The Breakdown - Bitcoin is For Enemies: Pyongyang Edition

Episode Date: March 19, 2025

On this grab bag episode, NLW covers North Korea's growing bitcoin stack, the SEC reconsidering a Gensler-era rule, and record BTC outflows. Sponsored by: Ledger Ledger, the world leader in digital asset security, proudly sponsors The Breakdown podcast. Celebrating 10 years of protecting over 20% of the world’s crypto, Ledger ensures the security of your assets. For the best self-custody solution in the space, buy a LEDGER™ device and secure your crypto today. Buy now on Ledger.com. 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 Tuesday, March 18th, and today we are talking about, well, a little bit of everything. 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. doing a daily show for the last, I don't know, million years at this point, there are some days that are incredibly important. There are other days where there is shockingly nothing. And then there's a big mess of days where it's just everything moving forward in ways that are on the surface boring,

but if you blur your eyes, clearly showing trend lines that are important and today is one of those middle days. And so we've got a little bit of markets, a little bit of politics, a little bit of geo-strategy, and we're going to kick it off with that old classic phrase, Bitcoin is for enemies, because North Korea has overtaken El Salvador and Bhutan as the third largest Bitcoin holders. After laundering the proceeds of the buy-bit hack into Bitcoin, North Korea now has the fifth largest Bitcoin stash among nation states. They have around 13,500 BTC worth about $1.13 billion. That ranks ahead of El Salvador and Bhutan, but still, of course, behind the U.S. and China. The money laundering process appears to have slowed down now that the funds have been converted

into Bitcoin. While it's associated with hackers, the Lazarus Group are still active, but the velocity of transactions have slowed down. Hopefully, this is a sign they're struggling to find off-ramps with all eyes still watching the wallets. But thinking more broadly, the question is whether this will present an issue for attempts to pursue a Bitcoin reserve strategy. The administration is already being criticized by those who think the reserve is a cynical attempt by insiders to pump their Bitcoin bags. And you've got to think that for some people, that critique is going to be even more resonant if Bitcoin purchases enriched North Korea. Now, obviously, we are comfortable in this space with the fact that the whole point of permissionless money, is that it's permissionless for everyone, but it is one of those areas, which is pretty uncomfortable

with the traditional financial establishment. Meanwhile, a little bit south of the border, South Korea's central bank has ruled out the creation of a Bitcoin reserve. On Sunday, the Bank of Korea issued a statement to say that they are not considering adding Bitcoin to their foreign exchange reserves. Interestingly, this was in response to a written query from a member of the National Assembly Strategy and Finance Committee, suggesting that there's some appetite among politicians to adopt a Bitcoin Reserve strategy. The BOK said that Bitcoin is volatility makes it unsuitable for use as a reserve currency. Nothing new there. However, they also claimed that IMF guidelines do not allow for Bitcoin to be used in foreign exchange management.

The BOK didn't refer to a specific Bitcoin ban, but noted the guidelines require a foreign exchange reserve to control liquidity, market, and credit risks in a prudent manner. Korea is definitely on the map as one of the countries that could tip over to join the U.S. and state-level Bitcoin adoption in the future. Depending on which study you draw from, somewhere between 15 and 30 percent of Korean citizens are invested in crypto. The government also recently wound back 2017-era restrictions that should make institutional crypto adoption much easier. So while it appears unlikely that South Korea will add Bitcoin to the reserves in the short term, ultimately this was a formal question from a member of parliament

and a well-reasoned, frankly, courteous response, certainly suggests some room for re-examination in the future. Now, speaking of re-examination, the SEC is revisiting a crypto-custody rule that functionally locks out investment advisors. The rule was proposed in February 23 and required RIAs to use qualified custodians to store customer crypto assets. As this was a Gensler era policy, there is of course a catch-22 with this otherwise reasonable sounding rule. The SEC never certified any firms as qualified crypto custodians and didn't issue any guidance on what the standards would be. Coinbase did claim that they fit the category, but the rule was still a compliance nightmare, and enough to scare most investment advisors away. Furthermore, the rule covered all alternative

