. It’s been quite a rough start to the year with ~11k of aggregate tech layoffs in January. We may see the layoffs continue over the next few months as growth tech companies that last raised in 2021/2022 cut costs in advance of raising additional capital. However, one exciting headline is that SoftBank is back! Yes, it’s been a while since we said the name that popped up in virtually every growth fundraise during the tail end of the bull market. They just led a $104M fundraise for a Barcelona-based travel startup, TravelPerk.

As readers may recall, we touched on General Catalyst’s (GC) purchase of a health system last week. This week headlines came out that General Catalyst is in talks with buying an Indian VC firm. M&A amongst venture firms is rare but not unheard of. In fact, GC entered Europe in this same manner by merging with a European VC firm, La Famiglia.

Similar to the health system purchase, we think this is another brilliant move by GC. India from an investment perspective is incredibly appealing, with the fastest growing internet market of over 700M users and tremendous tech talent. And while many well-known VC firms have struggled to make money in India given the lack of meaningful exits relative to the US market, this will likely change as there are many large, privately-held companies on the brink of an IPO. However, it’s important to have local partners in the region, as there are many business model and consumer differences that one must be aware of (for example, Indian e-commerce and ride-sharing companies have the option for consumers to pay with cash). For GC, acquiring a firm with top-notch local partners and rebranding it as GC India will likely enable them to immediately start competing for the hottest deals. GC has a lot on their plate and we’ll stay tuned to see if they are able to manage it successfully.

As usual, below are some fundraising announcements, M&A, and tech personnel changes that caught our eye: