The Breakdown - A Bullish Dump?

Episode Date: March 6, 2024

After kissing all time highs, Bitcoin crashed 14%. Normal volatility? Miner selling? NLW explores the reaction to the correction Today's Show Brought To You By Kraken - Go to https://kraken.com/thebreakdown and see what crypto can be Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet 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 Wednesday, March 6th, and today we are catching up on price action. Was what we have just experienced, in fact, a bullish dump? Before that, however, if you were 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 in the show notes or go to bit.ly slash breakdown pod. Hello friends. Well, on yesterday's show, I promised you that I'd probably end up spending

today screaming about the Bitcoin all-time high if it arrived. Although we sort of did maybe kind of get the all-time high. It was in fact markets that spent yesterday screaming for a different reason. At 10 a.m. on the East Coast, Bitcoin got a few hundred dollars above $69,000. The screams of joy shifted immediately to screams of pain as Bitcoin plummeted. Price action reversed hard, with Bitcoin drawing down by 3.2% over the next half hour. There was a slight reprieve at 68,000 before another brutal sell-off in the afternoon. Price bottomed just below 60,000 with one final gigantic flush for the day. Overall, Bitcoin experienced a 14% drawdown from the highs.

Heading into the night, the price stabilized at around 64,000, and at the time of recording, has rebounded to 67,000. To some, this rejection looked fairly inevitable. Bitcoin has already had a wildly hot year up almost 70% so far. What's more, during previous cycles, the path to conclusively breaking the all-time high has never been easy. In late 2020, it took Bitcoin three weeks to finally break through the $20,000 barrier. There were multiple reversals with Bitcoin falling back as low as $16,250 before getting to fresh highs. Indeed, many commentators profess that they expected this outcome. B.J. Boyapati

tweeted, It's perfectly normal for Bitcoin to pull back from the all-time high. This happens every cycle. Large sellers use the anticipation of the moment to dump into a high liquidity moment. Importantly, the psychological wall is broken and true price discovery will eventually begin. Galaxy CEO Mike Novogratz tweeted, Well, that was fun, not. I can't find one chart in the universe where a market rallies 350% to a three-year-old high and takes it out on the first try. I believe we end the year much higher, but now we will chop around. Be safe. Others looked back on brutal volatility from the last cycle. Will Clemente of Reflexivity Research wrote, this move reminds me of the 15% leverage wipeout we had after testing all-time highs for the first time in 2020, that Portnoy called the Thanksgiving Day Massacre.

Any dips are for shaking out over-leveraged dapes and buying at this point. I'm not doing anything, just sitting on my hands. Galaxy Digital head of research, Alex Thorin commented, Remember that in December 2020, Bitcoin touched its prior all-time high of 20K twice, then ranged and traded down 11% lower over 15 days before definitively breaking all-time high, likely to look similar here,

and some consolidation would be healthy after plus 62% year-to-date and plus 77% from the year-to-date low. Alex also pointed out that Bitcoin had 13 corrections of 10% or more on its path to the April 20, 2021 high. Very few commentators were concerned that this was an actual trend break. Instead, they characterized yesterday as another example of Bitcoin's wild volatility. The numbers are larger now, but the drawdowns look similar to as they did in every other cycle. Unsurprisingly, heavy betting on a break of a new all-time highs was extremely popular, making for a leveraged bloodbath as

Bitcoin's price collapsed. Future's open interest was sitting at an all-time high heading into yesterday. According to Coinglass data, Crypto-native venues saw a peak of $19 billion, with almost $10 billion added from the CME. That's around a 20% increase from the beginning of the week. Funding rates for perpetual futures were at nosebleed levels, with long positions paying over 100% in annualized funding on Binance, the highest point for the year. Over 320 million in Bitcoin liquidations were processed yesterday, with the vast majority coming from the long side. Three billion in Bitcoin open interest was closed on the drawdown, but that's already well into the process of rebuilding. Across broader crypto markets, the liquidations hit $1 billion. That's the largest day of

liquidation since at least August. Some suggested it was even the largest day of liquidations dating right back to the November 2021 top. Longs bore the brunt of the pain representing 870 million of the total. The dangers of leveraged meme coin speculation were also on full display, with a new record for liquidations across the top nine meme coin tickers. On-chain analytics provider Santiment wrote, In a way, we can view this open interest plummet as a sign that speculative excess has been temporarily removed from the markets. Assuming funding rates can even out, prices can theoretically fluctuate under less influence of futures and options positions, and more on a true supply and demand market valuation from traders, investors, and hodlers.

