The Breakdown - 2 of the 4 Best Performing Assets of 2024 Were BTC Related

Episode Date: January 4, 2025

NLW catches up on all the stories from the Holiday, including the outperformance of Bitcoin related assets (and digital asset hedge funds) in 2024. Sponsored by: Ledn Need liquidity without selling your Bitcoin? For 6+ years, Ledn has been the trusted choice for Bitcoin-backed lending. With transparency, security, and trust at our core, we help you access your BTC’s wealth while HODLing. Discover what your Bitcoin can do at ledn.io/borrowing. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Saturday, January 4th, and today we are catching up on everything that has happened in the world of Bitcoin and crypto over the last couple of weeks. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link of the show notes or go to bit. All right, friends, we are back here at the breakdown.

Well, sort of. We're doing one episode to catch up on everything that has happened over the last couple of weeks, and then starting back on Monday, we will be back to our normal schedule. Today, we are going to hop, skip, and jump through a bunch of topics. And of course, where we're going to start is with the best performing assets of 2024. After a major drawdown to end the year, Bitcoin closed 2024 at 93,500. That means that it gained 120% for the year. outperforming all major stocks other than Nvidia, Palantir, and Microstrategy.

Alex Thorne of Galaxy Digital wrote, despite the recent pullback, MicroStrategy finished 2024 as the best performing major asset in the world, with Bitcoin as number four. Even on a risk-adjusted basis using the Sharp ratio, Micro Strategy finished first and Bitcoin fourth. Two of the top four assets in 2024 were Bitcoin-related. Are you paying attention? Maybe even more interesting is how Bitcoin performed against leading private funds.

According to a list from HSBC, the best of the best. The best performing fund of the year was the exponential-age digital asset fund with 62% returns. This is a fund managed by Rao Paul that invests in leading liquid crypto token hedge funds. The second best performance came from the Vanek Digital Assets Alpha Fund with a 56% return. That fund invests directly in liquid crypto tokens. Ranked below these two, no other fund on the list achieved a 40% return, and only six funds returned over 30%. The list was not exhaustive and didn't include smaller liquid crypto funds like asymmetric

pentara or multi-coin. Joe McCann, the principal of asymmetric, noted his returns for last year were, quote, much higher than the top. Overall, these figures send a few really interesting signals to the investment world. This is the first crypto cycle where large digital asset funds are directly competing with traditional hedge fund strategies. That industry is notoriously cutthroat and traditional hedge funds will now need to compete with the incredible returns from crypto-native funds.

The returns might not be there every year with crypto remaining speculative and volatile, but at least for 2025, crypto funds can show some eye-popping returns to attract new capital. The other interesting point is that crypto funds seem to have struggled to outperform Bitcoin. Looking back across history, this hasn't always been the case, but it's notable during a bull market. If Bitcoin is outperforming crypto funds and blowing traditional hedge funds out of the water, did those investments become a little harder to justify? Pomp wrote, Warren Buffett and Berkshire Hathaway beat the S&P 500 last year, but they got destroyed by Bitcoin's performance. Investors who can think for themselves know Bitcoin is the true benchmark, not the

S&P 500. Eventually, more investors will realize the change. Speaking of micro strategy, that company has filed paperwork to massively expand the maximum number of shares in the company. In other words, 2025 is starting off basically the same way 2024 ended. A proposal will be put to shareholders to increase the cap for Class A shares from $330 million to $10.33 billion. Another proposal would increase the maximum number of preferred shares from $5 million to over $1 billion. There was a lot of commotion that this move would dilute shareholders, but that's not quite how this works. The shares wouldn't be issued immediately. the proposal would just allow Micro Strategy the flexibility to issue more stock going forward.

