HCM Newsletter-Issue #68

Bitcoin reached a new all-time high of $106K, following former U.S. President Donald Trump’s remarks, aimed at keeping the U.S. ahead of global competitors, have ignited investor enthusiasm and fueled market momentum. Meanwhile, MicroStrategy, a leading corporate Bitcoin holder, bought 21,550 BTC for $2.1 billion, raising its total holdings to 423,650 BTC. The company, set to be listed on the Nasdaq 100 and open to the public on December 23, continues to strengthen its Bitcoin position.

Reference: CoinGeko

The Federal Reserve is widely anticipated to reduce its benchmark interest rate in its upcoming meeting. However, persistently high inflation could compel the central bank to adopt a cautious approach toward additional rate cuts in 2025.

Inflation Pressures Persist

Recent data from the Consumer Price Index (CPI) indicate an uptick in annual inflation to 2.7% in November, up from 2.6% in October, marking the second consecutive month of increases. Although this aligns with economists’ expectations, the inflation rate remains above the Fed’s 2% target. This stubborn inflation complicates the Fed’s dual mandate of fostering a robust labor market while containing price stability.

Despite these pressures, financial markets are betting on a rate cut this week, with the CME Group’s FedWatch tool assigning a 95% probability of such a move. The anticipated reduction would follow two prior cuts in September and November, which ended a prolonged period of maintaining rates at a 20-year high. By reducing the cost of borrowing, the Fed aims to bolster economic activity while cautiously monitoring inflation trends.

A More Measured Pace of Cuts

In their September economic projections, Fed officials forecasted a fed funds rate range of 3.25% to 3.5% by the end of 2025, implying four quarter-point cuts next year. However, recent inflationary signals may lead policymakers to revise these expectations. The Fed needs clear and consistent evidence of sustained disinflation before committing to a steady pace of additional cuts. Without such progress, further easing of monetary policy could be delayed.

Encouraging Signs for Inflation Cooling

Beneath the headline inflation data, there are hints of potential relief. Housing costs, a significant driver of inflation, increased by just 0.3% in November, down from 0.4% in October. Additionally, the cooling labor market—reflected in fewer job openings—reduces the risk of wage-driven inflation. Enhanced productivity across the economy also supports a disinflationary environment.

Economists at Oxford Economics argue that these factors diminish the likelihood of a renewed inflation surge. They highlight balanced labor markets and wage growth aligned with the Fed’s inflation target as key stabilizing forces. Improved productivity trends further reinforce expectations of easing inflationary pressures.

Policy Uncertainty Under the Trump Administration

The broader economic outlook is clouded by uncertainty surrounding President Donald Trump’s trade and immigration policies. Proposed tariffs on foreign goods could reignite inflationary pressures, potentially forcing the Fed to halt rate cuts prematurely. Similarly, planned mass deportations of undocumented immigrants might tighten labor markets, driving wages—and inflation—higher. Such developments could lead the Fed to maintain higher interest rates for an extended period, affecting borrowing costs for households and businesses.

When the Federal Reserve cuts interest rates, borrowing becomes cheaper, which can lead to increased liquidity in the financial system. This environment often drives investors toward riskier assets, including Bitcoin. While a December rate cut appears almost certain, the Fed’s path forward remains highly contingent on inflation trends and policy developments. Persistent inflation and potential economic disruptions from trade and immigration policies could limit the central bank’s capacity for further easing. The Fed’s balancing act between fostering economic growth and maintaining price stability underscores the complexity of its policy decisions in the months ahead.

Reference: Trading Economics

A quantum computer is a type of computer that uses the principles of quantum mechanics to process information. Unlike classical computers, which use bits as the smallest unit of data (representing either a 0 or a 1), quantum computers use quantum bits, or qubits, which can represent 0, 1, or both simultaneously (a phenomenon called superposition). Additionally, quantum computers leverage properties like entanglement and quantum tunneling to perform computations much faster than classical computers for certain types of problems.

Google announced recently that Willow, its quantum computer, completed a computation in under five minutes—a task that would take the world’s fastest supercomputers an astonishing 10 septillion years (that’s 1025 years).

