The Breakdown - Bitcoin $30k: Uptober is Back on the Menu!

Episode Date: October 23, 2023

Today NLW explores the recent price push about $30,000 and what it says about the state of the market. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown 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

I don't necessarily think that right now, if these products launched, we'd see some incredible inflow of people buying Bitcoin. My anticipation then would be that a lot of that speculative energy that flowed in in the days between the announcement and the listings would level off or even flow back out. But I also still don't think that would be the end of the story. It's in the importance of narrative and the announcement of the arrival of Bitcoin on the most mainstream traditional financial stage, and it's about its existence as a vehicle in the long run for all sorts of different use cases that we're not imagining and that aren't

and about rushing in on the first day. 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 Monday, October 23rd. And today, we are talking about October. It's back. Here's why. 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 at the show notes or go to bit.ly slash breakdown pod. All right, friends, this is not something we normally do, but let's talk price. Today, I think, warrants it because it is more contextual than just some random move. And of course, you don't need me to tell you this, but Bitcoin is up at the time of recording around $31,000, not quite there, but just under, and overall closed last week above $30,000 for the first time since early July. The weekly gain was 11% and that was the first. largest weekly green candle since late June, which was when Bitcoin markets went ballistic

of news of BlackRock's application for a spot Bitcoin ETF. Now, of course, throughout the long crypto winter, 30,000 has sort of been the price ceiling on multiple occasions. Aside from that BlackRock rally in June, we also saw Bitcoin hit 30,000 in early April, which was, of course, during the period the aftershocks of the banking crisis coincided with Binance converting a billion dollars of its defunct stablecoin BUSD into Bitcoin and other major tokens. Now that said, every trip above 30, 30,000 over the past six months has ended up reversing and heading back down below 26,000. July saw the most robust trading above 30,000, spending most of the month above that critical psychological level. The period saw two tests of the $32,000 level, which analysts are pointing

to as a much more critical technical level, although I don't know anything about that, so I can certainly not verify or deny it. 32,000, though, is where Bitcoin put in its lows in July 2021, before heading back up to all-time highs, marking the double top of the last bull run. Now, the price action over the past week has been accompanied by a major uptick in exchange volume. Beginning with CoinTelegraph's fake news report last Monday that the BlackRock ETF had been approved, traders have flocked back to their exchange of choice to take new positions. The block's preferred metric of seven-day moving average of daily volumes across all exchanges has now hit 15 billion. That means that while we're still a long way from volumes in the first quarter of this year,

which were up above $30 billion for most of that period, were still up more than 50% since multi-year lows in September. Now, as you might imagine, the Bitcoin pump has extended gains for Bitcoin dominance. That metric, of course, compares the market cap of Bitcoin to all other crypto tokens, and is a measure that has been trending up since last November. Bitcoin dominance is now firmly above 50% for the first time since April 2021. Last cycle highs in Bitcoin dominance reached 70% during late 2019, when most previous cycle altcoins had been largely written off.

is worthless. The broader crypto market is obviously far different during this crypto winter, with Ethereum clearly carving out its niche as the second major token, and even Solana, as we'll talk about in a minute, having come to the very brink of death and then continuously saying, not today. Now still, perhaps the most obvious comparison to draw is year-to-date performance across crypto markets. Bitcoin is now gained over 85% since January compared to a 41% gain for Ethereum. Several top 20 tokens have put in stronger performance than Bitcoin, with for example, Solana up 210% and Chainlink gaining 95% year-to-date, but obviously comparing altcoins is a little bit different than comparing the majors. Indeed, with the vast majority of

altcoins down so far this year that it counteracts this handful of standouts, it's very difficult to claim this year as anything other than a Bitcoin-led rally. The block research, Rebecca Stevens said, inflation woes, geopolitical risk, and an increasingly partisan U.S. government have been weighing on investors who are looking to minimize risk. Meanwhile, Bitcoin seems closer than ever to getting a spot ETF approval and in a certain sense serves as an ideological hedge to the uncertainty on the world stage, helping it reclaim more dominance in the crypto space. Community reactions are commensurate with the news. I saw about a billion tweets like this one from Roe Muley who said, the Bitcoin bull market is imminent. Can you feel it? Oliver Veles says,

I believe this is our last opportunity to buy or accumulate Bitcoin under 30K. Whether this period lasts a few days, a week or whatever, I believe it will be brief. And once it's gone, it's gone forever. Cryptodon Alt pointed out just how remarkable things are right now, saying, kind of crazy to think that the entire crypto industry nuked, the most famous and influential players got wiped, a bunch of people went to jail, the global economy buckled, retail got carried out entirely, and yet Bitcoin is only down around 55% from its highs. Now the last thing that some were pointing out is the ultimate affirmation of diamond hands and DCAing in that after three years of very regularly scooping Bitcoin, micro strategy is once again a

on their investment. 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. What about explanations?

