The Breakdown - Are Amazon Rumors Behind Bitcoin’s Biggest Surge in Months?

Starting point is 00:00:05 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. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Monday, July 26th, and welcome to a green Monday. Bitcoin had an absolutely ripping weekend, moving from the 32,000 we saw entering the weekend all the way up to 39,000. As I record, it's off just a little from that at around 38,500 or so, but still up about 12% in the last 24 hours. Basically, everything besides Bitcoin is up as well. So the question of today's show is, of course, what's behind the surge.

Starting point is 00:00:57 Now, usually price action, I don't think would be worth an entire show. However, in today's context, I think it is for a couple reasons. First is that it actually reveals or at least says a lot of, about some of the ways that different forces interact with one another to create price action in crypto markets that I think is a good reminder, especially as we get locked into one narrative explanation or another. The second reason is that it's been kind of bleak for a little while, so let us enjoy our one day of face-ripping volatility to the upside discussion, okay? All right. So four possible answers I've seen on crypto Twitter about why Bitcoin is having

Starting point is 00:01:33 its biggest surge in a couple months. The four possible answers I've seen are an Amazon buy rumor, a teenage soothsayer, astrology, and a short squeeze. So, let's go through these. Amazon Buy rumor. This is sort of a weird combination of a real thing and a rumor. The real thing happened at the end of last week. Amazon posted a job listing on its job site for a digital currency and blockchain product lead. Quote, you will leverage your domain expertise in blockchain, distributed ledger, central bank digital currencies, and cryptocurrency. To develop the case for the capabilities which should be developed, drive overall vision and product strategy, and gain leadership buy-in and investment for new capabilities. An Amazon spokesperson also followed up with

Starting point is 00:02:13 CoinDesks saying, quote, we're inspired by the innovation happening in the cryptocurrency space and are exploring what this could look like on Amazon. We believe the future will be built on new technologies that enable modern, fast, and inexpensive payments and hope to bring that future to Amazon customers as soon as possible. So this is cool, but sort of to be expected, right? It would be strange if a company that interacts with commerce as much as Amazon does wasn't at least messing around. with crypto a little bit. However, that's not really the thing that people are talking about. The rumor came over the weekend and was supercharged early today. Basically, it started bubbling that insiders with knowledge were saying that Amazon was working on a much bigger Bitcoin

Starting point is 00:02:52 and crypto strategy. This morning, a London-based newspaper called City AM published a piece titled Amazon Definitely lining up Bitcoin payments and token confirms insider. So here are some specific quotes from that insider. Quote, this isn't just going through the motions to set up cryptocurrency payment solutions at some point in the future. This is a full-on, well-discussed, integral part of the future mechanism of how Amazon will work. It begins with Bitcoin. This is the first key stage of this crypto project, and the directive is coming from the very top, Jeff Bezos himself. This entire project is pretty much ready to roll. After a year of experiencing cryptocurrency as a way of making payments for goods, it is looking increasingly possible that we're headed

Starting point is 00:03:33 towards tokenization. Then this becomes a multi-level infrastructure where you can pay for goods and services or earn tokens in a loyalty scheme. There's a little more to it for now, but you can guarantee the Bitcoin plan will be monitored closely, as opportunities with Amazon's own version of a crypto will be explored. Okay, so what to think of this? Well, first of all, let's talk about my skeptical side. Alex Kruger super sums it up when he says, City AM is the kind of newspaper you only read while on the tube or subway if your phone's battery is dead. Why would an anonymous in Amazon Insider talked to them, and that absolutely was my first thought, too, is why would this story get broken in this specific place? Now, it's theoretically possible that the insider is someone

Starting point is 00:04:14 who just happens to know someone at City AM, but it still strikes me as really weird. Stefan Levera writes, Amazon Bitcoin story remains hopium until we get something more credible here. All I'm seeing is reposts for engagement. Crypto Cobain tweets LMAO, just convinced the stupid cryptojournalist that I was an Amazon executive insider and made up loads of shit. So all that said, I would be shocked if Amazon wasn't deep, like years deep into a crypto strategy. Payment rails are sort of obvious, although I'm not convinced that the conclusion they would come to around a crypto strategy was that they had to accept crypto as payment, or at least that that would be the flagship of their plan. If they did do that,