Why Would Quantum Computers Impact Bitcoin?

Bitcoin's security relies on asymmetric cryptography, particularly elliptic curve cryptography (ECC), which depends on the difficulty of solving certain mathematical problems (like factoring large numbers or solving discrete logarithms). These problems are practically impossible to solve with classical computers within a reasonable timeframe. However, quantum computers can potentially break this security due to their ability to process these problems exponentially faster.

Key Areas of Impact:

1. Breaking Asymmetric Cryptography:

   • Bitcoin uses private-public key pairs for transactions:

     • A private key is secret and used to sign transactions.

     • A public key is derived from the private key and shared openly.

   • With current classical computing, deriving a private key from a public key is infeasible. However, a quantum computer running Shor's Algorithm could achieve this efficiently, allowing it to:

     • Derive private keys from public keys.

     • Falsify digital signatures.

     • Steal Bitcoin from wallets where public keys are exposed.

2. Stealing Bitcoins:

   • Bitcoin addresses using public keys directly (p2pk) or those where public keys have been exposed through transactions (e.g., reused p2pkh addresses) are vulnerable.

   • If a sufficiently powerful quantum computer is developed, it could compromise these addresses and allow an attacker to spend funds from them.

3. Integrity of Transactions:

   • During a transaction, a Bitcoin user reveals their public key. If a quantum computer is fast enough, it could:

     • Derive the private key from the public key before the transaction is confirmed in a block.

     • Create a competing transaction to redirect the funds to the attacker's address.

4. Blockchain Tampering:

   • Bitcoin’s blockchain uses proof-of-work mining for consensus. Theoretically, quantum computers could outperform traditional miners by solving the cryptographic puzzles much faster, potentially disrupting the consensus mechanism.

How many Bitcoins could be stolen now if a sufficiently large quantum computer were available?

• Approximately 4 million BTC (25% of all Bitcoins) are currently vulnerable, stored in either:

  • p2pk addresses, where public keys are directly visible on the blockchain.

  • Reused p2pkh addresses, which reveal public keys when funds are spent.

• Vulnerable Bitcoins primarily include:

  • Early mined coins (e.g., Satoshi Nakamoto's coins).

  • Bitcoins stored in reused addresses.

• At current prices, this amounts to a staggering $40 billion USD in potential theft.

Why This Matters:

The development of quantum computers could undermine the fundamental security principles that Bitcoin and many others are built upon. If an attacker gains control of private keys or can outpace miners, it would:

• Enable large-scale theft of funds.

• Destabilize the blockchain by undermining trust in its immutability.

• Cause a loss of confidence in Bitcoin as a secure financial system.

What can be done to mitigate the risk?

• Transfer to new p2pkh addresses: This ensures that the public key is not exposed until funds are spent.

  • Best practice: Avoid address reuse.

• Community-wide consensus:

  • Implement ultimatums for transferring vulnerable Bitcoins to secure addresses.

  • Mark vulnerable addresses as unusable after a specified deadline.

• Post-quantum cryptography:

  • Essential to secure Bitcoin long-term.

  • Ongoing cryptographic research is vital to develop robust, quantum-resistant protocols.

For Bitcoin, the advent of quantum computing breakthroughs like Google’s Willow serves as both a wake-up call and a significant challenge. While developers are already racing to implement quantum-resistant cryptographic techniques, achieving widespread adoption may take years. The implications extend far beyond Bitcoin. If Willow marks the dawn of a new era, industries dependent on cryptography—ranging from banking systems to military-grade hardware—may need to overhaul their security strategies to remain resilient.

For now, Bitcoin holders can rest a bit easier—Willow isn’t cracking wallets just yet. However, Google’s leap forward has set the stage for a high-stakes arms race between advancing quantum technology and the evolution of cryptographic security. While the technology evolves, the community must prepare for a potential overhaul of cryptographic foundations to ensure long-term security and resilience.