The most obvious reason for renewed enthusiasm showing up in Bitcoin's price is the consensus opinion that spot Bitcoin ETFs are likely to launch soon. In a research report published on Wednesday, J.P. Morgan analysts wrote that they expect multiple ETF approvals, quote, within months. They said the SEC's recent decision not to appeal the grayscale lawsuit had led to, quote, increased optimism that the regulator will get out of the way and allow Bitcoin ETFs to trade. Regarding timing, the report said that, quote,

the timing of spot Bitcoin ETF approvals remains unclear, but should happen within months and most likely before January 10th, 2024, the final deadline of ArcInvest and 21 shares applications. That is, of course, the earliest deadline among almost a dozen applications. The analysts subscribed to the general consensus that the SEC would shy away from playing Kingmaker by approving single ETFs. Instead, the most likely outcomes is that multiple products would be launched on the same day, allowing the market to sort it out. Speaking of market-based decision-making, the report noted that a flood of Bitcoin products could present an issue for Grayscale. Analysts wrote,

Grayscale will likely face greater pressure to lower fees if the trust gets approval to be converted into an ETF. Currently, Grayscale charges a 2% fee which will be entirely indefensible when ETFs are launched. As just one example, the recently launched Bitwise ETH Futures ETF charges a fee of 85 basis points, while the industry average across all ETFs is just 54 basis points. In fact, if regulators are unhappy with the way Grayscale and its parent company DCG have conducted themselves, the simplest simplest solution might be simply to approve the Grayscale Bitcoin Trust to convert into an ETF alongside the launch of numerous other funds from larger asset managers.

This would allow GPTC shares to be converted back into Bitcoin, and markets could then make a positive decision on whether it's appropriate for Grayscale to hold over $17 billion in Bitcoin, or if those holdings are better off with a rival asset manager. Now, most recently, the hopeful asset managers have updated their filings. Investco and BlackRock, among others, have updated their prospectuses over the past week to disclose a broad range of risks which could impact Bitcoin's price. The risks include negative sentiment from environmental concerns around mining and elicit use of Bitcoin. Bloomberg analysts say that the inclusion of such a comprehensive list of risks

implies that the SEC has engaged with these asset managers in a proactive and productive way. In other words, the fingerprints of the regulator appear to be shaping the risk disclosures ahead of a potential launch for the products. Late last week, Grayscale also added a new filing, which would be a step towards listing GBT as an ETF. The updated applications seemed to indicate that Grayscale will be in the mix as other ETFs launch rather than filing a new application and resetting the clock for SEC approval. Ultimately, J.P. Morgan analysts thought that the approval of spot Bitcoin ETFs was,

quote, unlikely to be a game changer for crypto markets. They note that spot products have existed in Canada and Europe for some time, but have failed to gain significant investor interest. Conversely, sentiment indicators are giving some signs of high interest in the new products. Google search metrics for the phrase spot Bitcoin ETF recently hit a five-year high. The metric for the phrase Bitcoin ETF has also hit its highest mark since the launch of the pro-share's futures Bitcoin ETF in 2021. Toronto-based crypto platform Front Financial said,

The approval of a spot Bitcoin ETF has been an enduring theme in the crypto space and is often seen as a barometer of Bitcoin's mainstreaming. Lucy Who, senior trader at Meta Alpha said, Bitcoin has also been encouraged by possible ETF approval and an increasing number of ETF submissions by leading companies. The SEC opted for a no appeal on Grayskills ruling and as the deadline for Bitcoin spot ETF applications from institutions such as BlackRock looms closer, the market's confidence in ETF approval has increased.

With the Bitcoin ETF approval and halving event in April, the crypto market could kickstart a very robust bull market. One person who appears optimistic that spot Bitcoin ETFs will be approved is Coinbase chief legal officer Paul Gruel. In an appearance on CNBC on Friday, he said, I'm quite hopeful that these applications will be granted, if only because they should be granted under the law. His opinion was that a loss in the grayscale lawsuit had effectively tied the SEC's hands. He said, quote, I think that after the U.S. Court of Appeals made clear that the SEC could not

reject these applications on an arbitrary or capricious basis, we're going to see the commission fulfill its responsibilities. I'm quite confident of that. Now, when it comes to the market impact of a Bitcoin spot ETF, I think there's a lot more nuanced than the average Twitter take. One of the things that we saw last Monday when we had that fake ETF approval news was that there is quite clearly going to be a pile of money from the existing crypto space, rotating or flowing into Bitcoin around whenever the announcement happens. It seems very clear that there will be

at least speculation, and the duh trade that Bitcoin Spot ETF being approved means Bitcoin's price goes up. The question, I think, is more what happens when the products actually launch? If they were to launch, for example, now or in the next couple weeks, that's sort of the opposite of the timing of the futures ETF, which launched at the peak of the bull market. I don't necessarily think that right now, if these products launched, we'd see some incredible inflow of people buying Bitcoin. I don't think it would be nothing. I certainly don't think it would be as low as, for example, the recent ETH futures launches, but I don't think it would be some crazy major story. My anticipation then would be that a lot of that speculative energy that flowed in,

