The Breakdown - 6 Good Reasons for Bitcoiners to Keep Calm and HODL On

Episode Date: March 12, 2020

The Coronavirus got really extra real today for markets. A two and a half week selloff was tipped to the next level by a major ratcheting up of action from the US government (which still seemed clearly to be not enough to calm markets).  In bitcoin, this meant a drop from around $8000 yesterday to under $6000 today - a head-spinning dump, especially for those who are more recent to crypto.  Still, in this episode, @NLW argues that there are 7 good reasons to keep calm and HODL on: It’s not just bitcoin  Correlation means infiltration Peak fear  Asia on the upswing  Buy order behavior  Bitcoin’s been dead before   And a bonus: this environment is exactly what bitcoin was built for

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Thursday, March 12th, and life comes at you fast. Just a few days ago, we had President Trump on Twitter telling us that this was no worse. In fact, it seemed based on the numbers much better than the flu to him. A couple days later, last night, he came to TV to make a national address saying that he was banning all flights from Europe, that there would be more than $50 billion of aid to small businesses, and a variety of other economic measures to address the fallout of this coronavirus.

The markets have reacted, as you might expect, as absolute and total panic sets in, with stocks falling as much as 9% on the day, and Bitcoin cratered. from as much as 8,000 yesterday down under 6,000 today. Indeed, it is a scary time to be a hodler. It's a scary time to be anyone, let's be clear, but it's a scary time to see this thing, which we weren't sure how it was going to perform in a financial crisis, lose as much as 30% of its value in less than 24 hours.

So what are we supposed to make of this? Well, as is clear to anyone who's listened to the breakdown over the last couple weeks, I do believe that things are going to get worse before they get better. However, I also believe that there are a number of reasons that should help keep Bitcoin hodlers calm and that there are reasons to not despair. So today on the breakdown, I'm going to go through six reasons that Bitcoin hoddlers should stay calm. Number one, it's not just Bitcoin. What we're seeing is an absolute cascade of economic effects where one trick, triggers provokes others. Now, the scary thing about this is that there is huge systemic risk

across the markets. But what should give us some comfort is that this is not an indictment of Bitcoin as an asset. This is not an indictment of anything fundamental about the Bitcoin design. Mark Yusko, who is the founder and CEO of Morgan Creek Capital Management, wrote, in a financial crisis, liquidity vanishes. Liquidations begin and people are forced to sell. You don't get to sell what you want to sell. You sell what you can sell. And unfortunately, that means places where there is liquidity of sorts like Bitcoin and gold. And this is important, too.

It's not just cryptos that are down. Gold is down 4.5% on the day. We are in the very beginnings of a potentially protracted crisis. And right now, what's happening is that people are selling anything they can and anything that's easy to get liquidity and to get cash. Now, of course, this is small comfort as we watch the value of our blockfolios absolutely implode before our eyes. However, I do think that we should recognize that this is not about Bitcoin, and that in

these moments, Bitcoin is subject to much larger forces. Second on my list of six reasons that Bitcoin hoddlers should keep calm is correlation means infiltration. So this is something that Joe Wisenthal from Bloomberg pointed out this week that I think is really true, which is that part of what we're seeing is that over the last couple years, more and more institutional buyers have gotten interested in Bitcoin. This is not by accident. Many of us have been out recruiting this type of buyer, trying to bring in institutions. The challenge is that institutions have a different frame set, a different mindset than retail

investors when a crisis comes. As we just discussed in Section 1, when there's a real liquidity crunch, you sell what you can sell to get the cash that you need. The fact that we're seeing such clear correlation between Bitcoin and other markets suggests that at least some part of the Bitcoin holding audience is in fact these new big institutions. This was our goal, right? We wanted this set of actors to get into this market. And frankly, the fact that Bitcoin is a thing that they're able to liquidate in short order to cover their margin calls and do what they need to do is a net good to the long-term likelihood of institutions being interested in Bitcoin. Now, there will be time to discuss later exactly what type of safe haven asset Bitcoin might be

as it matures. And certainly that's a conversation that is ongoing across crypto-Twitter. But the fact of the matter is that we tried for a couple years or longer to get, institutions into Bitcoin, they came, and it just so happens that Bitcoin is like everything else around the office right now, one of the things that they're going to try to sell. Number two, correlation means infiltration. We have infiltrated these institutions. Third on my list of reasons that Bitcoin holders might stay a little bit more calm is the idea that we are in a moment of peak fear.