Reference: Google blog，Inside Quantum Technology

Trump remains keen on strategic bitcoin reserve with aim of making US industry leader

President-elect Donald Trump has been advocating for a strategic bitcoin reserve to ensure the United States maintains its leadership in the digital asset space. In a recent interview with CNBC's Jim Cramer, Trump reaffirmed the necessity of such a reserve, comparing it to the strategic petroleum reserve. He highlighted the importance of embracing cryptocurrencies to prevent other nations, particularly China, from taking the lead in this emerging industry. Trump's commitment includes replace SEC chair Gary Gensler and promote the establishment of a "strategic bitcoin reserve." Following his election victory, Bitcoin's price has surged.

Reference: The Block

Australia's large pension fund AMP has invested in bitcoin futures products for the first time, with an investment of 27 million Australian dollars

On December 13, AMP, Australia's leading pension and wealth management company, announced its allocation of bitcoin futures products amounting to 27 million Australian dollars (approximately 17.2 million US dollars), representing 0.05% of its total pension assets. Chief Investment Officer Anna Shelley stated that this decision is driven by structural opportunities within the digital asset industry, particularly the recent launch of innovative products like bitcoin spot ETFs by mainstream investment institutions.

Senior portfolio manager Steve Flegg revealed on LinkedIn that the fund took a calculated risk by moderately investing in bitcoin earlier this year, completing its allocation through a dynamic asset allocation (DAA) strategy in May 2024. Despite this initial investment, AMP currently has no plans to increase its bitcoin holdings. Notably, this marks the first entry of Australia's A$4.1 trillion pension system into digital assets. While Reserve Bank of Australia Chairman Michele Bullock has expressed caution regarding cryptocurrencies, AMP emphasized its commitment to managing related portfolios with a strict risk control framework.

Reference: TheBlockBeats

Paul Atkins as new Securities and Exchange Commission chair

President-elect Donald Trump announced that he has chosen former Securities and Exchange Commissioner Paul Atkins to lead the SEC. Atkins, who served from 2002 to 2008 and is currently the CEO of Patomak Global Partners, is known for his pro-business stance and strong support for cryptocurrencies. Trump praised Atkins as a "proven leader for common sense regulations" and emphasized the importance of innovative capital markets and digital assets in strengthening the U.S. economy.

Atkins’ appointment has raised concerns among consumer groups about a potentially looser regulatory approach. While Dennis Kelleher, CEO of Better Markets, acknowledged Atkins' intelligence and experience, he cautioned against his close ties to the business sector and past support for deregulation, which some believe contributed to the 2008 financial crisis. Nevertheless, Atkins’ selection has generated excitement within the crypto industry, as he has previously expressed reservations about the SEC's enforcement actions that could hinder domestic development and drive innovation overseas.

Reference: NPR.org

Bitcoin MENA in Abu Dhabi

HCM team had the pleasure of attending Bitcoin MENA, the global Bitcoin conference in Abu Dhabi. We connected with passionate entrepreneurs, Bitcoin enthusiasts, and industry experts. The MENA region is experiencing a significant rise in Bitcoin adoption, driven by business growth, innovation, and supportive regulatory frameworks.

Key points of the conference highlighting global attention and needs: Bitcoin Regulation: discussions on how nations worldwide are shaping the regulatory landscape for Bitcoin. Sustainable Mining: focus on enhancing energy efficiency and cooling methods, with AI integration to optimize mining farm operations. Mass Adoption: topics include bitcoin inheritance planning, its role in family offices, and investment strategies for broader consumer adoption.

Notable speakers include Eric Trump-son of US president-elect Donald Trump. “It’s instantly liquid, borderless, and truly a global currency,” Trump stated. “It operates independently of traditional banking systems and isn’t subject to corrupt governments.” He highlighted Bitcoin’s surge past $100,000 as a sign of growing public interest, adding, “A lot more eyes will open when Bitcoin reaches $1 million—and I’m confident it will get there.”

We're eager to dive deeper into Bitcoin's growth and hear diverse perspectives from our community. If you have ideas, insights, or opinions about Bitcoin and its potential, we'd love to hear from you.

Reach out through X.com@HCM_Capital or website: https://hcm.capital/contact

Let's collaborate and shape the future together!

Reference: X.com @bitcoinmenaconf

Unchained updates connections for Pro business and Signature clients

Reference: X.com@Unchainedcom