Strategy’s STRC Hits $82

Chart of the Day — Puell Multiple Says Bitcoin Bottom is Close
Trade of the Day — Shorting Bitcoin
Alpha Leaks — TGE's for ARX, RSGP, ZNT, & Micron's Earnings
News Roundup — STRC Hits $82, US - Iran Updates, & Bitcoin DRIP ETFs

Puell Multiple Says Bitcoin Bottom is Close

Bitcoin’s Puell Multiple is telling us that if Bitcoin’s cycle bottom isn’t already in, it’s close.

In case you’re not familiar, the Puell Multiple (orange line) shows daily miner revenues divided by the 365-day moving average of miner revenues. When the Puell Multiple enters into the green band, it signals that miners aren’t making money. And if miners aren’t making money, then many resort to selling Bitcoin to pay the bills.

And historically, it’s this miner selling - or capitulation - that often signals Bitcoin’s cycle price bottoms, given that the cycle lows and orange line have printed together.

Now you’ll notice that the Puell Multiple isn’t in the green band yet. But that doesn’t necessarily mean that the low hasn’t printed yet. Similar to how price is experiencing diminished returns and corrections, so is miner profitability / unprofitability (i.e. the Puell Multiple didn’t hit the red band this cycle).

We’ll find out within the next few months if we got a lower low this cycle below $59K. But the Puell Multiple is right now signalling miner distress, and that signals the beginning of the end of this bear market.

Shorting Bitcoin

Bitcoin’s bear market might be coming to an end over these next few months, but the current technicals are indicating that there’s a bit more juice to squeeze from Bitcoin shorts.

On the four hour chart, you can see that Bitcoin printed a bear flag over these past two weeks, and that flag broke hard and fast this past Thursday. Now the price has since rallied to retest the flag’s support, but the technical short remains open and valid as of Saturday morning.

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Strategy’s STRC Hit $82.

Strategy’s perpetual stock, STRC, hit $82.62 on Thursday — well below its $100 par value. Thursday’s dump is what you’d call Saylor’s flywheel going in reverse. And this entire event not only affects STRC holders, but MSTR and Bitcoin as well.

STRC is basically a corporate bond that’s paying an 11.5% dividend (variable). Investors buy STRC for the yield, and Strategy uses the sale proceeds to buy Bitcoin. When the market cooperates, a positive feedback loop is created: investors buy STRC, Strategy buys more Bitcoin, Bitcoin’s price goes up, Strategy’s balance sheet gets stronger, and investors buy more STRC because they have more confidence that Strategy can make the payments. Rinse and repeat.

And MSTR and Bitcoin’s prices are impacted. Meaning, no longer must MSTR be diluted for Bitcoin purchases when STRC is that vehicle. To date, STRC is responsible for $8.5B in Bitcoin purchases.

Now, why did this STRC flywheel run hard in reverse this past week? The answer stems from two interrelated factors. First, investors sell STRC when Bitcoin’s price drops, in order to hedge against the risk that Strategy won’t make their interest payments. This is nothing new. And second, the speed of STRC’s price decline on Thursday - specifically from $89 to $82 - indicates a leveraged washout. It’s likely that some market participants levered up their STRC positions, believing that a draw-down below $90 was relatively unlikely, and short sellers might have also added pressure.

STRC has rebounded to $88 in the early Saturday morning hours.

Looking forward, all of this looks like the usual signs of bear market bottoms. Leveraged positions getting unwound, and the market showing signs of distress. But ultimately, we think Strategy - and the STRC product - makes it through this valley. The company survived the 2022 bear market, and once Bitcoin’s price begins to turn higher into the next bullrun, Strategy’s flywheel likely starts moving forward again.

US - Iran Peace Deal Updates

The proposed US - Iran peace deal appears to be in a somewhat precarious state. And given that a successful or failed deal will still move stocks, Bitcoin, oil, and other assets, let’s recap this past week’s events, review current updates, and flag what to watch for this upcoming week.

This Past Week: The US and Iran signed a memorandum of understanding (MOU) that extended the ceasefire, reopened the Strait of Hormuz, and lifted the US’ naval blockade on Iranian ports. The MOU also established a 60-day window for negotiating a final peace agreement. The most disputed issue - Iran’s nuclear program - will be the major issue for negotiation within this 60 day window. Scheduled negotiations set for yesterday in Switzerland were postponed after new Israel - Hezbollah fighting broke out in Lebanon.

Where Things Currently Stand: Israel and Hezbollah are still engaged in some fighting even after both sides agreed to a new ceasefire yesterday. US and Iranian envoys are apparently headed to Switzerland now (without the US VP), but the Iranians are saying that a Lebanon ceasefire is key for continued negotiations.

Looking Forward: In the shorter-term, the Israel - Hezbollah fighting appears to be the biggest risk in unravelling the larger peace deal. Further escalation or de-escalation between these two groups likely provides some signal as to the odds of a larger deal coming together or not.

Franklin Templeton Proposes Bitcoin “DRIP” ETFs

Franklin Templeton has filed with the SEC for two new US ETFs that would automatically convert stock dividends into Bitcoin exposure.

The proposed funds - the Franklin US Equity Bitcoin DRIP Index ETF and the Franklin US Innovation Bitcoin DRIP Index ETF - would maintain a 95% allocation to US stocks and 5% to Bitcoin.

Dividends generated from the ETFs’ stock holdings would be automatically reinvested into Bitcoin via the US spot Bitcoin ETFs. Thus, holders of the DRIP ETFs would own a passive mechanism for routine Bitcoin accumulation.

If approved, the ETFs could start trading in September. The filings indicate continued institutional interest in Bitcoin, even in the midst of our current bear market. Moreover, assuming ETFs launch, these products will represent yet another demand source on Bitcoin’s limited supply.

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