The Miner Sell Wall and Why Saylor Is Absorbing It

Transcript

I think you're right. Like there is certainly a lot of overhang. Um it's not just from some of this transition from retail holders that are break even. You know, there there is a whole cohort of people obviously that bought Bitcoin post-election, right? And saw those coins appreciate meaningfully um as a lot of positive political developments emerged, especially around the US kind of regulatory environment for crypto. Uh but maybe didn't take profits, maybe saw themselves get underwater and now are very eager to get back out at flat, right? That's certainly one dynamic. Um but there's actually another transition happening that's important to call out,

which is the transition of a lot of um previously run as companies previously run as Bitcoin miners transitioning to high-performance compute. And uh that has also come with a de-risking of the balance sheet. Generally, some of these companies uh most of these companies were holding some Bitcoin exposure on the balance sheet, right? Whether it just came from their natural operate mining operations or from an accumulation strategy. Uh and you've seen some of that, right? It's it's definitely resulted in a net transfer of assets from miners into effectively into that, right? And obviously the largest that has been active in the market is is

Saylor's. And uh yeah, I think that's that's the other thing to really call out. There has been that persistent kind of um offer on on on on a Bitcoin. The other thing that we would note on the desk, I think, you know, just from a derivatives perspective, right? Bitcoin vol is actually very cheap at the moment. Or, you know, it's optically quite cheap. If you look at uh measures of longer-dated volatility, we're trading in the sub-50 vol range, um which historically has not happened uh for for quite some time. And I think that is also a reflection of just a lack of conviction in holding Bitcoin, you know up much further beyond here, right? There is actually a lot of overriding

happening in the market and not a lot of buyers coming in to pick up those options. Yeah. Again, a lot to unpack there. So, just just one I don't know if you have these numbers off the top of your head. If if you don't, I don't need them, but we can include them in show notes for people who want to learn, but can you maybe sort of just quantify the selling pressure coming from these Bitcoin miners? I I saw a report, I forget who put it out, saying that this is the first year I think almost like 70% of mining revenue is going to come from HPC as opposed to Bitcoin mining. And and many companies are I mean Mara, I mean the big ones, small ones, they're all if they're not getting out of Bitcoin mining in their entirety, they are selling down a lot so they can build out

for these massive HPC contracts that they are consuming. I know Saylor you mentioned sort of the runaway success of stretch. I think they had another raise like another billion billion plus or something last year last week. I mean so he is absorbing all the Bitcoin that's being created plus I guess some of the sell pressure that's coming from these retail investors or or these dads. So, I don't know if you can sort of talk about when that overhang from the from the from the miners might might end, but I think maybe if if you are able to kind of just quantify that a little bit for for some of the listeners, that would be helpful.

Yeah. I I think, you know, I I don't have much more to share beyond just like what's publicly available in public filings, but yeah, if you if you look through the numbers and you look at what is being sold, it's on the order of single-digit billions across all of them public miners. And if you look at what Saylor's buying, it's it's kind of roughly the same amount, right? It's it's basically, like you said, billion-dollar-a-week type of flows. Um so that is actually what is driving this range-bound dynamic if you think about it, right? There's there's an offer that's working above a certain price, and then there's a bid willing to come in um when there's a sell-off, and it's really keeping us trading in a very

tight range. Um that's why I think you do get some moves that come when liquidity pauses. And why is that happening? It's really because like large headlines are hitting the tape. Right? So big big sort of geopolitical news hits, everyone kind of winds out a little bit, and maybe some of these programs that were actively buying or selling also pause. Yeah, I think that's what's driving. That's what's driving these like large kind of 5% gap moves, let's say, and then you get uh sort of a reversion back into the middle of the range.

