The Breakdown - Bitcoin is Surging at the State Government Level

Starting point is 00:00:00 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, February 24th. And today we are talking about Bitcoin's State Bill Bull Run. 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 Breaker Discord. You can find a link in the show notes. We go to bit.ly slash breakdown pod. Hello, friends. A quick note before we dive in, I am actually traveling this week with my podcast equipment, of course, but because of that, the planning has been a little bit

Starting point is 00:00:46 jumbled, and of course we had the big by-bit exchange hack that happened at the end of last week, which threw everything a little bit into chaos. Today's episode is not going to be about that hack, because I have an interesting guest who's doing an interview about this, and that interview isn't quite prepped, so that will be tomorrow's show where we dig into the details. Today's show was recorded in advance of that bybit hack. And so you're getting things a little bit out of sequence, but I promise that by the end of the next couple of days, you will have everything all neatly organized, just a little out of order. Anyways, just wanted to flag that is why I am not talking about bybit on this show, but rest assured that content is coming. Thanks as

Starting point is 00:01:21 always for listening, and let's get back to today's episode. All right, friends, well, last week, the big theme was very clearly meme coin drama. Interestingly, though, had that not happened, There were a number of Bitcoin adoption stories that went all too under the radar. Today we're going to catch up on a bunch of that news because it really underscores just how different Bitcoin is relative to the rest of crypto during this cycle. In state legislatures across the country, Bitcoin bills are moving forward. Last week, the Montana House Business and Labor Committee approved a bill that would allow Bitcoin to be held as a reserve asset.

Starting point is 00:01:56 The bill passed along party lines and will now move to a full vote in the House. If passed, the legislation would set up a special revenue vehicle to invest in precious metals, stable coins, and digital assets. Notably, though, the bill requires any digital assets to have a market cap above $750 billion, which at the moment limits the selection to a single asset, which is, of course, Bitcoin. The bill would go into effect on July 1st and would allow a $50 million investment to be made that month. We now have four state Bitcoin reserve bills past the committee stage. The other three states are Utah, Arizona, and Oklahoma. Utah is the furthest to long, with the only bill that's been passed in the House and moved on to the Senate. In total, there are now

Starting point is 00:02:33 20 states where Bitcoin Reserve bills have been introduced, and almost all have moved on to be considered at the committee stage. It really does increasingly feel like it's just a matter of time before state governments start stockpiling Bitcoin, and the real question is just what sort of domino effect it has across the rest of the U.S. landscape. Arizona is also moving a different kind of crypto bill forward. Last week, the State House Commerce Committee unanimously approved a bill that would keep unclaimed crypto in its original form instead of liquidated into cash. This is not referring to seizures, but instead is the policy around unattended investment accounts. Most states have laws on the books that require stockbrokers to monitor inactive accounts and hand their assets

Starting point is 00:03:14 to the state for safekeeping after a few years. When stocks are transferred, they're kept, but crypto assets are required to be sold. Obviously, it would be a pretty bad situation if you remembered an old account after a few years and found out the state had sold your Bitcoin. So this bill seeks to remedy that issue. Again, not a huge headline story, but another example of common-sense crypto policy getting done after several lost years. Former Arizona Senator Kristen Sinema commented, this is such a digestible policy issue and an easy policy issue for a lot of legislators to understand and to get, especially the ones that are looking to engage more in crypto with something that's not highly contentious. Now, this is something that I've talked a lot about.

Starting point is 00:03:53 There is so much space in crypto that is completely common sense where the vastest, where the majority of people, regardless of their other political affiliations, would roughly agree on the right policy, that frankly, I actually think that this is an area, at least parts of it, where you could actually build bipartisan patterns that are all too infrequent in every other area of policy. Moving globally, an SEC filing from last Friday disclosed that the Abu Dhabi Sovereign Wealth Fund had purchased $436 million worth of Black Rock's Bitcoin ETF during the last quarter. Throughout the last cycle, you might remember that the idea of Middle Eastern sovereign wealth funds buying was a meme. Now it's actually starting to happen and the news went almost completely

Starting point is 00:04:31 without notice. And even though crypto Twitter has been distracted, news that a sovereign wealth fund bought almost a half billion dollars worth of Bitcoin will absolutely make a lot of institutions sit up and pay attention. Jeffrey Kendrick, an analyst from Standard Charter, expects more sovereign wealth funds to buy Bitcoin this year. He said the filings, quote, show that process is underway. It is happening. In a report published on Tuesday, he wrote that new institutional buyers were, quote, very encouraging for his call of $500,000 Bitcoin by the end of the Trump administration. Analyzing position disclosures overall, he wrote, while hedge funds once again dominated the buying in Q4, bank buying which started in Q3 was also very strong. Even more importantly, Abu Dhabi's

Starting point is 00:05:10 wealth fund reported a 4.7,000 Bitcoin equivalent position in Black Rock's Ibit ETF. While this is small for now, we would expect the size to increase over time and indeed for other sovereigns to also start buying. Repeating that last point just for emphasis, half a billion dollars worth Bitcoin is small in the world of sovereign wealth funds. And this is why people always get excited when these type of institutions start buying. 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

Starting point is 00:05:51 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,

Starting point is 00:06:20 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. Another growing segment of the institutional Bitcoin space is pension funds. The state of Wisconsin Investment Board, which oversees the state pension, doubled their Bitcoin exposure to around $321 million in Q4. They started buying in the first quarter of last year, splitting their exposure between Black Rock and Grayskill ETFs. This investment is less than 1-5th of 1% of the Wisconsin pension system's 162 billion in assets, which glass half empty,