End quote. With the leverage to wipeout, funding rates reset by 20%. This might mean that traders will ease up on leverage, or it could just be taken as an opportunity to load up fresh positions for another run at all time highs. Alex Weiss summed it all up. A nasty nuke, one of many to come on the road to glory. If this is not your first cycle, you've lived through it. You've already come to expect these shocks. If this is your first cycle, know that there will be many more nasty nukes like this, that it is expected and becomes more probable as pressure builds in the system. The longer it has been since one happened, the more likely. To the experienced trader, these are massive buying opportunities because ETF money comes every day in size to dwarf any downturns. I didn't say everyone would make it.

Some of you are already dead. Many of you will not make it probably blown out on leverage. Leverage trading is hard. Spot holding is hard. Life is hard. But opportunities like this are easy. Every nasty nuke is an easy buy. So, yeah, I think I'll bid. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if?

It invites people in instead of leaving them out. It's on 24-7-365 and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc., PVI, DBA, DBA, Cracken. Hello, breakers. Today's episode is sponsored by Ledger.

As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security or self-custody. ledger features cutting-edge technology in the form of a certified secure chip and a proprietary operating system, but also brings ease of use. This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano

in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. As all of this was happening, a huge amount of action moved through Spot Order Books. Coinbase set a new all-time high for daily trading volume at almost 12 billion across all pairs. The spot sellers were clearly lying in weight. Binance had around 300 Bitcoin for sale at the 69,000 level at its peak, and another 500 Bitcoin waiting to be sold if the price reached 70,000. Hasakot took us behind the curtain tweeting, Dear Noob's, Bitcoin is not naturally going down. It is being pushed down via Wales, placing spoofy sell orders on exchanges to make nobs and risk managers sell to, quote, buy back lower. They are stealing

your bags and will make you buy back at a higher price. Maybe the most interesting thing that happened was that just before Bitcoin hit 69,000, an ancient wallet sent 1,000 Bitcoin worth around 69 million to Coinbase, presumably to sell. These were coins mined all the way back in 2010 that have remained untouched ever since. CryptoQuant data classified the address as a miner, but this may simply be because they were an active miner 14 years ago. Bradley Park and analysts at CryptoQuant said, Considering that the exchange order book shows 5 to 10 Bitcoins of liquidity for every $100 price change, a sell-off of 1,000 Bitcoins is highly likely to trigger a significant price drop, especially when traders are waiting to enter a short against Bitcoin's all-time high, like on Tuesday.

He added that the recent influx of Bitcoin into exchanges reminded him of the activity surrounding the massive drawdown in March 2020. Park said, that time, it was also miners. Bitcoin ETFs also saw a new record volume on Tuesday trading $10 billion for the first time. This topped last Wednesday's record by more than 20%. Bloomberg's senior ETF analyst Eric Bocunis wrote, volatility and volume go hand-in-hand with ETF, so not totally surprised. That said, these are bananas numbers for ETFs under two months old. BlackRock, Fidelity, Bitwise, and Arc all had record volumes, and BITI, the pro-share short Bitcoin

ETF, also had a record 300 million in volume, almost 10 times its average. Many suspected the heavy volume was signal of a massive sell-off, with ETF buyers happy to lock in 50% gains from the past month, or simply scrambling to get out during the dump. Once flow data arrived in the evening, however, it was clear that yesterday's volume was a huge amount of accumulation. BlackRock gathered a staggering 78 million worth of inflows, beating its previous daily record by 28%. The rest were a mixed bag, with fidelity performing slightly below average and arc slightly above average. Bitwise was the downside outlier, recording just 3.7 million worth of inflows. Grayscale outflows were at 332 million, a little higher than average but lower than recent

