The Breakdown - Bitcoin is Manifest Destiny

Episode Date: November 19, 2024

Michael Saylor has previewed the perfect narrative for the push for a Strategic Bitcoin Reserve -- Bitcoin as Manifest Destiny. Plus BTC options appear to be moving forward. 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 Monday, November 18th, and today we are talking about Bitcoin and Manifest Destiny. 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. pod. All right, friends, well, we are still coming to terms with the post-election Bitcoin environment, and at least for one person, they have never been more bullish.

Speaking with CNBC late last week, Michael Saylor dismissed fears of a major correction, stating, I don't think it's going to 60K, it is not going to 30K, I think it is going to go up from here. Sailor said that the red wave is probably the biggest thing that has happened to Bitcoin over the past four years, adding, I don't really see any threats on the near-term horizon. Speaking for a mainstream audience, Saylor noted that micro strategies plan to raise $42 billion to buy Bitcoin was, quote, the same as saying we're going to buy every Bitcoin mine for the next three years at 85K or more. So there's a lot of bullish things going on in the market right now. Speaking more closely to price targets, Saylor commented, I'm planning the 100K party and I'm

thinking it's probably going to be New Year's Eve at my house, so I wouldn't be surprised if we don't go through 100K in November or December. The interview then turned to the Bitcoin Strategic Reserve, and in many ways it offered a glimpse on how the policy might be presented to the public. Sailor said, that's being sponsored by Senator Lummis from Wyoming, and she understands the value of the frontier. The United States was built by purchasing Manhattan, then we purchased the Louisiana Territory, then we purchased California and Texas and Alaska. The next great frontier is cyberspace, and the obvious thing to do is to own cyberspace, buy the future. I think it's a great idea. I think it will happen. I think it's important to the United States because

it cements U.S. control over the future World Reserve Capital Network. Senator Lummiss's bill offset 16 trillion of our debt, according to my models. I think it's economically wise. It's technically wise. Bitcoin is manifest destiny for the United States. So like I said, when it comes to how a strategic Bitcoin reserve might be positioned, this is really interesting. Are these just sailors' words? Are these themes that are being hit on behind the scenes by people who are supporting the Bitcoin Reserve? Is it the type of thing where even if it is Sailor's words, they get adopted because they have so much narrative power? There is a very short window in my estimation to really get momentum for a Bitcoin Reserve. So it is worth tracking closely how this conversation comes up right now.

Now, one of the things that we've been watching throughout this cycle is the interesting anomaly in that prices were reaching all-time highs without there really being a return of retail investors in any meaningful way. However, with the post-election surge, retail traders do appear finally to be coming back to Bitcoin. According to the Coinbase app rank bot, the app hit number one in the finance category late last week. It peaked out at number eight across all apps, and now has fallen to around the 70th rank. Still, just a few weeks ago, the Coinbase app was struggling to hold on to a place in the top 500. Google searches for Bitcoin have also hit a new cycle high, quadrupling since the election. An account called Trade Travel

Chill took a closer look at Google Trends, writing, people are saying retail is just arriving now because the search for Bitcoin and Google Trends is waking up. But what if we've all been searching for the wrong thing? She found that searches for Solana hit an all-time high in March and remained elevated ever since. Searches for meme coins have been making higher highs since May of 2023 and are back at their March peak. She concluded, maybe retail arrived months ago, but they're just not looking for Bitcoin until now. We're also starting to see evidence of small buyers showing up in the blockchain data. According to CryptoQuant, transaction volume below 100,000 has hit a three-year high of around $3 billion in total. Elevated on-chain activity

is anomalous in any period of strength, only lasting a couple of days in March and coming nowhere near close during the run-up late last year. Conversely, on-chain transactions above $1 million are barely off the floor, suggesting that whales aren't yet in full distribution mode. Kaleo believes that retail is going to drive the next leg higher, writing, I think Bitcoin surprises everyone when it crosses 100K, sends straight past it and doesn't look back. It's been such a mental milestone for so long that it'll bring retail FOMO back in full force when it happens. There are also more structural reasons that more investors might be getting involved in Bitcoin.

Options trading on the Bitcoin ETFs is one step closer after the CFTC grants approval. On Friday, the regulator issued a staff bulletin, which read, in light of relevant precedent in the courts, which is substantially likely these spot commodity ETF shares would be held to be securities. Therefore, the CFTC's position is that the listing of these shares on SEC registered national securities exchanges does not implicate the CFTC's jurisdiction. Essentially, the CFTC has looked at the options applications and sees no reason to stand in the way. With the SEC and the CFTC giving the green light, all that's left is for the options clearing corporation to tick the final box and Bitcoin ETF options can go live.