The company could also execute a stock split to bring down the cost per share, increasing liquidity and making the units more manageable. The company already has over 225 million shares outstanding, so need to adjust the cap if they want to keep raising money through equity sales. The proposal comes just two months into Micro Strategies plan to ramp up their Bitcoin purchases. Called the 21-21 plan, the company set out to raise $21 billion in equity capital and a further $21 billion by selling convertible debt. Originally, the plan was supposed to take three years to carry out, but Micro Strategy is way ahead of schedule. With the purchase of 209 million Bitcoin last week, MicroStrategy has now added to their stack for eight weeks in a row. They've reportedly

raised $13 billion through stock issuance and another $3 billion by selling debt. The company's filing noted, we have been executing on our 2121 plan significantly faster than originally anticipated. Overall, Micro Strategy is signaling that they're ready to take the next step. In an accompanying letter to shareholders, they wrote, the proposals were asking you to consider reflect a new chapter in our evolution as a Bitcoin treasury company and our ambitious goals for the future. In October, Michael Saylor spelled out that the company hopes to increase its Bitcoin holdings by between 6 and 10% each year. Such a gigantic increase in the maximum number of shares, however, suggests the scope of that plan is now much grander. The company already owns more than 2% of all Bitcoin, a threshold that is

starting to make people nervous. Economist Alex Kruger wrote, Saylor should cap the number of Bitcoin micro-strategy can buy at around 4% of supply. A single party going beyond that threshold would be very bearish for Bitcoin. Plenty of to go. It currently holds 2.1%. But the fact this cap has to exist is bearish microstrategy, as its premium does not take this future limitation into account. Ultimately, whether micro strategy's voracious Bitcoin buying is good for BTC or not, it seems the company won't be slowing down in 2025. If you've been around Bitcoin for long enough, you've heard the term hoddle and the name Leden. Lennon has been the go-to leader in Bitcoin lending for over six years.

They help clients unlock the liquidity of their Bitcoin, allowing them to hoddle while still access the wealth of their BTC. They've been battle-tested with their focus on transparency, security, and trust, allowing them to build a proven track record of client's success and security. Lennon has helped tens of thousands of clients harness the value of their digital assets, issuing more than $6.5 billion in loans over the years. But as the crypto industry says, don't trust verify. Check out Lennon's trust pilot or their reviews on social media. And to learn more about what your Bitcoin can do for you, check out ledin.io-borrowing. That's LEDN.com.i.

slash borrowing. Please visit leaden.com slash legal for product terms and disclosures. Product availability varies by jurisdiction. What about the vibes out there? While Bitcoin slide into the new year was a little distressing for some, there are many signs that 2025 will be another big year. The consensus seems to be that price action over the holiday season was primarily about liquidity rather than sentiment. On New Year's Eve, analyst 52 skew tweeted, price stuck in a void between liquidity here going into a new year. Given price has been heavily driven by takerflows in recent days, keep tabs on that. He pointed to a massive liquidity gap between buyers and sellers. Spot buyers were willing to step in below 91,000, but sellers were asking for 98,000.

Another liquidity issue is going on at the macro scale, with the U.S. dollar continuing to rip higher. The dollar index is currently at 109, up another 1% over the past two weeks. These levels of dollar strength are enough to put strains on the global funding environment and generally make it difficult for risk assets to push higher. Adding to the year-end troubles, over a billion dollars was redeemed from the Bitcoin ETFs over the past two weeks. Six of the nine trading days saw net outflows over the quiet holiday period. This included the largest ever outflow for BlackRock's ETF, which lost 188 million on Christmas Eve. Still, it's difficult to be concerned about ETFs if you look

on any time frame longer than a few weeks. December still saw 4.5 billion worth of net inflows for the month, and the Bitcoin ETFs have overtaken gold ETFs in terms of assets under management in a single year. On the positive side of the ledger, crypto exchanges are seeing a surge in interest. Coinbase's offshore futures exchange reached 20 billion in average daily volume in the final week of the year. That's more than double the previous week and a huge gain from November when the exchange saw just $2.5 billion in daily trading volume. The exchange services institutional traders and is focused on a small handful of major tokens. Bitcoin represents almost 60% of volume. OTC markets which deal with large volume institutional customers are also seeing a roaring trade.

Tim Ogilvie, the head of institutional trading at Cracken said, OTC is going gangbusters right now. Prices are up, but volume is way up. One OTC trader told the block that volumes are easily matching what they saw at the peak of 2021. Brett Reeves' head of Go Network at BitGo said, it's much calmer compared to those previous kinds of years because people believe the asset class is actually around a stay. Those ETFs have solidified that position.

And so I think that we have an impact both on the OTC markets and just more generally for crypto adoption. Jake Ostrovskis, OTC trader at market-making firm Wintermute, says he's seeing a lot more sophistication from his counterparties. More traders are looking to hedge their crypto position using derivatives, turning to OTC markets to see what's available. He said, I think that's a huge area of growth. I'd argue we are seeing it already, and I think it probably takes off into next year.

