The Breakdown - After Record Weeks, BTC Spot ETFs See Net Outflows

Episode Date: March 23, 2024

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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 Friday, March 22nd, and today we are, well, catching up on basically everything from earlier in the week. 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 in the show notes or go to bit.ly slash breakdown pod. Well, friends, today is a very, very grab-bag day here on the breakdown, and really what we're going to be doing is catching up on all the themes and topics that we had started talking about earlier in the week, so you should know exactly what's going on as you head into your weekend.

We start as we have to with the ETFs, where this week has generally been a bloodbath. After seeing record inflows last week, the ETFs have now experienced a record week of outflows. The Friday data isn't in yet, but the first four trading days have each been rough. Net outflows reached 835 million across all products with net redemptions each day. Of course, this has been driven by Grayscale. Grayscale has seen over $1.8 billion worth of Bitcoin pulled out of GBT across four days, which if you're looking for good news and silver linings and all of this, means that the reason that we've had net outflows is not because money is flowing out of the other

ETF products, it really is just grayscale. The question, of course, is what's going on, and many think that it might be the Genesis bankruptcy estate, liquidating their holdings after gaining. approval a few weeks ago. Bloomberg senior ETF analyst Eric Balcunas tweeted, The more I think about it, the more likely the uptick in flows is related to the bankruptcies because of the size and consistency. The flows in February showed what retail outflows like, smaller and a random pattern. Also, any Gemini and Genesis outflows are likely buying Bitcoin Bitcoin with cash, hence market holding up. Take away the worst is probably close to being over.

Once it is, only retail will be left and flow should look more like the February trickle. Bitcoin analyst Willie Wu had a look on chain and tweeted, ETF investors showing that they're noobs. On the first dip, ETFs did 1.6 billion of outflows while the Bitcoin network received $1.1 billion of total net inflows. This means plenty of self-custody investors bought the dip. Willie may have inadvertently picked up the Genesis order flow. Their proposed bankruptcy plan would see Bitcoin distributed to creditors in kind rather than converted into dollars. Another on-chain analyst called Ergo BTC sniffed out that Genesis flow, tweeting, Genesis is back from the dead, taking down more than 16.8 Bitcoin or $1.1 billion worth in the last

few weeks to two new addresses. Likely, these coins are primarily sourced from GBT outflows. There isn't a direct link between these addresses, but Ergo noted that there just aren't that many transactions that move several thousand Bitcoin at a time. The GBTC outflows also match up pretty closely with the inflows to the fresh wallets, which would be one heck of a coincidence. We don't know exactly how much has been liquidated by Genesis, but the firm entered bankruptcy with 68 million shares. That would be worth around $4 billion at current prices. Depending on when they start liquidating, this could take another week or two to complete. In other words, this seems like relatively positive news for the ETFs. Outflows are never good,

but if we know this is Genesis liquidating rather than sentiment-driven selling, the market should be able to process that a little more easily. As Lyle Pratt put it, the GBT outflows are temporary, but the broader Bitcoin ETF inflows are forever. Don't overthink it. 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.

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5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin Development. Thanks once again to Ledger for supporting the breakdown. Next up, earlier in the week, BlackRock made waves by filing for what looked like their first tokenized fund. At the time, we had basically zero details just what was contained in the first. filing plus some on-chain data. Now we have a full press release disclosing exactly what BlackRock are up to. The product is called the BlackRock USD Institutional Digital Liquidity Fund, trading under the ticker Biddle. BlackRock have confirmed that it will be their first

tokenized fund issued on a public blockchain, namely Ethereum. The tokens will seek to hold a stable value of $1 each and offer a yield based on investments in U.S. Treasury bills and repo agreements. BlackRock are not using the term stablecoin and are probably thinking about the product as closer to a tokenized money market fund. Robert Mitch Nicknick, the head of BlackRock's digital assets team said, this is the latest progression of our digital asset strategy. We are focused on developing solutions in the digital asset space that help solve real problems for our clients.

Carlos Domingo, the CEO of Securitize, who are providing the tokenization infrastructure for the product said, tokenization of securities could fundamentally transform capital markets. Today's news demonstrates that traditional financial products are being made more accessible through digitization. The big selling point seems to be bridging the gap between the on-chain and traditional financial system. Using the Ethereum ecosystem will allow Tradfai firms to get a taste of near instant and transparent

settlement, while BNY Mellon will be providing interoperability between digital and traditional markets to allow for easy onboarding and redemption. Taking a look at the smart contract, it appears that the redeem function plugs into the USDC token contract, implying on-chain convertibility into USDC. For now, the token is only able to be transferred between pre-approved institutional participants with a minimum investment size of 5 million. That means we're not likely to see it get plugged into defy in the short term, However, it seems like large crypto firms will be using this product as part of their Treasury

management or settlement networks. BlackRock has announced that Anchorage Digital Bank, BitGo, Coinbase, and Fireblocks will be the initial ecosystem participants. Because the fund is an institutional private offering, it does not have to be approved by the SEC, so it seems like it could become operational in the very near future. It is little wonder that BlackRock decided to make their first on-chain product to tokenize money market fund, as that sector has been rapidly expanding over the past year. In January of 2023, the market cap for tokenized U.S. Treasuries was only $114 million. By December, it had grown by 640% to reach $845 million.

