🎙️ Halving Day

Geopolitical risk has entered the chat. Again. Thursday night, oil and gold prices surged while S&P 500 futures fell off on reports that Israel had, in retaliation, struck targets within Iran.

As the facts have continued to come out, the consensus is that this was less escalatory than feared, and markets bounced back Friday morning.

The story isn’t over, and it’s yet another entry into an ongoing list of bubbling regional conflicts with global consequences, from Ukraine to Israel to Taiwan.

Seen as a timeless safehaven asset, it’s little surprise gold is up over 15% this year and has nearly doubled in the past five years.

Speaking of gold, its digital alternative is also in the news: Happy “Halving Day” for those who celebrate.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Bitcoin halving is here: What it means

• Hedge funds in the Treasury market

This, and more, in just 5 minutes to read.

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In The News

✂️ The Bitcoin Halving Holiday Is Here: What It Means

Whether you hear “halve” or "halving" or "halvening,” everyone is trying to say the same thing: The bitcoin halving is here as bitcoin sits around $65,000 on Friday afternoon. 

What is it? The bitcoin halving is an event in which the mining reward for bitcoin is reduced by half. This reduction occurs about every four years or after the creation of 210,000 new blocks, a system set by Bitcoin's creator(s) to decrease the rate of new bitcoin creation, decreasing supply. In short, the bitcoin halving is designed to reduce the rate of new bitcoin creation, maintaining one of its key traits: scarcity.

The first reward was 50 bitcoins, which has been halved several times since:

Nov. 28, 2012, to 25 bitcoins

July 9, 2016, to 12.5 bitcoins

May 11, 2020, to 6.25 bitcoins

This halving reduces the block reward to 3.125 BTC.

Price appreciation: Bitcoin has risen about 46% in 2024, 124% since last spring, and 1,150% over the past five years. 

How many bitcoins are currently in circulation?

About 19.65 million bitcoins are circulating, leaving around 1.35 million to be released through mining rewards.

But how does the bitcoin network operate?

Bitcoin operates on a blockchain technology, a network of computers (“nodes”) running bitcoin software. (These nodes are easy for individuals to spin up, nothing fancy required.) Each node maintains a complete history of transactions and is responsible for validating new transactions. After validation, the transaction is added to the blockchain and shared with other nodes.

What does "halving" refer to in Bitcoin?

"Halving" refers to reducing the tokens awarded during bitcoin mining. This reduction is intended to simulate diminishing returns, theoretically increasing demand, or at least maintaining the same demand for less new supply.

Why do halvings occur about every four years?

Bitcoin's mining algorithm aims to find new blocks of transactions about every 10 minutes. Variations in block mining times can affect the time to reach the next halving goal.

All this brings us to bitcoin mining, where individuals use computers or specialized hardware to process and validate transactions on the bitcoin network. Miners are rewarded with bitcoin for their efforts.

What is proof-of-work in bitcoin mining?

Bitcoin uses a system called proof-of-work (PoW) to validate transactions. Miners solve cryptographic puzzles, requiring time and energy, which acts as proof that work was done.

What happens when no more bitcoins are left?

The last Bitcoin is expected to be mined in 2140. The reward will decrease as halving continues until the smallest bitcoin denomination, one “satoshi” (0.00000001 bitcoin), remains, and the total circulating supply equals 21 million. At that point, miners will be rewarded exclusively with fees for processing transactions and will earn no mining rewards of newly created bitcoin.

Read more

More Headlines

❎ TikTok ban bill is getting fast-tracked in Congress

👎 Procter & Gamble’s earnings fail to hit analysts’ expectations

💡 What to know ahead of the bitcoin halving, expected Friday or Saturday

🎬 Netflix added over 9.3 million subscribers last quarter, bringing its total to almost 270 million. The stock fell after management told investors they’d stop disclosing subscriber figures in 2025

😅 Tesla issues recall for 3,800 cyber trucks

📲 Apple removes WhatsApp and Threads from its app store in China on orders from CCP

👉 Hedge Funds Are Too Big To Fail In Treasury Market

“Too Big To Fail” doesn’t just apply to major financial institutions. No, some hedge funds meet the criteria now, according to the International Monetary Fund.

With large short bets against the U.S. Treasury bond market, these funds could become destabilizing forces during market volatility.

• The IMF argues that “some of these funds may have become systemically important” to the Treasury market, which is concerning given the vast differences in regulation between hedge funds and other institutions that have been called systemically important, like global banks such as JPMorgan.
  

• After the Great Financial Crisis, big banks were restricted from making such bets, outsourcing the strategy by lending money instead to hedge funds that implemented the trades.

The Treasury market itself is Too Big To Fail: It sits at the heart of global finance. The yield on your bank account? Probably mostly coming from short-term Treasury bills. Your life insurance policy? Probably invested in a mix of intermediate and long-term Treasury bonds. Your retirement? For middle-aged and older Americans, in particular, a chunk of their retirement savings are often invested in Treasury bonds.

• Those are just a few places where the Treasury market directly touches your finances. Dysfunction in the Treasury market can ripple across financial markets, affecting the dollar’s value, stocks, and commodity prices.

Why it matters:

You might wonder, what are these hedge funds doing? Chasing the so-called “basis trade.” That is, exploiting tiny differences between the prices for Treasury bonds and derivatives contracts on them known as “Treasury futures,” which give investors the right to buy or sell bonds in the future.

• Using large sums of borrowed money, often 50x what they invest themselves, hedge funds can juice these discrepancies into meaningful returns.

Cause for concern? That dynamic is increasingly drawing regulators’ attention. As recently as December, half of all positions in the two-year Treasury futures market were held by just eight traders or less. That mirrors the concentration at the end of 2019, which precipitated a mini-financial crisis. A similar episode happened again in March 2020.

• A Federal Reserve study last month found that hedge funds accumulated as much as $317 billion in Treasury bonds connected to basis trades.

In a bind: In normal times, the basis trade provides liquidity and keeps the Treasury market operating healthily, acknowledges the IMF, but the trade’s popularity can make markets more structurally vulnerable.

• Bloomberg reports that regulators, then, “are in a bind.”
  

• “Crackdown too hard, and they could threaten the orderly running of a U.S. Treasuries market that’s ballooned to $26 trillion since the pandemic. Go too easy and there’s a threat of too much financial leverage building up…(meaning) the Fed may have to intervene if they hit trouble again.”

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Quick Poll

Yesterday, we asked: Do you think it’s ethical to spy, undercover, on your competitors?

— Most respondents said yes, it’s ethical to spy on competitors as Amazon has done. “All is fair in love and war and business.” And, “That's like saying there are rules of war, and business is a lot like war. Sure everyone would like to believe there is an agreed upon standard and everyone will abide by these ethics and morals, but we all know it's just verisimilitude.”

— On team no, “No, it’s definitely not ethical. It’s stealing the results of the work of other companies, you save the R&D time and costs and benefit from the R&D time and budgets invested by your competitors which might not be recovered at all because you and other competitors will make it irrelevant as a marketing differentiator.”

— Wrote another, “It is essentially stealing whether or not it is against the law. When I make an equity investment one of the criteria I look at is ethics. If they are breaking with ethics here where else are the breaking with ethical behavior?”

See you next time!

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