The Breakdown - Bitcoin Hits New All-Time High: What Happens Next?

Episode Date: December 1, 2020

On this historic day, NLW looks at bitcoin’s punching through its previous December 2017 all-time high. Specifically, he looks at: How different people benchmark the all-time high  What drove the latest price action, including the prospect of new investment from institutional asset management giant Guggenheim  Why historian Niall Ferguson is arguing bitcoin has won the COVID-19 monetary revolution  Why macro giants including Raoul Pal, George Gammon and Ben Hunt got into disagreements with Bitcoin Twitter about how co-opted by the state and Wall Street bitcoin is likely to become

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 crypto.com, nexo.io, and all nodes. And produced and distributed by CoinDesk. What's going on, guys? It is Monday, November 30th. And oh, man, I know by the time you're listening to this, you already know already. but Bitcoin has hit a new all-time high. And of course, I couldn't delay conversing about that

with a brief or anything, so we have to just dive right in. Let's talk about Bitcoin's new all-time high and what might come next. So one of the big questions after early last week's rally was whether Bitcoin would punch through its all-time high over the holidays. As you could probably tell from my pre-recorded Thanksgiving episodes, I was pretty flummoxed by the possibility, so I really appreciated holding out. But this morning, the U.S. woke up to an absolute Bitcoin surge as the asset smashed past 19,000 again and very quickly started threatening all-time highs. Now, what the all-time high actually is is different to different people. Here are three good common arguments I've seen. Dan McCartle, who is from OnChane FX,

Masari, and most recently the case for Bitcoin, pinned it as BitStamps all-time high, with his argument being that BitStamp is the longest-running exchange. By that metric, Bitcoin's high would be 19,666. The most common metric for people who are actually quoting a specific number is the Wikipedia and Google search number of 19,783. And then finally, of course, there is that big psychological number 20,000. That's a number that Bitcoin hit on some exchanges, but more importantly than that, it's been the mental model, the mental shorthand for a very long time. Corey Clipsden from Swan Bitcoin asked his followers that exact question, which is the real all-time high, and 19.1% said the Google slash Wikipedia number, 22.6% said all-time high on an exchange

like BitStamp or Coinbase, and 58.3% said that 20,000 mental barrier. Well, if we're using the BitStamp 19,666 number, we hit that around 950. If we're using the Wikipedia number 19,783, we hit that just before 10 a.m. as well. And according to Stephanie Lewicki of TD Ameritrade, on certain exchanges, Bitcoin even briefly touched 20,000. Now, at the time of recording, it's pulled back slightly to 19,500, and who knows where it'll go from here. but I think it's safe to say that at least by some of these metrics, we have hit a new all-time high. The next question is what's causing this? And of course, everyone is just pointing to the same narrative that we've been in. We're in the era of unprecedented spending. Over the weekend, Neil Ferguson, the historian who's been on the show before,

wrote a piece called Bitcoin is winning the COVID-19 Monetary Revolution. In it, he argues, one, COVID-19 has hastened the digitization of everything. And interestingly, in his article, he didn't just talk about the good pieces of this. He also talked about the bad pieces of this as well, focusing specifically on the fact that there was more financial surveillance, more exposure to financial surveillance than we'd ever seen. He also, lest you think this was a full-on puff piece, argued that Bitcoin had serious defects, pointing to its slowness, the high cost, and to energy consumption. Ultimately, however, he argued that these costs or defects, as he put it, are outweighed by two key things. The first is the idea of built-in scarcity in a virtual world

characterized by boundless abundance. Those are obviously his words, which is so, so intrinsic to the narrative and the argument that Bitcoiners will share with you as it relates to Bitcoin's 21 million hard cap. The second factor that he thinks outweighs those defects as he puts it is the idea of Bitcoin being sovereign. And interestingly, he spends significant time in this piece contrasting Bitcoin with Central Bank digital currencies, which are likely to be such a tool for the type of financial surveillance that he's mentioning. I've gone on record here before numerous times saying that I think that Central Bank digital currencies are going to be a hugely accelerating force for Bitcoin, and not just because they create new, easier pipes and on-ramps,

but also because they create such a contrast in terms of the surveillance power, in terms of the manipulability of the monetary policy, a world of CBDCs will make the arguments for Bitcoin over and over again. This narrative, this argument, is creating a context for new market entrance. Before this crazy morning, I was going to discuss that Guggenheim, another asset management giant, had filed to allow its $5 billion macro-operative, Fund to get exposure to Bitcoin by investing up to 10% of the fund's net asset value into the Greyscale Bitcoin Trust. The Macro Opportunities Fund is part of Guggenheim Investments, the Global

Asset Management and Investment Division of Guggenheim Partners, which has more than 233 billion in total assets. Every time one of these funds comes in, it so de-risks the space for others. We saw it with Paul Tudor Jones. We've seen it with Stanley Druckenmiller, and now Guggenheim is the next part of that. There's also another argument floating around, which is that PayPal is seen as a hugely legitimating force. This is a company that has not historically been pro-Bitcoin and now is full-on in the space and seems to be consuming a huge amount of the available supply of Bitcoin, only weeks after rolling out the service across their U.S. user base. This episode is brought to you by crypto.com, the crypto super app that lets you buy, earn, and spend crypto all in one place,