alternative assets, so arguably applied to sports cars, whiskey collections, and real estate that, for whatever reason, comes under an RIA's mandate. And if you think it's difficult finding an SEC approved qualified custodian for crypto, the issue becomes nonsensical when you apply it to other alternatives. Speaking at an investment management conference on Monday, acting SEC Chief Mark Yueda said, given such concern, there may be significant challenges to proceeding with the original proposal. As such, I have asked the SEC staff to work closely with the Crypto Task Force to consider appropriate alternatives. Now, most of Gensler's gotchas only touched the crypto industry, but this was one of the ones that frustrated the entire investment industry. A broad coalition

of industry groups, including the American Bankers Association and the Securities Industry and Financial Markets Association, wrote to the SEC stating that the proposal could have a, quote, material impact on their business. The key issue was that some banks and savings associations would no longer be allowed to custody assets, particularly affecting things like shares in private companies. As you can probably tell then, this rule proposal was a complete mess and created all sorts of unnecessary issues through its lack of clarity. In other words, classic, vintage-era Gensler. The pledge to take a second look at this proposal is a continuation of the cleanup at the SEC, but it also demonstrates that the effort isn't just about delivering on the big stuff,

things like defining the security status of crypto tokens and allowing exchanges to function legally. It's also about unpacking these dozens of smaller SEC rules that have held back crypto adoption across a multitude of angles. Hello, friends, I am thrilled to share that Ledger is once again, partnering and sponsoring with the breakdown. Many of you know, but for those of you who don't, Ledger is the most secure hardware wallet for your crypto and logins. It's trusted by 7 million users and secures 20% of the world's digital assets. What's more, Ledger is a lot more than wallets. Over the recent years, they've built a comprehensive ecosystem of products and services,

all of which are designed to make digital ownership more secure and accessible. You can buy your Bitcoin with Ledger and Ledger Live and so much more. Basically, not only did they want to keep your assets secure, they want you to be able to do more with them. Ledger's newest devices, the Ledger Stacks and Ledger Flex, introduced the world's first secure touchscreens, making it easier and safer to manage your transactions and assets. Alongside Ledger stacks and Ledger flex, the company also launched the Ledger Security Key app, offering a safer alternative to traditional passwords and enhancing your digital security. If you are in this space, you owe it to yourself to at least check out Ledger and their ecosystem what they have available to you. So thanks, once again,

to Ledger for sponsoring the show. Still, if one is to look at markets, maybe institutional adoption of crypto isn't really a thing anymore anyways. The numbers are in and last week was one of the worst on record for crypto funds. Global crypto ETFs have seen outflows for 17 days straight, the longest streak since coin shares began tracking the data in 2015. Last week was the fifth outflow week in a row, with $1.7 billion redeemed from worldwide crypto products. The outflows accelerated but didn't quite match the $2.9 billion that was stripped out of the funds in the final week of February. In total, this streak saw 6.4 billion redeemed, essentially resetting year-to-date flows to less than a billion

dollars. Assets under management are an even more dire story, declining by 48 billion throughout flows and the price correction. Aside from the U.S., Switzerland saw the only notable global flows, with roughly 10% of their AUM withdrawn from Swiss products last week. Looking at the U.S. The picture isn't any better. Thomas Ferrer of Apollo Sats wrote, U.S. Bitcoin ETFs have sold 7,400 Bitcoin year-to-date, nonstop selling the last six weeks. The one good sign if you're looking for that is that this week is off to a better start. The USETF saw 275 million worth of inflows their strongest day since the beginning of February. In this environment, it appears to be yet another Bitcoin-led recovery.

