Bitcoin's Bullish Future: Regulatory Clarity, Technological Convergence, and Activist Investing

Key Takeaways

1. Bitcoin has been clawing its way back to close towards all time highs in anticipation of the rate cutting cycle. Post September 18ths aggressive 50s bps cut, the backdrop is now set for higher BTC prices

2. Regulatory developments give some insight into what the “next wave” of decentralization will look like

3. Bitcoin mining and AI data centers continue to converge. It's all about energy infrastructure

4. Figure Markets continues to fight for Ionic shareholders

The Fed's pivot and Bitcoin's rally

Despite the NASDAQ being only 5.5% off its all time high, the Fed implemented an aggressive 50 bps cut in its most recent meeting.  This seemingly “preemptive” cut despite the strong economy will prove to be the harbinger of yet another, or should we say continued, bull run in BTC.  “I do not think that anyone should look at this and say, ‘Oh this is the new pace’” Powell was quoted, however but as we have written in the past, the Fed does not have a strong history of keeping to its word. 

Maybe the Fed is looking at the Presidential candidates and their spending plans and thinking about lower rates to finance the impending ballooning deficits. Trump plans on adding over $2.5tn to the annual deficit¹. While Kamala is only slight better by adding a mere $1.5tn / year on top of current $1.9trn current run rate¹.

And if the rate environment / budget deficit alone was not enough to feel bullish, the historical seasonality² is also playing to BTC's favor.

Regulatory landscape updates

A Figure Markets Insights would not be complete without a regulatory update and there are two developments worth highlighting.  First is the SEC’s enforcement actions against Galios  which solidifies the stance that many tokens are in fact equity securities and as a result, Registered Investment Advisors need to hold those securities with a Qualified Custodian.  We at Figure Markets have an ideological position with this rule, given our belief in true decentralization.  We do not have an issue with a regulated entity needing to hold assets with another regulated entity,  Where we pause is a regulated entity holding its assets with a SINGLE other regulated entity.  With Figure Markets’ MPC technology, the MPC shards are held by 3-4 distinct entities. Thus giving the investor the comfort of a legal framework for protection but not having to take the risks associated with a single, levered counterparty.  Getting the regulators to adopt this technology will be no easy task, however we at Figure Markets have never shied away from challenges and will work to make this concept a reality. 

Second is the amended complaint against Binance US.  Here the SEC has dug its heels on the fact that the 10 most active coins on the Binance exchange are in fact securities; but more importantly, the layer 2 ERC token BNB was issued and marketed as being tied to the financial performance of the Binance exchange itself is also a security.  We agree.  If it looks like a duck, it quacks like a duck, it's a duck and should be regulated as such.  However, let's not lose sight of the inherent value creation in a community that shares in the profits of the products in which it consumes.

The convergence of Bitcoin mining and AI data centers

The convergence of bitcoin mining and AI datacenters continues and our long held thesis that it is really all about energy infrastructure continues to play out.  Some notable transactions in the space include Microsoft and Blackrock announcing that they are launching a $30bn fund to invest in datacenter infrastructure.  Open AI is raising money at a $150bn valuation, CoreWeave Said In Talks for Share Sale at $23 Billion Valuation.  Bernstein dubbed this strategy as the “datacenter mullet, AI In the front, bitcoin in the back³." Talen, the power producer which was early to recognize the trend of this convergence with the trifecta of power generation, a behind the meter cloud computing data center and a bitcoin mine, has been rewarded by the market.  Talen’s share price has nearly quadrupled from its post bankruptcy trading price to $179⁴.

We firmly believe that the AI datacenter model has much to learn from the bitcoin industry, most notably the demand response features inherent in bitcoin mining, i.e. when energy prices spike, bitcoin miners simply stop mining. This “service” to the grid has long been a source of income for energy focused mining / infrastructure players. In August of 2023, Riot made 3x more money selling power to the grid and earning demand response fees than they did mining bitcoin. Unfortunately we cannot build power plants as quickly as we can build data centers and as a result the market will likely force these data centers to become more efficient. The “training” of AI data centers most certainly will become intermittent as AI learns a thing or two from bitcoin mining.

Figure Markets' Fight for Ionic Shareholders

On September 4th Figure Markets, on the behalf of shareholder Venton Vejseli, sent a letter to Ionic Digital exercising shareholders’ rights by demanding a shareholder contact list and Board correspondence.  The purpose of these requests is to demonstrate the ineffectiveness and incompetence of the Board of Directors and to lead the shareholders to a call to action for a leadership change.  The company responded on September 11th indicating that they understood their legal obligation to provide such information and Figure Markets is currently working with the company to obtain the desired information.  We currently have over 30% of the shareholder base in support of the initiative. We remain committed to getting Ionic shareholders their money back via bitcoin distributions and potential liquidity via trading the stock on an ATS operated by FINRA Member and Figure Markets subsidiary, Figure Securities.  We will continue to update the community both via email and social media posts.