Starting point is 00:04:53 my guess is it would be a strategic integration to Amazon pay as another way to help spread that tool, their payment processing tool that is competing with the likes of PayPal and Google Pay to be the way that consumers pay for the things that they buy via their phones and computers. I also think that a loyalty type token, think an exchange token, but for a marketplace, is something Amazon would be extremely interested in. Amazon's MO is to replace brands that people know with their own versions of them as they learn what people like. They've done it for a ton of categories already on their marketplace. Why not try to do the same thing with money itself. So my TLDR is the rumor doesn't seem strange to me, but the source is super

Starting point is 00:05:34 sus. And when it comes to the market, maybe it was a catalyst and maybe it's helping provide some momentum, but I don't really think it's what's underlying this rally. For that, we have to look to other forces. One of the most important developments in this space is that community banks, regional banks, and credit unions can now start offering Bitcoin to their customers. That's right, checking, saving, and now Bitcoin. It's all happening seamlessly thanks to a platform by NIDIG that offers institutional grade custody and compliance. They're also the sponsor of The Breakdown. And if you want to find out more, go to nidig.com slash NLW. That's NYDIG.com forward slash NLW. So what are some of the others that are being presented on Twitter? There is the teen executive

Starting point is 00:06:27 effect. So this is a kid who got prominent on TikTok talking about stocks and crypto, but then TikTok banned influencers from shilling crypto, something we discussed last week. So, teen executive had to come slum it with us droogs over on Twitter, and last Thursday he was on up only with Ledger status and Crypto Cobain, and then on Saturday he had this viral tweet, quote, I have a strong feeling that Bitcoin is going back to 40K, 50K, 60K,

Starting point is 00:06:51 real soon. Doesn't really matter to me, though, because I'm never selling. Crypto Cobain jokingly tweeted a screenshot of that tweet, of the chart ripping to $39,000, not one day later, and of Morpheus from the Matrix saying he is the chosen one. It will surprise you not at all that I also do not believe that this is the reason that Bitcoin surged. So, no on Amazon rumor, no on teen executive. How about astrology?

Starting point is 00:07:17 Marin Altman is a professional astrologer who has been all up in Crypto Land, and on January 22nd, she tweeted, BTC, May 16th and July 25th. Take note. She then followed that up. with confident enough to consider pinning it. So what's the verdict on this prediction? Well, May 16th had some big moves and in retrospect was pretty smack in the middle of the overall big leg down from about 55,000 to 35,000. So that seems decently correct. July 25th though,

Starting point is 00:07:48 whoa boy, this was a very specific day of big action and you cannot deny that she called it. That tweet has subsequently gone uber viral, like 1,500 people at last glance had quote tweeted it with various strands of, holy crap, this is an absolute wizard. By the way, I had a journalist from the Washington Post reach out a few weeks ago to talk about Bitcoin astrology. I politely declined, but apparently there's more interest in this than one might think. Alas, I do not think that the alignment of planets and stars was the cause of this particular move either. So, it's not Amazon rumors. It's not teen executive and it's not cosmic destiny. What is behind this Bitcoin surge.

Starting point is 00:08:32 Market structure, fam. For weeks, I've been watching numerous analysts suggest that a short squeeze is coming. And now it seems like it has. So what is a short squeeze? Well, shorts are a bet on the price of an asset to decrease. As Investopedia so succinctly puts it, quote, short sellers borrow shares of an asset that they believe will drop in price in order to buy them after they fall.

