The Daily Dive #002: BTC Primed to Erupt Following El Salvador Endorsement

What a wild 24 hours. Let's cover what occurred last night before digging into some market structure.

“The #BitcoinLaw has been approved by a supermajority in the Salvadoran Congress. 62 out of 84 votes! History! #BTC” - Nayib Bukele

History was made last night. It was one of those moments where you will look back on, and remember exactly where you were listening, with crystal clear clarity.

The President of El Salvador joined Nic Carter’s twitter spaces group, with over 20,000 attendees, and provided live updates to the passing of a historic bill.

Bypassing all legacy media, the President clarified different points in the bill, and answered questions from bitcoiners who were eager to learn more.

“Will the country and/or central bank hold bitcoin on the balance sheet?”

“Are there any plans to mine bitcoin”

“Is El Salvador attempting to dedollarize?”

These were all questions asked to Nayib Bukele, and he answered with an unfiltered authenticity that is rare in global politics.

As of now, the Central Bank doesn't have plans to hold bitcoin on the balance sheet, but Bukele alluded to the fact that it is still VERY early in the process, and these things are up for discussion.

On the topic of bitcoin mining, a question posed by Alex Gladstein, Bukele said they had not thought about it yet, but quickly did identify that the country had vast amounts of underutilized geothermal energy resources from volcanoes present in the nation.

A mere 12 hours later, and the President tweet the following:

“I’ve just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos.  This is going to evolve fast!” - Nayib Bukele

Nation state adoption is happening today, and El Salvador is just the start. As was covered in yesterday’s Daily Dive, (#001: Let The Game Theory Commence), the game theory surrounding bitcoin adoption is just too powerful to ignore, and other countries are taking notes from El Salvador, make no mistake about it.

The global hash war that will most likely ensue will be intense, and unlike anyone on the planet has ever seen, as countries with energy resources come to understand that they can turn their excess energy into digital sound money, at a fraction of the cost that it would otherwise take to export it around the world (if possible at all!).

On live television this morning, Jack Mallers, CEO of Strike and one of the main leaders in putting together the bill with El Salvador stated that he and his company Strike are in talks with multiple other nations, with combined populations of around 50 million people to implement similar policies.

It’s happening.

Price Action Directly Following Announcement of The Bitcoin Bill

Directly following the announcement of the bitcoin bill, the price started to trend upwards, aggressively. At the time of the announcement, bitcoin was trading around the $32,000 level, and is currently trading at $36,300 at the time of writing.

There is very good reason to believe that the recent price action is not just short term chop, but rather the start of a new leg upwards, regaining the momentum that the asset had during the early weeks and months of 2021.

Here's what to keep an eye on over the short term, as the new geopolitical arena that bitcoin has entered is likely to attract a hoard of new buyers and allocators.

Short Squeeze Incoming?

Perp Futures Funding Rate

With the move from $32,000 to ~$36,000 over the last 18 hours, funding on the perpetual futures bitcoin contract across derivative exchanges has moved deep in the negative. In layman's terms, this means that shorts (bets on bitcoin to go down) are paying longs (bets on bitcoin to go up) to open positions.

Usually, funding on perp futures is positive as traders and allocators to the asset class have naturally a very bullish bias. The decrease in funding rates even as bitcoin rockets higher signals that short positions are doubling down, instead of covering and exiting the position.

This is the opposite phenomenon witnessed on May 18th when long positions continued to leverage up as the price continued to decrease, with funding spiking across derivatives exchanges before the massive long liquidations.

Late short positions could be in store for a similar scenario, but in the other direction very soon.

Shorts Double Down

Data from Bitfinex show that over the past couple of days, BTC short positions have hit 2021 highs.

This is another signal that a MASSIVE short squeeze could be on the horizon. It hasn’t even been mentioned that Michael Saylor and MicroStrategy should be entering (has already entered?) the market over the coming days with a fresh $500 million to deploy from the company's recent senior note offering.

It’s hard not to be insanely bullish currently, and with the recent development one could assume with a fair degree of certainty that the "local bottom" is in. Did you get a chance to stack at $30,000, because it seems that the big players have filled their bags.

¡Vamanos! Bitcoin is once again in bull market mode. Nation State adoption is here.