Meanwhile, Binance is getting extremely low on their Bitcoin reserves. The exchange now has 570,000 BTC on the platform, its lowest level since January. These low points in exchange liquidity happen as traders remove their Bitcoin to cold storage. typically a sign of bullishness over the medium term. At the same time, stablecoin reserves on Binance have hit a record high of $45 billion. That's generally a sign that traders have fresh capital ready to deploy into markets. Generally then, the sentiment heading into 2025 is optimistic. Now, speaking of institutions, Morgan Stanley is reportedly considering adding crypto trading to its e-trade brokerage platform. The move was inspired by the expectation of a friendlier regulatory

environment during the Trump administration. Charles Schwab was also rumored to be considering adding crypto trading this year. Given that there's no lack of crypto trading platforms, you might be tempted to think that this won't move the needle. Even among securities trading firms, crypto is already common, with Robin Hood Fidelity and interactive brokers offering a select range of major tokens. Still, E-Trade does have a fundamentally different user base to Robin Hood. Adding native crypto trading would be a huge step towards normalizing crypto in the eyes of everyday investors. One fairly big story on the policy side, on the last Friday of the year, the Treasury and the IRS finalized their crypto broker rule. The new rule requires all manner of crypto platforms to report tax information for their users.

Centralized crypto exchanges have already been doing this for several years, but the new rule expands the scope. DeFi platforms could be forced to comply, however, wallets and validators have been specifically excluded. The big obvious problem is that these platforms often don't have solid information about their customer's trading activity. If all your assets are on a centralized exchange, it's easy to calculate their cost basis. However, if you transfer crypto to a hosted wallet, that platform has no way to figure out the price you bought it at. These practices, tactical issues could massively disrupt on chain finance if platforms attempt to comply with the poorly thought-out rule. It's easy to imagine how much chaos could be caused by hundreds of thousands

of erroneous reports going to the IRS. The rule has been coming for over a year at this point with these issues pointed out in volumes of comment letters. The IRS is taking the view of, quote, same activity, same rules, which has been the regulatory mantra during the Biden presidency. In a statement, the regulator said, persons with technology expertise that operate trades and businesses related to financial services should comply with the same rules as any other person operating financial services business, seeming to completely ignore that the rule is impossible to comply with and needs to be specifically crafted for on-chain trading. Peter Van Valkenberg, the executive director of Coin Center tweeted, it's that time of year again, time for the outgoing administration to release a

civil liberties damaging rulemaking at the last possible moment, the midnight period before a new president of the opposite party takes office. Thankfully, most crypto-legal folks believe the rule will never get implemented. Bill Hughes, a lawyer at consensus, wrote, first, a lawsuit will be filed claiming that the rule is beyond the authority of Treasury and violates the Administrative Procedures Act. Later, the rule will likely come under congressional review where it can be disapproved of, like this year's vote on SB 121. The outgoing administration is not leaving quietly. The fight continues. This rule has been ready to go for a while now. They dump it on the last Friday of 2024 in the middle of a holiday stretch on purpose, obviously, as if we wouldn't notice or make an

absolute ruckus over it. A16Z lawyer Miles Jennings is irate, tweeting, when you challenge government abuses of power, the response is even more transparent and desperate abuses. The broker reporting rule is an obvious example, a fantastical expansion of the words effectuate transactions to enable the IRS to ban defy. This despite courts already determining that non-custodial defy front ends don't effectuate transactions. This rule should be thrown out with haste, and those that continue to push reckless lawfare should be held accountable. Blockchain's CEO, Kristen Smith, wrote, Today's broker rulemaking, days before the end of the year, is a disappointing but

expected final attempt to send the American crypto industry offshore. On behalf of the industry, we're prepared to take aggressive action to fight back. We also look forward to working with the new pro-crypto Congress and administration to roll back this and other anti-innovation rules. There are tons of other small stories. Doe Kwan is finally back in the United States. A Hong Kong legislator has proposed a Bitcoin strategic reserve. But that's where we're going to wrap here. We will be back, like I said, on Monday, to really jumpstart this next year, a year that holds so much promise for Bitcoin and the larger crypto industry as a whole. For now, appreciate you listening as always.

And until next time, be safe and take care of each other. Peace.