Starting point is 00:08:52 A key piece of this is that it means that short sellers exit their positions with buy orders. So these short sellers are betting the price. goes down, but what happens if it does the opposite and starts to go up? Well, short sellers can either keep their positions open at the risk of increasingly big losses, or they can exit for whatever they believe is a more moderate loss now. Because they exit by buying, unwinding those short positions can actually drive the price higher. They become forced buyers. Similar to how liquidations on the way down create forced sellers to cover margin calls, shorters buying the underlying to exit their shorts on the way up are forced buyers. When those buys happen, it drives up the price further,

Starting point is 00:09:33 causing a new set of shorts to also become forced buyers, and thus you have the squeeze. In total, about $900 million worth of crypto short positions were liquidated over about a 12-hour period yesterday, and that period saw a 12% price jump. Most of those liquidations were also particularly concentrated in a smaller four-hour period. I'd noticed people talking about this for a week or more. On July 20th, Sam Tribuco from Alameda Research, or as they're calling him on Twitter now, Sam Tabasco from Alabama Research, he tweeted, so everything is pointing weekly in the direction of wanting to get longer here. Futures premium are low, too, and open interests have shifted in a way where if there is a

Starting point is 00:10:14 recovery, it could definitely trigger liquidation-driven momentum. Admittedly, we're not that close to this. And all these led to Alameda doing what we do best, buying a lot more over the past day or so. This isn't quite sell us all you want below 30K and fuck off territory, but we're continuing to buy down here because it really just seems like too much points that way. So this is on the 20th, and he's seeing on the horizon this sort of short squeeze potential and all of these factors lining up for the markets to get longer. Will Clemente, who collaborates with Pomp, wrote a post on Friday called explicitly

Starting point is 00:10:47 is a short squeeze upon us. He wrote, another non-chain indicator that I have my eye on closely is the perpetual funding rate. This is the mechanism that pegs the PIRP contract to the index, weighted average price of all major exchanges. When funding is positive, longs are paying shorts to keep their positions open, when negative vice versa. As a rule of thumb, prolonged positive funding equals bearish and prolonged negative funding rates equal bullish. We've seen mostly negative rates since late May, and the last time we've had prolonged negative funding like this was following the COVID crash. Funding being negative means twofold. One, sentiment from traders is bearish, and two, spot Bitcoin is being bought more aggressively

Starting point is 00:11:24 than futures. Seeing funding stay negative throughout this pump over the last 24 hours shows we could potentially be setting up for a short squeeze. Also, on Friday, CoinDesk published Market Wrap, Bitcoin analysts expect to short squeeze. Bitcoin sellers are expected to cover positions, which could lead to higher prices next week. And on that same day, Willie Wu tweeted, nine more hours from daily close. If price holds these levels, RSI breads. breakout will confirm. RSI leads price breaks with quite high reliability. Meanwhile, on-chain fundamentals, supply shock is in play and only getting stronger, a short squeeze setup. And so, when it was all said, $900 million of liquidations and Alex Kruger tweets, picture perfect

Starting point is 00:12:08 short squeeze on Bitcoin. This belongs in a textbook. So it's okay if this is a little bit more abstract or not the normal terms you think in. The key takeaway that I'm trying to point out here is that we so often want to look to narrative explanations for things that are really more about short-term market structure. Now, of course, taking an aggregate, the reality of crypto markets is a constant given take between narrative and exogenous factors that we churn through our narrative machines and market structure. They don't exist without one another. They're totally interdependent in terms of how they exert their forces on the cryptosphere. But to put it differently in, in this specific context.

Starting point is 00:12:47 Amazon rumors may have been part of the catalyst for this move, but the market wanted to make this move. And it's likely that if those rumors hadn't come out, we would have pointed to something else is the trigger, some other news from the last weekend. Then again, when all is said and done, if you want to go with the astrology explanation because it's simpler, who am I to judge?

Starting point is 00:13:05 All right, guys, there is a lot more to discuss this week, voluntary reductions in leverage from exchanges, questions about how decentralized defy really is, tons and tons of stuff to explore, and I'm so glad to be doing it with you. Until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - Are Amazon Rumors Behind Bitcoin’s Biggest Surge in Months?

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