There's now at least seven major products competing for market share, with some offering yields above 5%. 57% of these tokens are hosted on Ethereum, suggesting that defy interoperability is a future goal. Franklin Templeton and Wisdom Tree elected to issue their products on the stellar blockchain, representing 39% of the overall market. It does appear that growth is stalling this year with native crypto-eastern, assets offering more attractive performance than money market yields. The sector grew by less than 2% in January. Stablecoins, on the other hand, have grown rapidly over recent months, crossing $150 billion in market cap earlier this week. Nick Carter noted that Sablecoins are becoming too big to ignore

as a holder of U.S. Treasuries, tweeting, if they were a sovereign, they'd be the 16th largest holder of U.S.Ts. If they were a money market fund, they'd be the 14th largest. Speaking of Sablecold, this year was supposed to be the year that Congress passed crypto legislation with the biggest target being the Stablecoin bill. However, as we approach the end of the first quarter, there's been very little movement in that direction. On Wednesday, however, House Financial Services Committee Chairman Patrick McHenry seemed optimistic about getting Stable Coin legislation passed. He said there is a workable frame, adding, we're in a phase where we can see the airport, we can see where we're going to land the plane, we can see how we're going to land the plane, we just don't know

when we can land the plane. We need a legislative vehicle, we need a deadline, and we can drive the stickier issues if we have a deadline. Cody Carbone, the Vice President of Policy at the Chamber digital commerce, on the other hand, is unconvinced. He confirmed that McHenry and his Democrat counterpart Maxine Waters have gone from monthly crypto meetings to weekly summits. However, his opinion, after speaking with what he called drafters on both sides of the aisles on their teams, is that we're not really anywhere close on that. He added that parties remain in disagreement on substantive issues. Carbone gave the stable coin bill a 50% chance of being passed in the House this year, but only a 5% shot at making it through the Senate, adding, there's a lot of dynamics

at play. If we get a bipartisan House bill, they come to some great agreement in a grand bargain, and it passes the House with 400 votes, it would be very hard for the Senate to ignore that. Let's move now to something a little bit more fun, end-of-year price targets. Investment Bank Bernstein is walking up their year-end price target to $90,000. That's up from their previous estimate of $80,000. Still, up though it may be, it's more conservative than some of the other 2024 price targets coming in over the past few weeks. 100K has become the new consensus, while spicier takes that Bitcoin could hit 150K this year

are also becoming more common. Bernstein does believe that Bitcoin can reach $150,000 during this cycle, but not until the high point which they expect to arrive next year. Regarding this year's halving, analysts believe it will be much less impactful for miners than during previous cycles. They wrote, given general bull market conditions with strong ETF flows, low minor leverage, and robust network transaction fees this cycle, the having impact seems relatively mild on the miners, with dollar revenues cushioned.

After previous havings, we've seen hash rate declines between 15 and 20% as miners unplug on profitable machines. analysts believe there will be fewer miners shut off after this having, revising their estimate to a 7% reduction in hash rate down from 15%. As for whether the bull market could come to a premature end, analysts don't think that's likely, referring to the recent drawdown as a dip-buying opportunity. They wrote, we expect the market to consolidate prior to the having and then expect the overall bull market to continue. A counterpoint comes from JPMorgan, who think that Bitcoin's price is still running too hot. They pointed to a pair of metrics, futures position proxies, and the Bitcoin

futures premium over the spot price. This data only shows a small unwinding of position so far, with analysts writing, both metrics indicate that Bitcoin remains in overbought territory despite the sharp correction over the past week. And while longer-term price targets are getting bumped up by most firms, J.P. Morgan warned of a shorter-term slowdown. Analysts noted slowing inflows into the ETFs and suggested that it was an indication of profit-taking. They wrote, in fact, as we approach the halving event, this profit-taking is more likely to continue, particularly against the positioning backdrop that still looks overbought despite the past week's correction. Last week, JPMorgan's research note predicted that Bitcoin would fall to 42,000 following the

halving, citing a squeeze on minor profitability. And then there is Coinbase Institutional, who suggested that investors should look beyond the halving narratives and notice the macro factors at play. They pointed out that each halving has been incredibly bullish, with an average 61% gain in the six months prior, and a 348% pump at the six months following. However, analysts wrote that, quote, while it's possible that the halving could have a positive impact on Bitcoin's performance, there's still only limited historical evidence about this relationship, making it somewhat speculative. Taking a look at prior halvings, they wrote, Bitcoin doesn't operate in a vacuum. The last halving, for example, in May 2020 was just about the most bizarre macro environment

ever seen, with, as they put it, extraordinarily loose monetary policy and historically strong fiscal stimulus in response to COVID-19. Similarly, they suggested that the strong rally into the halving has been driven by the ETF narrative rather than anticipation of the halving. But with that word of caution out of the way, the Coinbase note suggested that on-chain data looks constructive. Long-term holders are at a historic high point after a much larger cohort continued allocating throughout the last crypto winter. They wrote, Long-term holders should be less likely than short-term holders to view having as an opportunity to sell into strength. For positive macro, the largest factor is looming Fed rate cuts.

Although the start of the cutting cycle is continuously pushed back, Wednesday's Fed meeting suggested a slowdown in QT is approaching fast. Analyst suggested this taper of the balance sheet runoff should be positive for risk assets. Now, one thing that we really haven't gotten into on this show yet, and which if it continues a pace I might need to is meme coins. However, for today, we're going to cut it a little short, let you off to your weekend. One big heads up. Next week, I am off traveling. It is my wife's 40th and her mother's 70th birthday, so we are doing a big family trip, and I will not be here. However, I have a set of interviews lined up, so you should get all that breakdown goodness. With that out of the way, I want to say one more big thank you to my sponsors for today's show. Go to crackin.com slash the breakdown

and see what crypto can be. And of course, check out the Ledger Orange Bitcoin Nano, where 5% of sales will go to support Bitcoin development. Until next time, be safe and take care of each other. Peace.