May 2, 2024

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Stronghold Digital Mining Considers Sale Amid Industry Valuation Challenges and Strategic Review

Bitcoin miner Stronghold Digital Mining (SDIG) has initiated a review of strategic alternatives, potentially including a sale of the company, to enhance shareholder value amidst a "valuation dislocation" compared to its mining industry peers. The firm, which converts coal waste into energy for Bitcoin mining, has engaged Cohen and Company Capital Markets as financial advisors for this comprehensive evaluation, with no specific timeline for completion. This exploration of options follows a significant stock decline of 62% this year, underperforming other mining companies like Riot Platforms and Marathon Digital, despite Bitcoin's 39% rise this year. The decision aligns with a broader trend in the mining sector, where post-halving competitive pressures have sparked increased mergers and acquisitions, allowing miners with robust balance sheets to acquire undervalued assets.

MicroStrategy Develops Bitcoin-Based Decentralized Identity Protocol to Enhance Security and Reduce Costs

MicroStrategy is developing a Bitcoin-based decentralized identity protocol, MicroStrategy Orange, which utilizes unspent transaction outputs (UTXOs) on the Bitcoin blockchain to securely store and manage users' personal information. Announced via an X post by a Bitcoin influencer, this innovative solution aims to offer decentralized ID services at reduced rates and with minimal energy consumption. The protocol leverages UTXO-based transactions to enhance security, making it extremely challenging for identity thieves to access or alter personal data. This comes at a time when identity theft incidents in the U.S. have spiked significantly, rising over 60% from the second quarter of 2019 to the same period in 2023. The launch date for MicroStrategy Orange has not been specified yet.

Federal Prosecutors Investigate Block's Crypto Operations for Alleged Sanctions Violations

Federal prosecutors are investigating Block's cryptocurrency operations for compliance failures, including allegedly processing transactions linked to sanctioned countries and terrorist groups, according to NBC News. Despite claims of "widespread and yearslong compliance lapses" involving thousands of questionable transactions, Block, founded by Jack Dorsey, insists it did not knowingly breach international sanctions. Ex-employees provided evidence suggesting Block's engagement with sanctioned entities like Russia and Iran, continuing even after abuses were acknowledged. While Block did not directly address specific compliance failures mentioned by NBC, the company highlighted that its legal teams and consultants are working on addressing and remediating these issues, with regular sanctions screening processes in place for all its merchants.

Trading Desk Insights

Bitcoin is currently positioned in oversold territory, hinting at a potential rebound as it approaches a 30 reading on the RSI indicator—a classic sign of a recovery onset. The cryptocurrency has also closely approached the 20-week moving average, underscoring potential short-term support. Notably, there's substantial TWAP buying activity on Bitfinex, coupled with the cessation of major selling on Coinbase—both bullish signals for the market. With the Federal Reserve's recent decisions behind us, the market's focus shifts to the upcoming U.S. jobs data this Friday, particularly the nonfarm payrolls expected to add 243,000 jobs. Surpassing this number could pressure risk assets negatively, whereas a lower-than-expected result could fuel bullish sentiment, signaling a weakening labor market conducive to anticipated rate cuts.

In ETF news, a significant development occurred as all issuers recorded outflows for the first time since their launches earlier this year, with record withdrawals from ETFs like IBIT, FBTC, ARKB, EZBC, HODL, and BTCW, totaling an outflow of $563.7 million.

Meanwhile, BlackRock continues to play a pivotal role in educating significant institutional investors such as pension funds, endowments, and sovereign wealth funds about the emerging spot bitcoin ETF products.

As for Bitcoin's volatility, it continues to decline as the asset matures. Fidelity reports that Bitcoin's volatility has dipped to new annual lows, now exhibiting less fluctuation than Netflix over the past two years. In fact, Bitcoin is currently less volatile than 33 companies within the S&P 500, and as recently as October 2023, it showed less volatility than 92 stocks in the index, based on 90-day realized historical volatility.

The restaking trend that began with Ethereum is now expanding to Solana, with Jito, a Solana-based initiative, reportedly developing a restaking service.

Looking to the broader market, stock futures have risen as traders anticipate further corporate earnings reports and key labor market insights later in the week. This follows a mixed session on Wall Street, reacting to the Fed's decision to maintain interest rates and to taper quantitative tightening more than expected—from a $60 billion monthly redemption cap on Treasuries to $25 billion—a move interpreted as a moderation in policy that could benefit risk assets like stocks and cryptocurrencies. However, the market consensus suggests that a rate cut might not occur until at least September, as per the latest futures market data.

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This research is for informational use only. This is not investment advice. Other than disclosures relating to Secure Digital Markets this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates, and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate.

Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The price of crypto assets may rise or fall because of changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

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