Welcome to BitcoinFi Weekly. We cover where people use their BTC and what is changing in the Bitcoin world. Here's what we cover in today's edition:
- Feature Piece: Tokens & Tariffs
- Long-Term Holders and Economic Uncertainty
- Is Quantum Coming for Bitcoin?
- Are Miners Pivoting to AI?
- Bitcoin ETFs Largest One-Day Outflow
Feature Piece: Tokens & Tariffs
Recent macro data has painted a dire picture for the United States and the world at-large. US GDP growth has slowed to 2.3% in Q4 2023 (down from 3.1% in Q3), with early indicators suggesting further deceleration in Q1 2024. Key indicators are not a pleasant sight: new home sales plunged 10.5% in January, while jobless claims posted their largest increase in five months, jumping by 22,000 to 242,000 last week.
To add to this, the recent implementation of significant tariffs, signals a shift toward protectionist policies that create additional economic pressures. These measures, combined with federal workforce reductions and spending cuts, have eroded both consumer and business confidence. Core PCE inflation has been revised upward to 2.7%, further complicating the Federal Reserve's policy path and forcing a pause in interest rate cuts.
This challenging economic environment creates significant headwinds for risk assets. We're likely entering a 4-9 month period of adjustment, as the Trump-phoria hangover bitterly wears off. The critical question becomes whether these policies eventually give way to more inflationary measures or if optimists are simply looking back to the mirage of the Reagan era, expecting a repeat of 1980s economic expansion that may not materialize in today's fundamentally different global context.
Bitcoin isn't immune to these pressures. Despite its growing institutional adoption, it continues to display correlations with traditional risk assets during periods of macro uncertainty. However, Bitcoin and equities appear to be on different cycle rhythms, with the former potentially leading the eventual inflationary turn.
Amongst the turmoil, tokenized Bitcoin are just the breath of fresh air we need. As we highlighted in Thesis’s State of Bitcoin 2024 report, these Bitcoin-based derivatives maintain core security properties while enabling productive capital deployment, as exemplified by the Babylon protocol, which leverages native timelock features to generate yield. Building on this, Lombard Finance has shown remarkable traction with LBTC, reaching $1 billion in just 92 days and proving that tokenized Bitcoin can thrive even amid market pullbacks. It's something definitely to keep your eye on this year.
Long-Term Holders and Economic Uncertainty
Current markets are flushing out recent buyers. The majority of Bitcoin supply remains concentrated among holders who acquired their positions at much lower price levels. These long-term participants continue to sit comfortably in profit despite recent volatility.
In contrast, newer market entrants who purchased at higher levels face temporary drawdowns as tariff concerns, employment uncertainty, and slowing home sales ripple through the markets. This distribution pattern creates a market where capitulation pressures primarily affect recent participants while the old whales are more resistant.
Is Quantum Computing Coming for Bitcoin?
Microsoft's recent announcement of their ‘Majorana’ topological qubit processor represents a quantum breakthrough that Bitcoiners should monitor. Unlike conventional quantum computers from IBM or Google that require 100-1,000 physical qubits to create one error-corrected logical qubit (due to environmental interference corrupting calculations), Microsoft claims their topological approach achieves an unprecedented 10:1 ratio by using a fundamentally different noise-resistant architecture. While they currently have only 8 physical qubits (insufficient for even one logical qubit), their roadmap targets one million physical qubits by 2027 – which, at their claimed efficiency, would yield 100,000 logical qubits, sufficient to run Shor's algorithm to potentially derive private keys from exposed public keys within days, compromising any Bitcoin address. Though not an immediate threat, this is certainly a wake-up call.
The Bitcoin community has not been sleeping, however, with BIP-360 in the works, which proposes a "Pay to Quantum Resistant Hash" (P2QRH) soft fork. This would allow users to migrate funds to quantum-resistant addresses while maintaining backward compatibility. While concerns exist about increased signature sizes and potential blockchain bloat, the soft fork approach offers a pragmatic path forward. The key takeaway is that Bitcoiners are ready and aware. Rather than waiting until quantum computers reach the critical 1,000-10,000 logical qubit threshold, the community is working on quantum-resistant proposals now.
Are Miners Pivoting to AI?
As miner margins shrink, Bitcoin miners are turning into hosts for AI workloads. As Core Scientific secures a staggering $6.7 billion in AI contracts with CoreWeave, we're witnessing a shift where mining companies are rapidly allocating more compute specifically for AI. Hive Digital, Hut 8, Iris Energy, and TeraWulf have all pivoted toward high-performance computing, recognizing that their competitive advantage lies not in mining but in their vertical mastery of high-density data centers.
This convergence between Bitcoin mining and AI arrives precisely as a new generation of crypto startups focuses on building physical infrastructure networks for decentralized computing, suggesting we're entering a new epoch. The first wave created financial primitives, the second built computational layers, and this emerging third wave could be the proliferation of DePIN (finally).
Bitcoin ETFs Largest One-Day Outflow
Bitcoin ETFs witnessed nearly $1 billion in withdrawals in just one day and $1.8 billion weekly, which amounts to less than 2% of total assets under management. The majority remains firmly invested, suggesting much negative sentiment stems from market turbulence rather than a more profound loss of confidence. While GBTC continues its structural bleeding (-$735M YTD) as it sheds its discount-era investors, IBIT has attracted over $3.3 billion year-to-date. By contrast, about $13 billion rushed into SPY and QQQ.
This tsunami of capital seeking passive exposure suggests we're witnessing less of a rejection of Bitcoin specifically and more of a tactical reallocation during uncertainty. Most revealing is what didn't happen: no capitulation-level outflows despite sensational price action, indicating institutional investors have internalized Bitcoin's volatility characteristics and are positioning it as a small but permanent allocation in diversified portfolios. The real test will come if equity markets experience sustained weakness: will institutions continue treating Bitcoin as a liquidity source, or will its non-correlation characteristics finally earn it safe-haven consideration?
Closing Thoughts
As the day traders get liquidated and recent entrants panic during their first real BTC drawdown, one thing is for certain: we've been here before.
It was not too long ago that we were dusting off the collapse of FTX, sitting at an all-time low in sentiment. Today, Bitcoin stands as a core global topic. From economic commentary to political decisions, this peer-to-peer magic internet money is being closely studied by the world. It'd be a disservice to everyone who has contributed to Bitcoin to not acknowledge the immense progress that has been made.
A little volatility, in the face of global economic uncertainty, is to be expected for a burgeoning asset class. In fact, a little volatility is welcomed.
Thank you for tuning in to this week’s BitcoinFi Weekly. See you next week.
If there's a topic you’d like us to cover or have questions, reach out at [email protected].