days, leading to an overall situation where the ETFs brought in 662 million in fresh inflows, which was their third strongest day ever. Well Pandit tweeted, huge inflow day yesterday, even though a lot of people expected it to be negative because of the price action. Matt Hogan, the CIO at Bitwise, wrote, Just imagine how much more resources, attention, and funding Bitcoin and Crypto initiatives will get from Wall Street firms in Q2 after what's happened with these ETFs. Buckle up, the TradFie trickle is about to become a flood. All in all, despite the big rejection, it's difficult to find anyone bearish on the timeline,

although the jokes were of course there to be sure. Ryan Sean Adams and Bankless tweeted, Bitcoin kissed all-time high, then dropped 7%. That was it, folks, the bull market of 2024 is over. Hope you had fun. Framework Ventures co-founder Van Spencer commented, Wow, Bitcoin absolutely collapses to 64K. Bears running rampant into the streets, longs thrown into the oven to cook. It's over. Even odd lots Joe Wisenthal got in some quick bait tweeting, Bitcoin hit a new record and then immediately fell 7%. Not going to say I told you, but some of us have been calling it a bubble for years now. Meanwhile, analysts are busy penciling out moon math. Bitfinex research commented, Our analysis forecasts a conservative price objection of 100,000 to 120,000 to be achieved by Q4 this year.

and the cycle peaked to be achieved sometime in 2025 in terms of total crypto market capitalization. On-chain analyst Willie Wu noted that the GlassNode Bitcoin macro index isn't anywhere close to topping out, tweeting, so you think we're in a bull market? We're not. This has been a warm-up. A full fundamentals-driven bull market is marked by a break in the upper blue band. When it breaks, Tradfi is in for a shock. For reference, the last time Bitcoin broke above the blue band Willie is referring to was in December 2020, and well, you know what happened next. With the Bitcoin Fear and Greed Index hitting a three-year high, cold-blooded Schiller gave us a quick history lesson on just how overheated Bitcoin can get. He wrote,

When Bitcoin broke the former all-time high at 20,000, the weekly RSI was already at 87. We rallied 232% in the following four months. The first pullback was after a 100% moved to 40,000, and we did minus 30%. The current Bitcoin weekly RSI is at 87 against his former weekly high. The similarities are good, which is a positive, not because I'm saying we're going to follow an exact path, but because it helps demonstrate the example and common mistakes of failing to believe momentum or truly strive for the upside that is possible. Stop associating overbought with weakness or something that needs to top out soon. Fight that urge to believe that extension means

slowdown or accelerating. This is pure strength. Now one last note. Always good to check in on MicroStrategy on a day that Bitcoin goes down to see how sailors thinking about things. Well, of course, micro strategy announced on Monday that it would be raising an additional 600 million through the sale of convertible notes and the company said that the funds would unsurprisingly be used, quote, to acquire additional Bitcoin. That trading day saw a 23% surge in micro-strategy stock, far outperforming Bitcoin. The company is now valued at around $22 billion, with their underlying Bitcoin stack worth a little over $13 billion. This means there should be plenty of room to issue more common stock. Instead, Sailor is opting to issue convertible debt, deferring that

dilution until a little later. Mechanism Capital co-founder Andrew Kang commented on the stock's price dislocation. He noted that around 20% of Microstrategy shares are currently being sold short, adding, I imagine a lot of that float is angry Tradfai boomers trying to capture the premium to net asset value. Micro Strategies Nav premium went from 50% before the ETF launch, right down to 13% and is now way up there at 70%. On Tuesday, Bitcoinmonger checked his terminal and confirmed the debt issuance had been completed, tweeting, Sailor got the convert done at 75 basis point coupon and a conversion price of 1,867, should trade well above par today out the gate. $600 million Bitcoin buy in coming. One thing to keep an eye on when it comes to micro strategy is that they are now large enough

for inclusion in the S&P 500 index. There's a profitability requirement that they will also need to hit, but it is not unthinkable that we end this cycle with multiple Bitcoin-related stocks included in the index. For now, however, that is going to do it for today's breakdown. One more big thank you to my sponsors for today's show, Cracken. Go to crackin.com and see what crypto can be, and of course, Ledger. Ledger's Bitcoin Ledger Nano is contributing 5% on all sales to Bitcoin development. Until next time, be safe and take care of each other. Peace.