Just finished reading a brilliant research note (or demolition job, depending on your views) on digital currencies and bitcoin specifically by analysts at BoA. Its called Commodity Strategist – Bitcoin’s dirty little secrets and I wish I could offer a link but I am afraid it’s only for registered users the last time I looked. This is a real pity because it is as forensic and detailed an analysis of the crypto asset class as you could imagine, done by commodity analysts who clearly understand the intrinsic idea behind these strange creations.

I have tried to pull out the key observations from the detailed, long report and broken them up into salient sub-sections. But for starters I think the following summary is devastatingly effective: “Bitcoin has … become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism. As such, the main portfolio argument for holding Bitcoin is not diversification, stable returns, or inflation protection, but rather sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply.”. or as I sometimes say to my journalist colleagues, price is driven purely by momentum-driven demand and that once everyone turns seller, the price will drop sharply.

Who owns Bitcoin?

  • “…We calculate that the current position of Microstrategy amounts to about 0.40% of total Bitcoin supply. For Tesla, we estimate that the company purchased 44079 BTC, or about a quarter of a percent of total supply. Given the large scale of these purchase and the steady reduction in incremental supply, it is no surprise that Bitcoin prices have surged
  • The last two large Bitcoin rallies have been accompanied by a large increase in on-line interest in crypto, as Google trends show
  • Grayscale (GBTC) is now the largest public holder of Bitcoin – flows into Grayscale Bitcoin Trust as measured by changes in shares outstanding appear to have lead weekly Bitcoin returns
  • Bitcoin futures volume has been on the rise for several years now and we show that it tends to increase towards the end of the month as it approaches settlement. Even then, the notional amount of futures trading is still magnitudes below actual spot BTC volume
  • In the case of Bitcoin and Ethereum, dollar crosses increasingly dominate Bitcoin transactions. Nowadays, about 80% of Bitcoin is exchanged in dollars
  • About 95% of Bitcoin is controlled by just 2.4% of the accounts…By comparison, the latest Fed data suggests that the top 1% of Americans control about 30.4% of all household wealth in the US. In our view, the fact that such a small percentage of Bitcoin accounts hold most of the BTC in circulation makes this instrument impractical as a payments mechanism or even as an investment vehicle
  • we note that Bitcoin has a large number of dormant accounts, a factor that likely drains liquidity from the crypto-asset. For instance, the top 100 dormant Bitcoin addresses over the past year comprise of over 7% of total supply

An Asset class like no other

  • “There is simply no other major asset that shares Bitcoin’s features. Bitcoin is clearly a unique asset class by way of its supply mechanics, ownership concentration, and even historical performance. Ownership concentration is particularly severe. A small set of total accounts owns a massive portion of Bitcoin, leaving the asset vulnerable to sharp price swings on account of movements in these “whale” accounts. Indeed looking at the income distribution, we find that Bitcoin inequality is unprecedented and easily eclipses countries plagued with the most income inequality as measured by its remarkably high Gini coefficient
  • Bitcoin volatility is well above that of FX, gold, and even silver. Bitcoin volatility in 2021 is already the second highest in history year-to-date. The persistently high volatility levels are a big concern, as they suggest that even after 10+ years of trading and major episodes of price appreciation, Bitcoin has failed to develop some price stability
  • Bitcoin is more volatile than currencies with severe capital controls (Exhibit 45), which tend to be EM countries with high inflation
  • we note that Bitcoin market capitalization is still less than 10% of gold and the Fed’s balance sheet even after years of steady growth
  • we find the crypto-currency more positively correlates with equities and commodities, while it is neutral/slightly negatively correlated to haven assets such as the dollar and US treasuries
  • Bitcoin has also started to correlate well with volatile and cyclical commodities as of late , again supporting the idea that Bitcoin diversification benefits are falling, not rising. Lastly, we would also note that Bitcoin correlations to other crypto assets remain relatively high, as they did years ago
  • Broadly, we find that Bitcoin has not been particularly compelling as an inflation hedge as commodities and even equities provide better correlations to inflation. As such, we think the main portfolio argument for holding Bitcoin is not diversification, declining volatility, or inflation protection, but rather sheer price appreciation, a factor that depends exclusively on Bitcoin demand outpacing supply on a forward basis.

Terrible ESG

For me, this next section on ESG is devastating. We always knew bitcoin wasn’t especially planet friendly, but by god this is a real climate change epic fail. Maybe Greta should turn her attention to this stuff…….