Now, I am not an expert in understanding market signals, but what I do know and what it does feel like to me is that the equities markets are very much catching up on fear that many others have been feeling for weeks now, right? This is a panic as it becomes clear that the narrative that coronavirus was just the flu and not something to worry about has come crashing. and what has happened alongside that narrative coming crashing is that the reality of airlines and restaurants and other types of businesses being offline for months or longer is now scaring the absolute crap out of the markets.

They are at peak fear as they race to catch up with themselves and with many other parts of the world around what the actual fallout from this disease might be. be. Meanwhile, we are still barely into the era of our government actually responding and trying to calm the markets. We had this very sort of piddling little monetary policy bump in terms of an emergency rate cut last week. But it was only yesterday, last night at 9 p.m. Eastern time that the president of the United States said anything to try to actually reassure the markets other than this thing isn't a thing which is clearly now in retrospect wrong at best and a lie at worst. Markets are in peak fear because not only do they not know what happens next,

because there is this uncontrolled variable of a disease which doesn't care about political positions or relief policies or anything else, they are also at peak fear because we haven't yet been able to figure out how to price in response. We are seeing that markets are not sufficient, enthused by Trump's payroll tax holiday and his 50 billion to small business administrations, but we don't know what else they're going to do. So this is really a very challenging time because we are pre-information in so many ways. So again, another reason to stay calm is that it's not necessarily that it gets better when we get more information, but what you're seeing right now is wild swings of volatility because people just have nothing to go on,

other than what's right in front of their face. It's hard to imagine for me that we don't see much, much more aggressive action, plans, et cetera, from regulators around the world, but particularly from the U.S. government. And whether or not the market likes what they have to say, at least they'll know. At least they'll be operating with that information. Number four on the list of things to keep Bitcoin hodlers calm in this crisis situation is the potential of Asia on the upswing. So right now, there seems to be a recovery in many Asian countries that were affected by coronavirus from a public health standpoint. People are still cautious around the numbers coming out of China and perhaps not fully trusting them.

They're worried about a follow-up spread or outbreak after the fact, even if they are reporting the correct numbers. But you're seeing positive signals from places like Singapore, which has seemed to really wrestle this to the ground, and South Korea, which, as opposed to Italy, is making major progress in actually fighting back this disease. When it comes to markets, of course, everything is interconnected, and everything right now is reacting to the panic in the West. However, it's not impossible to me that if we truly do see a recovery from a health standpoint, a health recovery in many of these economies which we had been so concerned about, that markets will start to follow at least a little bit because there's a light at the end of the tunnel. Now, of course, this has nothing to do with public health policy in America,

which I believe is going to be dramatically more important than clearly this administration is giving it credit for in terms of the economic recovery as well, right? we're still dealing, it seems, with a world where asset prices and the stock market are the only barometer of economic success, rather than looking at real economic fundamentals that are going to be impacted by this, such as these industries which are effectively going to have to shut down and people who are going to lose their jobs or just at least not be able to be paid for their jobs because they literally can't go to them. So there is still a huge potential for further pain in the real economy in America. However, at least,

if other parts of the world are starting to recover, it feels to me like it's likely that there's less fear ultimately and a better ability to understand where in the cycle we are at any given time. So number four on the list of six reasons for Bitcoin huddlers to stay calm is Asia on the upswing. The fifth factor on this list and one of the ones that I'm most enthusiastic about is the buy order behavior today. So we talked a couple segments ago about institutional behavior, right? Institutions having to flee from their positions in any liquid asset to get to cash, to get to safety, to be able to cover their obligations. We talked about correlation, meaning infiltration. But what have retail buyers been doing? Well, there's a couple

