Bitcoin and the Public Markets, 2/28/22: $52mm in Weekly Fund Outflows; BTC Outperforming as Risk Off Trade Wanes
The correlation of Bitcoin to the Nasdaq is ~57%, climbing over the past week. As we noted last week, the Russian invasion of Ukraine led to a large sell off that reversed faster than we expected. We continue to see sustained follow through on the reversal three days later. Subsequently, while Wheat continues to outperform on macro fundamentals (both Ukraine and Russia are large wheat exporters), many of the other macro indicators have mean reverted (slide 3). While the VIX remains elevated, it has fallen back from levels seen on Thursday. Click here for the full report.
Markets expect volatility to continue to decline — realized volatility increased from 64% last week to 71% today, while 30-day at the money implied volatility only ticked up to 56.8% from 56.3% last week (slide 4). Realized volatility is currently 14.4% points above implied volatility; realized vol is only occasionally (and briefly) higher than implied. While we expect these occasional inversions to occur in the depths of a selloff, the disconnect between a somewhat illiquid, regulated US institutional asset (CME Futures) and a global, liquid, largely retail-driven asset (Bitcoin) suggests these inversions are reactive in nature rather than, as yet, predictive of price turning points.
The 18 publicly listed mining stocks trade at an average adjusted Enterprise Value per YE 2022 PH/s of planned capacity of $140k, up $10k since last week. Adjusted EV = Market Cap + Debt — Cash — Market Value of Crypto Holdings. Technically, pending capital expenditures needed to pay for future deliveries of announced rig purchases and ancillary equipment should be added back, but the lack of data led us to exclude this adjustment for consistency.
Notably, miners like Hive that have relatively modest expansion plans, or Riot that have low power and operating costs, trade at a premium to the group. We also examined financials based on Bloomberg analyst consensus, finding that the companies that do have estimates trade at 3.5x 2022E EBITDA and 7.6x 2022E Contribution (Gross Profit + Depreciation). Considering our 327EH/s year end network Hashrate estimate, we suspect that consensus EBITDA estimates may need downward revisions unless Bitcoin price accelerates to new highs. The multiples now look reasonably accommodative of a downward EBITDA recalibration.
Our institutional fund flow section covers 19 funds with $26B of AUM (up $3B Week on Week). GBTC, an ETP, is 75%+ of the group, and has seen no inflows recently. The others are mostly crypto-exposed equity ETFs with a broader innovation focus — ProShares BITO Bitcoin futures fund excepted.
Over the past week, funds have seen a $52mm in net redemptions (slide 21). BITO saw a $41mm redemption on 2/24 alone, in line with the broader risk off markets following the Russian invasion. Year-to-date, overall outflows across the selected funds we track were $261mm (slide 23).
•Bitcoin’s correlation to the Nasdaq increased to 57%; the relationship is strongest when the Nasdaq is down a lot
•Overall, we are seeing sustained a reversal of the risk off trade last week following the invasion of Ukraine
•Implied volatility (100% moneyness for the active contract) is now 14.4% below realized 30-day volatility, although we do not view it as predictive of price turning points
•On our preferred adjusted EV per PH/s metric, the miners trade at an average of $140k, up $10k from last week
•Our YE network Hashrate estimate of 327 EH/s implies that either BTC price needs to accelerate, or that consensus EBITDA estimates need to be recalibrated down — but a modest 3.5x Adj EV / EBITDA multiple should be accommodative
•Over the past week, funds have seen $52mm in outflows, taking YTD outflows to $261mm year-to-date, led largely by ARKW (outflows of $3.1B over 12 months / $360mm YTD)