Reviewing the news, Bloomberg Senior ETF analyst Eric Bocunis wrote, this is the second hurdle they needed to clear after the SEC. Ball now in OCC's court and they are into it, so they'll probably list very soon. Balcunis gave no estimated timeline, but it could be measured in weeks or even days. The OCC is a private company, not a government department, so they really don't have a good reason to hold back. His colleague James Safart summed it up, here we go. Opinions on how ETF options will change Bitcoin market structure have covered the entire range. A lot of people are on the nothing burger side of the argument.

They grounded their opinion on the fact that there are many ways to get access to Bitcoin options already with both Deribit and the CME hosting decently sized markets. Jeff Park, the head of Alpha Strategies at Bitwise, came in right on the other side of the argument. Back in September, he called this, quote, the most significant market structure change for Bitcoin since the ETF launch. He wrote, The Bitcoin ETF Options Market is the first time the financial world will see regulated leverage on a perpetual commodity that is truly supply constrained. Things will likely get wild. In such scenarios, regulated markets may shut down. His point was that other options markets are

relatively niche and inaccessible compared to options listed on the two major stock exchanges. A big influx of liquidity could drive huge volatility over the short term. It could even lead to a massive gamma squeeze as market makers get caught offside and need to aggressively hedge. Park noted that, unlike the gamma squeezes we saw in meme stocks like GameStop, no one can truly shut down Bitcoin markets and more stock can't be issued. Regardless of whether you think ETF options are bullish or not, this should be a major shift in the liquidity profile of the market. Interative trades wrote, this is a massive deal. Spot Bitcoin ETF options will supercharge the derivatives market and attract even more institutional players. This isn't just bullish for Bitcoin, it's a

liquidity bomb for the entire crypto ecosystem. The OCC is likely to move quickly as they've shown they're on board with aligning traditional finance and crypto products. Once these options hit, expect significant hedging activity and volatility spikes as institutions position themselves. Now, speaking of that, 13F filings for Q3 show the slow accumulation of Bitcoin continuing at major U.S. banks. Bank of America and Morgan Stanley held their ETF position steady from the previous quarter. Goldman Sachs nearly doubled their holdings, taking the position to $710 million by the end of the quarter. James Van Straten, senior analyst at CoinDesk said, 13F filings mirror the tepid price action in Bitcoin and Q3. Most institutions are slow to deploy capital and to observe trends and didn't take the initiative

to frontrun a historically bullish Q4. These positions likely reflect Bitcoin ETFs held on behalf of wealth management clients or inventory waiting to be sold to those clients. One investor who is far less Tebbit in Q3 was Paul Tudor Jones. Jones talked his book in October, stating that, quote, all roads lead to inflation and that he's long Bitcoin in gold. According to the filings, his hedge fund increased their Bitcoin position to five times the size over the past quarter. They now owned 4.4 million shares of Ibit, around 160 million worth, enough to make the fund a top 10 holder. Ibit is now the third largest position for the fund behind S&P index funds and Invidia, although each is similar in size. Other major 13F disclosures came from

millennium, who doubled their holdings to $850 million, and Capula Capital who brought their exposure up to $600 million. Bitcoin is up 40% since the reporting deadline, so these numbers are all much larger now. Macroscope wrote, Tudor's 13F filing last week is important and should be mentioned. Its portfolio is watched closely by asset managers, especially hedge funds. If you've been wondering who is buying during Bitcoin's summer trading range, you can now put Tudor on the list. Based on its surge since September, it's possible or even likely that Bitcoin is now Tudor's largest reportable non-options position. That's a big one. big deal. Over on the ETF side of the world, a soft end to last week saw a wave of redemptions.

The ETF fund saw 770 million worth of outflows across Thursday and Friday, breaking a six-day inflow streak. This was, in fact, the largest two-day net outflow on record. Fidelity, arc and bit-wise, all set single-day outflow records on Thursday, which was the third largest outflow day since launch. CoinDisc's James Van Stratten looked through the history of price action around major outflows for the ETFs. The only days with larger outflows than Thursday occurred on November 4th and May 1st. Each marked a short-term bottom with a strong rebound over the following days. He wrote, We will have to wait and see if the ETF flow signal another bottom and history repeats itself. Now, over in the world of what happens next when it comes to politics, JPMorgan analysts