  • “…it is perhaps no surprise that Bitcoin’s estimated energy consumption has grown over 200% in the past two years
  • Our analysis shows that Bitcoin’s annual energy consumption now rivals that of some small developed countries (Exhibit 69) like the Netherlands and Czech Republic. Of course, in each of these countries live 17 and 10 million people, respectively
  • …and, at $50,000, it uses about 0.4% of global energy consumption. But as we noted at the start of this section, Bitcoin’s biggest energy design flaw is the same rising complexity that helps prevent a hack. One of the most concerning datapoints across the crypto space is that Bitcoin emissions have soared by over 40mn tons in the last two years, the equivalent of 8.9mn Internal Combustion Engine vehicles.
  • fresh capital into Bitcoin breeds increased use of Chinese electricity networks. And what source of energy does China use the most? Nearly 60% of Chinese electrical generation is from coal fired power plants, with less than 20% coming from natural gas or renewables
  • We estimate that a $1bn fresh inflow increases Bitcoin prices on average by 11%, which in turn results in a carbon footprint of 5.4mn tons
  • At present, Ethereum’s energy footprint appears comparable to that of a small economy like Cuba (Exhibit 84), home to 11 million people


The really important coda for me reading this BoA report is the observation that central bank digital currencies or CBDCs are Krypotonite for cryptos. This is absolutely crucial. But this is about much, much more than cryptos. Digital e money from banks is the major stepping stone to helicopter money and the next stage of MMT.

“The adoption of CBDCs could facilitate the operational issues associated with a more activist policy agenda and represent the next frontier in the central bank revolution. Depending on how a digital currency is designed, governments could credit funds to a broad set of recipients, or potentially, credit accounts which transact in targeted industries. In principle, the stimulus can be tailored to provide additional ‘cash back’ if funds are spent on targeted businesses, allowing government to design more carefully tailored stimulus than currently possible”.

Uranium and Yellow Cake

Readers will know that I am bullish uranium prices, and a vocal supporter of nuclear power. Until recently I felt this was a rather lonely enthusiasm, but I’ve noticed that in the last few days the share price of Yellow Cake, an AIM listed holding company for uranium powder stocks, has ticked up aggressively. For full disclosure I own shares in Yellow Cake and initially found this quite confusing as only a few weeks ago the business raised a shed load of institutional money. I had naively assumed that some of those extra shares would find their way into the market.

But what actually seems to be happening is that uranium is beginning to register on large institutional – and hedge fund – radars .i.e its mainstreaming.

Hat tip to Nick Lawson at Ocean Wall, but last night Canaccord Genuity (CG) apparently hosted a global uranium market panel discussion. The panel featured three market experts in Dustin Garrow (marketing and contracting consultant), Jeff Geringer (fuel buyer), and Michael Alkin (Uranium focused hedge fund manager). As Nick says, “a year ago an event like this wouldn’t have happened as there was little focus on uranium. The event last night attracted over 200 institutional investors.”

Below are comments on the event from Benjamin Knott at CG

Bullish sentiment

“Overall a very bullish picture was painted for the uranium price, with panellists acknowledging the lack of price action over the past 10 years may have left some investors feeling impatient on the space, but the discussion reviewed a number of reasons which underline why the long awaited upwards pressure on prices should come to bear over the next 12 months.

Demand outlook

The speakers detailed the increasingly diverse spread of consumption as the market shifts away from a W. Europe/North America-centric past to emerging nuclear power growth elsewhere, in particular a Chinese Govt committed to carbon neutrality as part of its new 5 year plan. Also detailed were the difficulties faced by European countries in reducing nuclear penetration and signs of a more supportive stance from the Biden administration. 

Supply outlook

The key theme that emerged was the significant challenges faced by uranium producers, with marginal costs well above current spot prices. Discussion also ranged to secondary supply markets and underfeeding trends. Overall, it was (the panellist’s view) the presence of long term contracts has masked the discord between spot prices and production costs, however this is expected to change as utilities re-enter the market in 2021 to re-contract. With significant supply having already been removed from the market, and a slow ability to respond by producers, this is expected to be a tighter environment than what we have seen over the last decade. 


A lot of discussion on ‘why now?’ for an expected price move, with panellists agreeing that many utilities had reached a point where they had no choice but to again recommence large scale contracting, and this is already happening behind the scenes, even if some of those deals are not yet public.  A straw poll saw average LT price expectation among the speakers averaging ~US$50/lb, compared to current levels of ~US$30/lb (in line with the CG price outlook). 

Bottom line

Significant investor interest in Uranium market, with underlying drivers supporting our view the price risk is asymmetric to the upside.  

Replay available here: http://www.wsw.com/webcast/canaccord57/presentation