And I guess just from like a systemic point of view, I mean I don't know precisely when I actually we had a a guest on uh John Todaro a few weeks ago for for Needham, and we walked through all of this. Um like the minor capitulation economics and the transitions and and all of that type of stuff. I mean I actually I don't know when perhaps that selling pressure will abate, but but when it does, I mean, as you mentioned, like that that's a big overhang on the price, and you would imagine that seller's going to keep doing what he's doing. Others, all of a sudden, there's a lot more bid for for for a lot fewer uh Bitcoin out there in the market. So it is interesting to to watch. Uh I want to focus a little more on derivatives cuz you started discussing that

um in your previous answer, too. One of the trends that I've been seeing is that [clears throat] this is in many ways um spot spot driven, either through like some of the ETF inflows or then again, I mean, could be tax refunds for Bitcoin, some other some other alts, but if you look at the big um the big run-ups in the spot price, but as you mentioned um vol is um is very cheap right now. Um Longer-dated vol is actually much higher than than shorter-dated vol, which is sort of the inverse of how things are are supposed to go. And and funding rates are are negative.

What All that suggests that there is still some bearish positioning in the market, especially among the smart traders. So, maybe you could expand a little more on on what you're seeing and sort of how you reconcile, I guess, some of this growing spot demand with a lot of institutions and and professional traders that, I guess, don't seem convinced that the market is really ready to surge again. Yeah, let's unpack that a little bit, right? So, I think on the vol side, what you're seeing in Bitcoin specifically is an oversupply of overriding and basically like yield generation. So, you do see a bunch of overhang in upside strikes, like basically call options. People are

selling those and willing to monetize them as the price of Bitcoin goes higher. They're selling more Bitcoin in against those call options, right? So, I do think that dynamic is driving and the you know, the lower realized vol is driving some compression in the back end of the curve as well. That's why it's like historically at a low level. But at the same time, you know, there's only so much lower that December vol, let's say in Bitcoin, can go, right? In the high 40s. You have to remember, there's going to be a very large, probably historic, midterm election happening later this year. And there is a bit of a steepness in the curve, like you said, the back is is higher than than

the middle of the curve because of the risk of some large event that could have a meaningful impact on the whole crypto industry, right? And in the later half of the year. So, I do think that's like a a phenomenon. We'll have to see how it plays out. And historically, that that has realized like the summer months usually tend to have a lower volatility. Um and then, you know, going into an election year, you have a large event in Q4 effectively, right? So, yeah, that's something to watch. I would say the other points that you made around basis and um the the funding rates, I think that's actually interesting. Like, we have to remember how funding rates are calculated actually. It's the difference between perpetual swaps and spot. And if

you think about what is actually being purchased in the market today, it's actually all being funded by cash, right? Upfront. And it's all being funded by cash from strategies sale of stretch preferred shares. So, if spot is is what is being purchased, then obviously spot is going to lead the market higher. And so, you have a dynamic where perps are actually lagging. Like, fewer people are actually taking leverage to go long Bitcoin. So, um that that's, you know, actually a kind of a healthy phenomenon, right? That it's it's spot leading the move um and it's fresh cash coming into the market.

So, I am actually optimistic. Like, that's that's a good sign um rather than something that should be taken negatively. Um just uh two more quick ones and then we'll take a brief uh brief pause. One, um this type of setup uh and sort of the divergence between what we're seeing in spot versus the sort of like the neutral to perhaps slightly bearish setup in derivatives. Are there any historical precedents in um crypto's recent history that um ring familiar? I think so. I mean, it it all feels to me, you know, I mean, crypto's the most cyclical asset class in the world, right? So, it feels a little bit like the post um 22 crash um environment where a lot of folks were still getting

their bearings again and kind of rebuilding balance sheets and things like that. And that resulted in a historically low implied vol environment. Like, maybe some of your listeners will recall there was um a very persistent offer on Ethereum. There's like a large Ethereum overriding program. That was like actually the the biggest phenomenon in liquid markets in that time period in like 2023. But yeah, that's that's kind of the environment we're in today, right? I would say less so on I think more on Bitcoin, perhaps also on Sol.

But I think, you know, there is there is sort of a lack of conviction or maybe just more of a conviction that we'll be in a range-bound market for at least the immediate future until we get more you know, perhaps more clarity on the Clarity Act and also more clarity on what happens in the midterms.