GBTC outflows, FOMC latest, and AI's value accrual

View from the Arch #21 | 22nd March

Author

Dhruv Patel
March 22, 2024

Big Mike buys more Bitcoin with Microstrategy, but GBTC outflows sour the mood. The Fed continues to give dovish guidance and AI dominates the week in tech…

This Week in Crypto

Shy of any weekend pumps, we look poised for a pullback this week. As you can see in the table below showing ETF flows, there’s some red in the recent days.

  • GBTC had its largest single daily outflow on Monday.

  • GBTC has now lost around 40%, or $13B, of its share since the ETFs launched.

  • Fidelity saw a record-low inflow of $2.9M on Thursday.

Bitmex Research

It wasn’t all bad news though, as Michael Saylor purchased another 9,245BTC worth $623M. This purchase takes him over the coveted threshold of 1% of all Bitcoins that will ever exist. Microstrategy now holds 214,246 BTC at an average price of $35,160.

The SEC was revealed to be, in some unknown capacity, probing the Ethereum foundation. The initial reaction by the market was oddly enough bullish. Or maybe this was not that odd, as the SECs action against Coinbase marked a local bottom.

  • Any formal action by the SEC to classify Ether as a security at this point looks destined to fail, given their previous XRP case.

  • That being said, a May ETF approval is currently looking unlikely - the latest guidance from Bloomberg analysts put the chances at just 25%.

Elsewhere, in altcoin land, action has still mainly been concentrated on Solana, however Coinbase’s L2, Base, built on Optimism has seen greatly increased bridging and trading volumes.

Speaking of Coinbase, the company’s stock price hit record yearly highs this week north of $270. Our feeling is that this rally continues into and beyond their next earnings call, where we should see some massive numbers. Miner’s had a small bounce and $MSTR has been as volatile as Bitcoin.

I’ll leave you this week with a smattering of headlines:

This Week in TradFi

The FOMC stuck firmly to the script and left rates unchanged, in the 5%-5.25% target range.

  • The committee anticipates higher growth and inflation, and lower unemployment - but still forecasts three cuts in 2024.

  • Before acting, it appears the Fed is waiting for inflation to fall more convincingly. The 2024 median core PCE inflation rate forecast is higher at 2.6% from 2.4% previously.

  • However, what's clear is that the Fed is going to tolerate a higher level of inflation than the 2% target rate.

  • A dovish message and greeted as such by the market with record high prints in equities across the U.S. and other markets.

The week got off to a good start in Asia, with Chinese industrial production growth in Feb (+7.0% YoY) and investment (+4.2%), well ahead of expectations.

  • The big headline news out of Asia was that the Bank of Japan raised interest rates for the first time in 17 years - and out of negative territory, with a new base rate target range of 0% to 0.1%.

  • In addition, it did away with a target rate for the 10-year yield and stopped some of its QE actions (no longer purchasing stocks, REITS, and corporate bonds).

In the UK, the good news continued, with CPI (YoY) in at 3.4% for February versus 4.0% previously, the lowest level in 2 years.

  • The equivalent core figures were 4.5% (5.1% January), and both beat analyst expectations. Economic activity continued to expand in March with a flash composite output PMI at 52.9.

  • Public sector borrowing was higher than expected at £8.4B though, but lower than a year ago (£11.8B).

  • The BoE voted 8-1 to keep rates unchanged but just as in the U.S., the markets are anticipating cuts during the 2nd/3rd quarter.

This Week in Tech

Hectic week in AI this week. We’re starting to get a picture of which companies are emerging as the winners across the AI stack. Aside from the chip companies like Nvidia and the cloud providers, who are clearly reaping huge rewards, it seems that OpenAI and big tech (Google, Meta, and Microsoft) are taking the reigns in the LLM wars. Meanwhile other LLM companies are struggling and getting left behind:

  • Microsoft has been “big-braining” the industry with its AI expertise, massive stake in OpenAI, and growth in its cloud division given the investment structures.

  • Google is in talks with Apple to power the iPhone’s AI features.

  • Meta is leading open source efforts with LLaMA.

  • OpenAI ended last year with a $2B revenue run rate and continues to lead the race.

  • Most of Inflection’s team left to join Microsoft AI, signaling the downfall of a company that raised $1.5B in the past two years.

  • Cohere reportedly ended last year at $13M annualized revenue while being valued at ~$2B, signaling the fierce competition in the market. 

  • Stability AI saw key employees leave amongst much internal turmoil, again signaling the weakening of an early leader with their launch of Stable Diffusion. 

Unlike the LLM space, the application space is much less clear. You have many well-funded startups tackling the same space, incumbents incorporating AI by directly plugging into LLMs themselves, and LLM companies offering their own applications:

  • Ask AI ($20M+ raised), Rasa ($70M+ raised), and more are all building AI Software for Customer Support, while companies like Klarna directly integrated with OpenAI to streamline their support. On top of this, incumbents like Intercom, who have existing distribution, have also added AI to compete.

  • Magic ($100M+ raised), Replit Ghostwriter ($200M+ raised), Tabnine ($30M+ raised), and more are all building AI-Powered Engineering Assistants, while incumbent GitHub copilot, which has distribution, is also building this.

  • Jasper AI ($100M+ raised), CopyAI ($10M+raised), and more are working on AI-Generated Marketing Copy, while marketers at companies are directly interacting with LLM models to generate content.

We’ll stay tuned to see if the LLM battle plays out as predicted and on how the application value accrues. As usual, below are some fundraising announcements, M&A, and tech personnel changes that caught our eye:

Arch is building next-gen wealth management platform for individuals holding Alternative Assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services, powered by BitGo.

Disclaimer: None of the above is financial advice, seriously.