The Breakdown - Bitcoin is Above $60,000 and People are Finally Paying Attention

Episode Date: February 29, 2024

Bitcoin's rally continues and as NGU technology pushes BTC above $60,000, the tide of attention is starting to shift. 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, February 28th, and today we are talking Bitcoin above 60,000. 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. Hello, friends. The big story, obviously, for anyone who is watching the crypto space, is Bitcoin pushing through 60,000. Bitcoin has been on an absolute tear up another 6% yesterday,

and once again, it seems to have been driven by ETF inflows. BlackRock, which was the standout on Monday, recorded another $1.3 billion in volume again on Tuesday. Their product was the fifth most traded among all U.S.-based ETFs during pre-market trading. Fidelity also put up half a billion in volume and the overall totals were in line with Monday's trading. Bloomberg Senior ETF analyst Eric Bocunis added some color tweeting, Ibit saw over 100,000 individual trades today. It was doing 30 to 60K the whole time up until Tuesday. It's like it found a new gear over President's Day weekend.

I thought maybe it was just penned up volume due to the long weekend, but it did even more today, so there goes that theory. Once the flow data came in overnight, it was clear that much of the volume had been converted into fresh investment. BlackRock gathered an eye-popping 520 million worth of inflows, a new record for the fund which eclipsed all the other products combined. Overall, the ETFs added 577 million for the day, with grayscale recording a relatively large for recent for them, 125 million in outflows. Whale Panda, who has become crypto-tweter's

premier flow tracker commented, price going up just means more fomo and more inflows. We aren't going to consolidate here long with these numbers. The ETFs have now crossed 6 billion in net inflows, with the nine new products accumulating 300,000 Bitcoin in less than six weeks of trading. By way of comparison, that's 1.6 times as much as micro-strategy has stacked in almost 3,000 and a half years. The ETFs now hold 1.5% of current Bitcoin supply. Stephen Lubka of Swan Bitcoin reported back from the recent BlackRock Private Wealth seminar. He claimed that a quant presented his modeling of the effects of Bitcoin on a balanced portfolio with a view to coming up with the ideal allocation. The number he came up with, 28%, which he said was not unreasonable. Now, of course,

this is just one analyst presenting at one conference, but it certainly tells part of the story of this pent-up demand. Overall, people continue to recognize that we are just in uncharted territory. This morning, Mike Novogratz tweeted, Bitcoin is in price discovery phase, maybe really for the first time since it's been an asset, as now the bulk of U.S. wealth has easy access. Hard to predict where we stop. Speaking of micro strategy, investment bank benchmark have issued a massive buy rating for the company attaching a $990 price target. That would be a further 13% increase from current levels. Bank analysts wrote, we believe the boost in demand for Bitcoin resulting from the launch of multiple spot Bitcoin ETFs, combined with the reduced pace of supply resulting from the halving,

has the potential to drive the price of cryptocurrency meaningfully higher during the next couple of years. This note used a price assumption that Bitcoin would hit $125,000, using the compound annual growth rate of Bitcoin over the past 10 years to ground their analysis. Analysts wrote that the software business acts as a, quote, ballast to that valuation by generating cash flow for additional Bitcoin purchases. For those new to Bitcoin, Benchmark also noted that the past three halvings have led to explosive bull runs. Of course, nothing about this is anything different than what we've been discussing in this space for years. The difference is now that it's investment banks, not YouTubers putting out these calls.

The Bitcoin Fear and Greed Index is currently at 82 in the territory of extreme greed. And that was five hours and a couple thousand dollars ago. Now, of course, as Bitcoin rockets up, some are looking out to an anticipated alt season. CoinDesk published a piece this morning, following Bitcoin Ether spread is music to alt-coin traders' ears. The funding rate spread has collapsed, indicating increased appetite by traders to speculate further out on the risk curve. writes CoinDesk. Data tracked by GlassNode shows that the spread recently collapsed to an annualized level of negative 9%. Assigned investors are willing to pay more to take leverage long or bullish bets in the ether perpetual futures market compared to Bitcoin. In other words, risk appetite is rising.

Investors are willing to pour money into smaller and risky all coins, expecting to generate a large profit. For anyone who's been here for any number of cycles, this is not surprising. What is surprising is pointed out by Dan Tapiero in a tweet where he wrote, Bitcoin up almost 100% in five months and not feeling frothy. Doubtors still everywhere, X even a bit sedate. U.S. short rate still 5%. US short rate is shocking acceleration up feels imminent. Break of 70K goes right to 90K, then 150,000 to 200,000 this year. This is obviously going to be a fast evolving story, and for a little while at least, it's highly likely that almost every episode is going to have some amount of price talk,

just because, as it always does at this stage, it's acting like a magnet. Indeed, the price is up a couple hundred even since I started recording. 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. Krakken 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, Kraken. Still, let's try to move over to a couple other stories. One from the bad guy cleanup world, the Bitfinex hacker has turned up as a government witness against the developer of a Bitcoin mixer called Bitcoin Fog.

Ilya Dutch Lichtenstein has pleaded guilty to carrying out the 2016 Bitfinex hack, which drained the exchange of 120,000 Bitcoin now worth around $6.7 billion. On Tuesday, Lichtenstein appeared as a state's witness in a separate trial in Washington. He testified against accused Bitcoin Fog developer Roman Sterlingoff. Lichtenstein told the jury that he used Bitcoin Fog as many as 10 times to launder the stolen Bitfinex funds. He said that he moved on to using other mixers, which suited his purposes better. The Sterlingoff trial itself could have a big impact on crypto law enforcement, with the defense questioning the validity of crypto tracing as an accurate forensic tool.