in the days between the announcement and the listings, would level off or even flow back out, but I also still don't think that would be the end of the story. I think that the impact of a Bitcoin Spot ETF is in the short term and the long term. It's in the importance of narrative. It's in the importance of and the announcement of the arrival of Bitcoin on the most mainstream traditional financial stage, and it's about its existence as a vehicle in the long run for all sorts of different use cases that we're not imagining and that aren't about rushing in on the first day. I actually thought Stack Hodler did a great job explaining this in a more poetic Twitter thread than most. They wrote on October 19th,

some people will try to get cute and sell the initial Bitcoin ETF approval, but that's merely the starting gun to Bitcoin adoption. Passive 401K flows into Bitcoin ETFs are not priced in. Target date funds adding Bitcoin exposure is not priced in. Asset managers recommending 10% Bitcoin exposure as a counterweight to melting bonds is not priced in. The FASB rule change that enables corporations to create Bitcoin endowments is not priced in. Full insurance and pension fund adoption is not priced in. Widespread Nation state adoption, not priced in. Sovereign wealth fund adoption, not priced in. Energy being denominated in Bitcoin, not priced in.

Think this sounds crazy? Consider this. Sovereign debt has played the role of primary reserve asset for decades, and it's now melting down in front of all of us. The need for a new neutral reserve asset is now glaringly obvious to everyone. Bitcoin made it to 30,000 mostly on the back of retail investors that saw the future we're now entering. Big money has mostly treated Bitcoin as a volatile plaything for now. The people that stuck around were the long-term thinkers that see Bitcoin as the best protection for the sovereign debt crisis that the world is just now waking up to, a finite asset without counterparty risk that can't be seized or debased, a simple proposition that is starting to catch on. But here's the problem.

The majority of coins are already in very strong hands. Bitcoin is like a game of musical chairs, except you can sit down before the music stops if you want. Many of us sat down a long time ago. Now that the music is slowing, we aren't willing to give up our seat. 21 million chairs. The vast majority are already occupied. And we're about to witness a bidding war for the remaining seats.

Look, Twitter and X can be cheesy. They can be overemphasized. They can be hyperbolic. But that one, I think, nails it. Now, one other price thing that I think is worth noting has to do with Solana. The token was up by about 11% on Friday to cap off a 26% increase this week. Now, taking a step back, concerns had swirled about an imminent sell-off led by the FTX estate. In September, Galaxy Digital were authorized by the bankruptcy court to liquidate the

crypto holdings of FTX, and by far the largest position in the $3.4 billion portfolio was a little over a billion dollars worth of Solana. However, as into the block head of research, Lucas Otomoro put it, The Alameda Fudd turned out to be less severe than anticipated. Last week, for example, around 120 million worth of Solana was staked by Galaxy, indicating that it wouldn't be sold off in the short term. Although Galaxy has been given a selling limit of $100 million per week, the act of staking assets that couldn't be immediately liquidated seemed to further calm jittery markets.

David Shuttleworth, research partner at Anagram and former managing director at Binance Labs, said, this is some of the strongest buying activity we've seen since July. Solana buying has even showed up in the few exchange traded products which have exposure to the token. Coin shares reported that Solana-focused funds had seen 24 million in net inflows last week. Coin shares head of research, James Butterfield, said that Solana continues to, quote, assert itself as the alt-coin of choice. Now, why cover this? Well, I think in many ways, Salana sort of serves as a bellwether for how much lasting impact on the market SBF and the fraud at FTX is going to have. Solana was, of course, incredibly associated with Sam. It was in many ways the king of all Sam coins,

even though it was the lack of strength in FTT that ended up bringing the exchange down. Well, that again and all the fraud. But the point is, the most natural thing to have happened for Solana in the wake of the collapse of FTX would have been for people to just abandon it. To move on to Sue or Aptos or whatever the new thing is this cycle. Instead, what we've seen is the builders who are interested in the Solana ecosystem, in many cases, if not most cases, doubling down, sticking around, continuing to work and push. As Gumshu summed it up,

Solana is now 1% higher than pre-FTX levels from a year ago, reach new 2023 highs in total value locked, reach new all-time highs in hackathon participants, has outperformed ETH by 100% since June, is outperforming Bitcoin even with a spot ETF narrative. Solana is 10x better at $28 than it was at $250. You know I am very interested in narratives, and I actually think that Solana at this point is less a story

about a single alt-coin, and more a story about the resilience of crypto markets in general. Whatever the case, it is nice to start a week green. October was giving us some scares there for a minute, but at least right now, we seem back on track. You gotta love it. Thanks one more time to today's sponsor Cracken for supporting the show. Go to crackin.com slash The Breakdown to see what crypto can be. And until next time, be safe and take care of each other. Peace.