Bitcoin dominance is currently approaching 62% and remains close to four-year highs. The Bitcoin dominance chart is in a two-year uptrend, steadily growing month after months since early 2023. The only real interruption was during the euphoria-soaked weeks following the election, when some believed that Trump would usher in a return to the wild Wild West era of crypto. Bitcoin dominance is up almost seven points since then, though, and it's starting to feel as though maybe no altcoin season is coming this time. Traders have been trying to front-run a return of altcoins for this entire cycle. Every small dip in Bitcoin dominance is met with a rush

of influencer posts that ultimately fizzle out. We've had a few moments during the cycle where individual tokens and themes have had their time in the sun, but ultimately we haven't seen a return of the insane up-only market we saw in late 2021 when every all-coin bet was a winner. One of the big points of discussion, as you've heard here in other places, about this cycle is just why it's played out the way that it has. Certainly after the detonation of Three Erros in Alameda research, the crypto trading firms have toned down their strategies. Three Arrows Capital was in particular known for levering up to get as long as possible, which of course backfired tremendously in 2022. Contrast that to this cycle where the dominant trading firms are dealt in neutral market

makers like Wintermute, who largely attempt to avoid taking on directional positions. We're also not seeing crypto trading firms rotate between positions, other than insider firms pursuing the daily runners in the meme coin casino. Many focus on the sheer volume of tokens being launched as the reason the market is diluted. Over 600,000 tokens were launched in January, with the vast majority being meme coins that failed to go anywhere and instantly vaporized. Even setting aside the meme coin segment, however, there's been an explosion of choice in all coins. In 2021, there are only a few dozen tokens that mattered alongside a few thousand NFT collections. Now you have to get well outside the top 500 before you stopped recognizing the tokens. The influencers are still calling for a breakdown in the

Bitcoin dominance chart, but right now, there really isn't a catalyst that I can see that makes it seem like all-coin season is coming anytime soon. Indeed, Bitcoin's relative strength against all coins has even some of the largest bulls throwing in the towel. Standard chartered have lowered their 2025 price target for Ethereum to $4,000, well below the all-time high. Heading into the year, they were calling for $10,000 Ethereum and established themselves as the biggest crypto bulls in Tradfey research. Now, their global head of digital assets research, Jeff Kendrick writes, Layer 2's and Base in particular, now extract super profits from the Ethereum ecosystem. We estimate that Base, the dominant layer 2, has removed 50 billion of market cap from Ethereum

alone. His Monday report was entitled Ethereum, Midlife Crisis, highlighting just how awry things have gone for the second largest crypto. In fact, even that title isn't particularly secure, with XRPs inflated FDV currently within a few billion dollars of Ethereum. Kendrick wrote that Ethereum has essentially commoditized itself within the Layer 2 framework, adding, the solution would be to tax Layer 2 super profits in the same way government sometimes charge super taxes for foreign-owned mining companies that extract excess profits. Unless that happens, ETHBTC will keep going down. And while that proposal has been put forward in the Ethereum community, it's a very difficult narrative to sell to admit that Layer 2 scaling solutions are siphoning off

token value. On-chain analyst checkmate arrived at this conclusion separately, tweeting last week, Ethereum is repricing to its core demand vector as a gas token. Think about how much gas fee you have consumed in your entire time in this market, and compare it to your all-time high holdings of that same token. Even for folks who have barely dabbled in crypto, you likely held 10x to 100x your actual gas demand. The concept that gas demand means high token price and market cap is wildly misguided. This is not unique to Ethereum, by the way, all smart contract L-1s have this problem. No monetary premium, no Bueno. And Bitcoin is the apex predator of monetary premium. It's already won that war in the digital realm. Now, Ethereum still holds an 80% market share for real-world assets,

so that could be an avenue for recovery. But increasingly, we're seeing the value provided by Ethereum as infrastructure diverge from the value of the token. Daily active users across the ecosystem are much higher than they were at the peak of the 2021 Bull Run, but largely because new users have flooded into the L2s. Main net usage is basically flat over the past four years, and never got above 500,000 daily active users. Kendrick wants to see big changes to the Ethereum economic model before he renews his bullish stance, but admits that these changes are unlikely. He still believes that Heath will appreciate over time, but at a much slower pace. Of course, note of these issues have dimmed his bullish view on Bitcoin, with the analyst

sticking to a $200,000 price target for the end of this year, at a half-million-dollar Bitcoin by 2028. So that's the story, as I said, a little bit of markets, a little bit of politics, a little bit of geopolitics. All of it wrapped up in this crazy melange at the crypto industry in 2025. For now that that is going to do it for today's breakdown. Appreciate you listening, as always. and until next time, be safe and take care of each other. Peace.