interesting signals already. The CEO of River Financial, which is a Bitcoin-only exchange, a Bitcoin-only buying and selling service, said that they'd seen, they were blasting through records of buy orders today. It was very clear to them that their market, who are admittedly hardcore Bitcoiners, are really enthusiastic about being able to buy on discount effectively, right? So that's one signal. A bigger signal just based on the size of the institution is looking at Coinbase's order book. Right now, 72% of transactions on Coinbase's order. base are buy transactions, not sell transactions. That means a significant amount more, right? By effectively three to one margin, people are buying rather than selling. That's a really, really

powerful and positive signal. That means that, again, going back to our first point, this is not about the fundamentals of Bitcoin. It is about the larger world's response to a very dangerous disease and an incompetent, inept, uncoordinated economic response to that. It's a good reminder, I think, between both of these, the correlation means infiltration and this retail buy order behavior, that Bitcoin was, is, and will be a retail-driven market. Even as institutions come in, even as institutions help us grow and expand the market participants, this is a retail asset. And the reason for that is that, Fundamentally, Bitcoin is a way that people express their unwillingness to let the world act

upon them and have no agency in their own economic lives. Bitcoin is a way for them to assert agency over their own financial destinies. When 72% of people who are transacting on Coinbase in one of the worst days we've ever had in markets are buying, you know that there is a powerful, powerful base of Hodlers of last resort. I honestly can't think of anything more bullish than that in the long term. Now lastly, and if you have been around for a while, you knew this one was coming. Bitcoin has been dead before. In fact, Bitcoin has died 380 times by 99 Bitcoin's count.

380 times Bitcoin has been pronounced dead. Its oldest death came on December 15th in 2010, 11 plus years ago, in a little post that said why Bitcoin can't be a currency. Its most recent death came from a Bank of England governor who said last week, if you want to buy Bitcoin, be prepared to lose all your money. It has no intrinsic value. If you look at deaths by year, in 2010, there was one. In 2011, there were six.

In 2012, there was one. In 2013, there were 17. In 2014, there were 29. 2015 saw 39 Bitcoin deaths. 2016, 28. 2017 saw 124 full Bitcoin deaths. 2018 saw 93. 2019, it kind of calmed down.

We only had 41 pronouncements of Bitcoin's death. This year, we're at a measly one. But guess what? This time isn't it? And next time won't be either. Bitcoin can't die. The sixth and perhaps most historic reason for Bitcoin hodlers to stay calm in all of this chaos is that Bitcoin has been dead before.

All right, bonus, as I was recording this, something happened on Twitter, where the Fed announced that it would be providing a huge injection of liquidity into the markets, up to $500 billion of repo action where we've been kind of seeing eye-popping $150 billion over the last couple days. It's obviously an huge amount more than that, right? They're talking now about buying, expanding treasury purchases beyond T-bills and conducting purchases across a range of assets. This sort of policy is what has felt to Bitcoiners as inevitable and has exactly the type of thing that makes a non-sovereign hard-cap supply, global immutable, decentralized digital store of value appealing. It may help us through this crisis. It may be exactly what the Fed has to

do right now to not have the world fall into total meltdown, but what happens after? That's what Bitcoin here is for. So look at that. It's actually seven reasons. You got a bonus. All right, guys, that's it for me today. Let me know what's keeping you afloat. I know this is hard times, and there's nothing about this podcast episode that's meant to minimize the challenges that we're all going to face and face together over the coming weeks or months. But I do think that it's important to keep context and to try to remain intelligently calm, calm for good reason. So hopefully this has helped you on that. And hit me up on Twitter. Let me know what's keeping you calm in this sea of carnage and absurdity. And stay safe out there, all right, everyone. Until tomorrow, I'll be back to break it down.

Peace.