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Type in promo code CoinDesk 3 and enjoy three months of free hosting for your validator nodes. The platform is easy to use, comes with instant node monitoring, and multi-level protection for your validator keys. Five minutes is all it takes to get started staking on AllNodes.com, the platform preferred by people who make a difference. So visit AllNodes.com and use the promo code CoinDesk 3 to get started for free today. One last note in terms of why this is happening now, which I just find interesting, if not necessarily explanatory, is that Bitcoin has massively decoupled from gold this month. And I think in some

ways that's really important, and we'll actually get a little bit to that in a minute. But the fact that it's decoupled is giving it its own oomph as well. People are seeing the digital gold is something potentially fundamentally different from just what the old world thought of as gold, which wasn't always a particularly popular instrument. So what happens next? Obviously, this is the real thing on everyone's mind, and I see a few possible things. First, immediate term, the price could back off. Like I said, it was about 19,500 when I started recording, and it seems to be moving around really wildly. Of course, a lot of folks are also noticing a pretty sizable cell wall at 20,000. It could be that there is a psychological cell barrier for some people, too, who got in at the top.

and want to be made whole, or who simply don't have conviction that the rest of the market will really buy this new all-time high. So for whatever reason, a lot of people seem lined up to sell at 20,000. A second possible thing that could happen now is increased growth in retail interest. As we've discussed a lot on this show, this rally seems to be being driven largely by these big institutional buyers, by these corporate treasury buyers, with just a side of existing hodlers continuing to accumulate as well. The growth in retail interests seemed to start a little bit last week as the news media came back to the Bitcoin in crypto space and very quickly switched right back into altcoins with XRP getting just a huge amount of buzz over the Thanksgiving holidays,

making me very thankful that I wasn't recording new shows at that time. But I think it is an interesting question how a potential new set of retail investors get in. What they will be interested in is to be determined, and some of that will be dictated by who they're listening to from advice. Could be that there's still a lot of folks looking to buy what seems cheap and a lot less people who are going to be super keen yet on the fundamentals. But the third and most interesting thing that I'm looking in the future towards is a new fud cycle. A few weeks ago, we had Dahlio recycling old arguments, more or less. But there was at least one thing in his critique or concern around Bitcoin that is sparking something very different at a new type of

FUD conversation, or at least a new version of a type of FUD conversation, which is a worry about government crackdown. Over the last few days, we have seen major dustups between Bitcoiners and a number of folks in the macro community, as well as former breakdown guests, who are basically discussing some version of this. The first I'll point to is Raul Paul. Rao basically made an argument that as Bitcoin develops, it is going to get more deeply integrated into the mainstream financial system, i.e., everyone will be taxed on it. He says this doesn't at all impact its store of values property, and he's made clear that he cares less about the censorship resistance or privacy properties of Bitcoin than he does about those store of value properties. He's here for the 21 million hard cap.

He also said he was warming to XRP, which was mega-triggering for a lot of people, and so there has been an endless stream of Raul memes, which, to his credit, he seemed to embrace and has made clear that although he's irresponsibly long Bitcoin, in his own words, he's never going to be part of a tribe. So that was one. A second was George Gammon. George has been more specifically worried about Bitcoin bannings and has been connecting the possibility of Bitcoin banings, gold bannings, seizures, things like that, to forced lockdowns and business shutdowns and just a new growth in control from central governments. When Bitcoiners got mad at, him, he got mad at them too, kind of arguing that Bitcoin is a little bit too much of a religion

for his taste. But still, the core of his warrior concern has to do with increased government overreach, let's call it. Finally, there's Ben Hunt. And his argument basically is something that he's been saying for a while now, which is he believes that Bitcoin has been or is being totally co-opted as just another Wall Street casino game. Someone asked him specifically what he thought this was going to mean, and he said, sure, within five years, it will be illegal for an American citizen to transact in Bitcoin outside of a federally registered exchange and without a federally registered account. A lot of folks came at him for that perspective, and he actually went on Twitter and said, look, I am not anti-Bitcoin. I've written tens of thousands of words about

its genius. I think it's a tragedy that Bitcoin is being co-opted by the state, but this is always what happens with financial innovation. For me personally, I think, think that these are more important new lines of FUD to explore than a lot of the things we've seen in the past, especially in the context of central bank digital currencies rising. As Ben was having a bit of a tit for tat on Twitter with Alex Goldstein, both of them are former guests on the show, and I ask them to come on and have a friendly exchange about this, and it looks like that's going to happen. So this is something that I am going to give more time to, not because I think that we're likely to see a future in which all of a sudden Bitcoin is just

co-opted entirely and all of its potential has been relegated to just another casino game, but because I think the critiques are potentially smarter and certainly the sources of criticism are a lot more sophisticated, and I really want us to spend time understanding how to avoid those futures as much as just refute the critiques. But for now, I think it's very reasonable to just be really excited about everything that's going on. I think everyone's probably now really hoping for and looking for that big 20,000 milestone to hit. I know I am and I'll be watching. And as soon as it's here, I'm sure I'll be back talking to you.

So until tomorrow, guys, be safe and take care of each other. Peace.