Starting point is 00:06:57 how serious are they? Glass half full, there's a lot of room to grow. The other state pension with a Bitcoin position currently is Illinois, however, theirs is a mere $10 million. Then again, they're up more than 40% since making the investment in Q2, so the experiment is probably viewed as a worthwhile one. Several states have included investment of pension funds in their Bitcoin reserve bills, so we could see a wave of new entrance towards the end of the year as those bills go to a vote. Major custody banks, likewise, appear to be spinning up their crypto offerings. Late last year, BNY Mellon received approval from the SEC to start offering crypto custody, and over the past week, Citibank and State Street have also said they'd be offering crypto custody. This means three of the

Starting point is 00:07:34 largest custody banks on Wall Street will be expanding their business to cover crypto assets. The State Street announcement was especially interesting. The bank said they likely wouldn't launch until next year, but would include a tokenization service alongside. This would allow customers in the Tradfai world to begin using tokenized treasurer. as collateral assets through their state street accounts further integrating crypto into the rest of the financial system. You might remember one thing I've talked about a lot of the importance of BlackRock getting into the Bitcoin space. First of all, I continued to believe that Larry Fink planting that flag in May of 2023, which is I believe when they filed for the spot ETF, basically put a halt to the

Starting point is 00:08:09 idea that crypto might die post-FTX. If BlackRock was going in like that, it was a huge signal that this thing wasn't just going to go fade away. And although, of course, we still had a lot of bearer cycle to contend with, it absolutely stopped the free fall. However, one of the other things about Larry Fink is that as he started doing his public speaking engagements around this, many of the hosts of the various cable news shows tried to pin him down into the blockchain, not Bitcoin, rhetoric that had been so common on Wall Street in cycles past. Fink absolutely obliterated the distinction. While the news anchors were looking for in either or, Uncle Larry went with a big old both and please. He has spoken eloquently about Bitcoin specifically and its value, especially in an

Starting point is 00:08:52 increasingly chaotic world. And it's also clear that he thinks tokenization is 100% completely inevitable. So bringing that back to this week's news, you're starting to see other banks, maybe not speak in those same terms, but act in exactly that same sort of way. Now, if you look slightly past the stagnant price, Bitcoin's position in this market looks pretty strong over the past week or so. Bitcoin dominant surge last week, reversing a two-week downtrend. It's now back above 61%, the highest level achieved during this cycle excluding a spike in early February. It seems pretty clear that the gloom from last week in the market is entirely concentrated in meme coins and longer tail alts as Bitcoin holds firm in its range. Analyst Yale wrote, I've been in crypto for seven

Starting point is 00:09:32 years and I've never seen people giving up at such a scale with Bitcoin looking like this, truly a massive disconnect between the king and the rest of the market. And perhaps that's why investment bank Bernstein believes the next leg of the Bitcoin rally is approaching. In an investment note published earlier last week, they walked through the cycle so far. ETF speculation turned into approval and inflows, eventually leading into the Trump election and inauguration. Each stage saw Bitcoin take another leg higher. Looking towards the next major catalyst, however, analysts wrote, the next leg of the Bitcoin bull market is loading up with the confluence of several positive catalysts. We believe the Crypto Council is focused on delivering the National Bitcoin Reserve

Starting point is 00:10:09 upon the direction of the president. The Trump administration also announced the sovereign wealth fund. We believe the sovereign wealth fund would consider key U.S. crypto companies and market leaders as strategic assets to own. Bernstein also noted that Barclays and Goldman Sachs each increased their exposure during Q4, likely a proxy for wealth management clients. Paul Tudor Jones hedge fund has also increased their exposure from already overweight levels. There was also a notion that the U.S. could take a serious look at shifting away from gold reserves in favor of Bitcoin. Auditing Fort Knox is currently in the site of Elon Musk and his doge, so expect the gold reserve to enter the public discourse soon. Bernstein wrote, the confluence of adoption by banks, institutional investors,

Starting point is 00:10:48 corporates, and eventually sovereigns is positioning Bitcoin as the clear challenger to gold. With Bitcoin at $2 trillion market value versus $18 trillion market value of proven gold reserves, we see asymmetric upside for Bitcoin. In a tongue-in-cheek tweet, Bitwise CEO Hunter Horsley wrote, Bitcoin is not for everyone. The only people who want to own it these days are tens of millions of individuals, nation states, corporations, billionaires, the world's largest hedge funds, pensions, and endowments, and banks. The other day, as crypto-twitter was digesting the by-bit hack, and Bitcoin was moving literally not at all. After also not really moving at all during the week of the crazy Libra meme coin case, I tweeted that this is the DGAF cycle for Bitcoin in a huge way.

Starting point is 00:11:31 For many in crypto markets, even people who are neck deep in alts or defy or anything else, there has long been a strict two-part divide in the crypto markets, Bitcoin and everything else. This cycle, though, that fact appears just absolutely locked in. We'll see if that persists. There's plenty of reasons to think it will. But also lots of history suggesting that things are going to change. For now, we'll keep watching and seeing where it all heads. In the meantime, that is going to do it for today's breakdown. appreciate you listening as always, and until next time, peace.

The Breakdown - Bitcoin is Surging at the State Government Level

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