However, Lichtenstein's testimony has revealed several new details about how the Bitfinex hack was carried out. Lichtenstein said that he had systems-level access to Bitfinex for several months. Once inside, he said that he devised a method to save customer passwords, which allowed him to access accounts held on other exchanges. He claimed these accounts were then used to do the majority of his money laundering rather than using mixers. Sterlingoff, a Russian-Swedish national, was arrested in 2021 on money laundering charges related to developing Bitcoin fog back in 2011. He's being defended by well-known hacker defense attorney Tor Ecclund, and the case hinges on blockchain tracing evidence provided by chain alias, which Eccalind is calling junk science.

He argues that the technique does not have a known error rate and cannot be relied upon absent more concrete evidence. In an even more recent criminal case, Sam Bangman-Fried has submitted his sentencing request, asking for six and a half years in federal prison. SBF, you'll remember, was convicted on all six counts of fraud and money laundering, which carry a maximum sentence of 110 years. Prosecutors have yet to submit their recommendation, but the pre-sentencing investigation report recommends that the judge should throw the book at Sam. The report suggests a 100-year sentence would be appropriate, a prison stretch that defense lawyers called barbaric. They argued that Sam has no prior criminal record and was

joined in the conduct, quote, by at least four other culpable individuals, in a matter where victims are always poised to recover, 100 cents on the dollar. While SBF has been locked up, numerous stories have emerged about his time behind bars. In their latest piece, the New York Times suggested that Sam has been giving crypto investment tips to the guards, with his top suggestion being to buy a bag of salana. Commentators, meanwhile, have reached a general consensus on the kind of sentencing Sam can expect to see. Lawyer Devin James Stone, who runs a YouTube channel called Legal Eagle said, the main factors are the scale of the crimes and the amount stolen and the criminal history of the defendant. Bankman-Freed doesn't have a criminal history, but the sheer scale of

the fraud was obviously huge. And he lied and tried to cover everything up. So realistically, Judge Kaplan, could sentence him to 15 to 25 years in prison plus restitution. Renato Mariadi, a former prosecutor at the DOJ Securities and Commodities Fraud section, said he, quote, wouldn't be surprised if SBF spends the next 20 or 25 years of his life in prison. Sam's sentencing hearing is currently scheduled for March 28th. Moving over to D.C. for a moment, at a Washington conference hosted by Y Combinator and Bloomberg this week, pair of lawmakers have presented their wildly disparate views on the state of crypto. Elizabeth Warren dusted off her usual talking points, complaining that the crypto ecosystem is

filled with drug traffickers, scammers, terrorists, and North Korean hackers. She began her tirade by saying, I want to collaborate with the industry. What I don't understand is why the industry seems to be saying that the only way they can survive is if there's plenty of space for bad actors. Her claim was that all financial institutions abide by anti-money laundering rules that don't apply to crypto firms. Warren said,

my view of the world is that the same kind of activity, same kind of risk, should have the same kind of regulation. I'm not looking for fancier regulation for them. I'm not looking for anything tougher for them. I'm just looking for a level playing field. While war-enlisted PayPal, Venmo, and Western Union is examples of regulated institutions that follow the rules, she conveniently forgot to mention that Coinbase, Cracken, and Gemini are all regulated under the very same money transmitter rules. Dysopia Breaker summed it up really well. They wrote, The big lie here, by ignorance or malice, take your pick, is that crypto is exactly the same as banking. Financial infrastructure should be like internet infrastructure, credibly and durably neutral,

a public good resistant to corporate enclosure. To do that, you have to use cryptography and computer science. That's what crypto means. Senator Warren's leveling of the playing field means throw out all of that cryptography stuff and make it just like banking. It's leveling the playing field in the sense that it would nuke an entire industry from orbit and mandate commercial banking as the only option. Ryan Selkis, however, had an interesting and different take. He wrote, Liz Warren is a shameless liar. Good news, she is lying about engaging with the crypto industry because she knows the jig is up and were coming after all of her vulnerable friends in the Senate. Elsewhere at the conference, freshman Senator J.D. Vance made some refreshingly clear-eyed points about

the SEC's crypto strategy. He said, quote, If there's a candidate for worse person on crypto policy, it's Gary Gensler. I think he wants to inject politics way too much into the actual business of securities in the U.S. But the more relevant issue is that the approach that Gary has taken to regulating blockchain and crypto seems to be almost the exact opposite of what it should be. It's important to note that Vance is by no means a big crypto supporter in Washington, So these comments were a little bit unexpected. He continued, The question the SEC seems to ask is whether a token has utility. If it's a token with utility,

they seem to want to ban it. And if it's a token without utility, they don't seem to care. I almost think we should be the opposite here. Vance went on to note the very real problems in crypto, including financialization and his personal concern of whether, quote, a lot of the crypto stuff is fundamentally fake. He advocated for regulation consumer protections, but said, you don't really want to just get rid of this stuff. His point was that many of the startups who are building new internet and communications protocols to displace big tech, require tokens to function. Vance gave the example of blockchain verification stating that, if we're not making it possible to do verification, then we're going to make it very difficult

to challenge the incumbents in the space. Bill Hughes, a lawyer at consensus writes, Senator Vance sees blockchain as key to competition and market forces displacing the big tech oligopoly, especially the current lords of social media. Vance is no unshakable champion of crypto, far from it. But it's clear he views Gensler as effectively creating a regulatory moat for current incumbents. And yes, friends, as I close out this episode, we are now officially over 62,000. So if you want to really know the kind of day that this is, it's a day where I started writing at 59, and I ended talking at 62. Everything else in between is kind of just details. I want to say thank you one more time to my sponsor for today's show Cracken. Go to Cracken.com and see what Crypto can be. Until next time,

be safe and take care of each other. Peace.