recently looked at six major changes they expect from the Trump administration. Firstly, they see crypto legislation moving forward rapidly. Analysts identified the market structure bill, the Staplecoin bill, and an anti-Cbdc bill as the most likely to see passage through Congress over the short term. Another big shift will be a change. at the heart of the SEC. Analysts expect the Coinbase lawsuit to be softened, settled, or even dropped. They believe that Wells notices against Robin Hood, Uniswop, and other firms will be rescinded rather than moving to litigation. Banks could rush to offer crypto custody with the repeal of SAB-121. We've already seen a handful of banks granted exemptions from the SEC's accounting rule,

but a full repeal would open the floodgates. Combine this with a change of leadership at the banking regulator, and we could see Tradfai institutions join the industry in a big way. Analysts also believe that ETFs are going to be a big theme. Over the past few months, we've seen ETF applications filed for all manner of all coins, which have only increased since the election. The report also predicted a surge in crypto venture, M&A, and IPO activity. Analysts wrote that clear regulations will make deals easier to underwrite helping the capital flow. But finally, the big one, J.P. Morgan analysts believe there is a low probability of the U.S. Bitcoin Reserve being established through Cynthia Lummis' bill, which calls on the government to acquire 5% of all Bitcoin over five years.

They remain silent on the odds of Trump's version of the reserve where the government retains seized Bitcoin. However, if the U.S. government does start to purchase Bitcoin, analysts believe it will kick off a global flywheel effect. Basically, they think other countries will follow suit, solidifying Bitcoin's status as a reserve asset. So that's all the what could be's. But in the meantime, what people are really watching are appointments. Former SEC Chairman Jay Clayton has been tapped to become the U.S. Attorney for the Southern District of New York, which is an interesting one. During his time at the SEC, Clayton oversaw the production of the Dow report, which claimed jurisdiction over a broad range of crypto tokens. He was on record stating that he believed most ICOs were security offerings,

and famously approved the Ripple lawsuit on his final day at the agency. Since then, Clayton has expressed a more middle-of-the-road approach to crypto, stating, I think our securities laws have stood the test of time and we should continue to have them. My message to regulators would be to stick to your principles but accommodate new technology. Clayton took on advisory roles at electric capital and fireblocks, and so we'll see. He's certainly in an active spot. At the SDNY, Clayton will be focused on criminal prosecutions rather than regulatory enforcement. The Manhattan branch of the DOJ is one of the busiest financial crime jurisdictions in the world. You might remember it from such cases as SPF and Alex Mishinsky. Now, though, it seems the SDNY will be shifting their attention away from crypto.

During an event on Friday, Scott Harmon, the co-chief of the Securities and Commodities Fraud Task Force said there would not be as many cases coming out of his office, adding, we've brought a lot of big cases in the wake of the crypto winter. There were a lot of important fraud cases to bring there, but we know our regulatory partners are very active in the space and we don't have a lot of people. Crypto lawyer Gabriel Shapiro believes Clayton is a solid choice, tweeting, Jay Clayton did nothing wrong in my opinion and should not be blackballed. ICOs are literally and clearly securities transactions and he used a light touch even on those. He let us have the sufficient decentralization doctrine for when a token is not covered by securities laws and let him and

declare ether non-security. No lawyers I know were surprised or offended at the ripple suit back then. XRP is highly centralized and at the time had a validator set that was literally a list decided by Ripple. Ripple was also the king of trying to get government regulation against other chains due to POW. It's only due to Gensler's broader anti-crypto sweep and ripple retrospectively being perceived as part of that that the ripple case came to be seen as a grave injustice. Now, when it comes to the other bigger positions, we don't yet really have the info. Former CFTC chair, aka Cryptodad Christian Carlo, is ruling himself out of the running for the SEC. He tweeted, as for reports that I'm in the mix to run the SEC, I've made clear that I've already

cleaned up an earlier Gary Gensler mess at the CFTC and don't want to have to do it again. DC rumors that I'm interested in some crypto role at U.S. Treasury are also wrong. So no information yet there. The Treasury Secretary race, meanwhile, has been blown totally open. This morning as I was prepping this, I saw Elon Musk tweeting about it, so you know there's some crazy stuff going on behind the scenes. According to the Wall Street Journal, there has been a messy fight over the crucial economic position that has irritated the president-elect in his team in recent days. Masari co-founder Ryan Selkis, who of course comes at this from a crypto vantage point, put together a lengthy threat on why this position is so important and why it's extremely important to get right. He wrote, one of the only disappointing parts of the Trump transition process so far has been the Game of Thrones that's emerged for the top economic job in the cabinet, Treasury Secretary. We will keep an eye over the next couple days on how that evolves,

but for now, 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.