The Breakdown - Bitcoin Just Had Its Biggest Month Ever

Episode Date: March 1, 2024

Bitcoin added more $ to its price in February than any other month in history, and it's showing no signs of stopping. Plus an update on SAB121. Today's Show Brought To You By Kraken - Go to https://kraken.com/thebreakdown and see what crypto can be Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet 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 Friday, March 1st, and today we are doing our customary bull check-in, plus a little bit of an important update from Washington, D.C. 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, happy Friday and happy March. Exciting times as we will get into, but one quick announcement before we do. I am thrilled to welcome today a new sponsor in Ledger. Many of you guys, of course, will be familiar with both their hardware wallets as well as their Ledger Live product, and I am thrilled to have them be joining the Breakdown family. And what a time it is to join it because February was the hottest month on record for Bitcoin. Overall, Bitcoin saw a 44% gain. Bitcoin's price went up more than $18,000 for the month at the highest nominal gain of all

time. In percentage terms, the only comparable months from the last cycle were November and December of 2020, which saw positive moves of 42% and 47% respectively. Analysts are pointing to strong ETF flows as the key drivers of this accelerating momentum. Shocker. Outlier Ventures Research Lead Jasper DeMere said, This has set February up for a strong month of institutional Bitcoin buying. Throughout February, we've regularly seen days of $500 million inflows into Bitcoin ETFs.

The months ahead will continue to be positive for Bitcoin price action over the medium term. To understand where we are right now, Bitcoin is roughly 12% away from making a new all-time high prior to the halving, which happens in April. This is the only cycle which has come anywhere close to that achievement. What's more, Galaxy Digital Head of Research, Alex Thorne, thinks there's plenty left in the tank, writing in a Twitter thread, we haven't even begun to reach the heights this is likely to go. The ETFs are genuinely a game changer and they are still just getting started. Given the flows we are seeing, both in the ETF complex

and through our desk, I think it's reasonable to see a new all-time high within a matter of weeks. We're starting to hear Bitcoin spoken about alongside gold and treasuries as macro hedge hedge assets. Just this morning, I heard a traditional finance research analyst suggesting Bitcoin is becoming a genuine hedge to fiatta basement on national television. Bitcoin is prime time now, and while it might be hard to believe, things are just starting to get exciting. According to Bloomberg reporting, more investment firms are also poised to offer access to the Bitcoin ETF soon. On yesterday's show, we reported on the scoop that Morgan Stanley was preparing to give the green light for clients to access Bitcoin ETFs on their platform. Today, Bloomberg's

sources are claiming that Bank of America's Merrill Lynch, along with Wells Fargo, are also close to adding the products to their brokerage services. Apparently, both firms are already allowing clients to gain access if they specifically request it. Allegedly UBS and Citigroup are also allowing access on an unsolicited basis. Merrill Lynch in particular is an important addition, as the firm had a long-standing anti-B Bitcoin policy. In 2017, they blocked access to GBTC and have been very reluctant to offer their clients any access to Bitcoin-related investments. This move comes well ahead of schedule, perhaps indicating a lot of consumer demand and internal pressure to fast-track the diligence process. As a total aside, I think it's so funny to have these big firms locked up and stuck on some

diligence process, as though they haven't had 15 years to diligence Bitcoin, not to mention another 10 months or so since the ETF conversation heated up. Basically, while I'm glad these folks are coming to the party, I feel no sadness at all on how much opportunity they've missed out on by being slow out of the gate. And yes, of course, when the ETFs launched, many platforms said that they could wait months or even a year to ensure the products traded efficiently before granting access. Well, we're now less than two months post-launch, and it looks like most major platforms will be throwing the doors open for their advisor networks in the coming weeks. The loan notable standout is Vanguard, who are standing firm to their launch day pledge to protect

their clients, you know, from allocating to the best performing asset class of the last decade. Interestingly, Tim Buckley, the CEO of Vanguard, has announced his retirement later this year. Buckley has been with Vanguard for 33 years and deeply aligned with the investment principles of legendary founder Jack Bogle. The question is whether Buckley's replacement will be more amenable to Bitcoin. When Vanguard announced that they would be blocking access to the Bitcoin Bitcoin ETFs, many avid digital investors switched away from Vanguard for their retirement accounts. And thus, many Bitcoiners are wondering, given this announcement, how much it had to do with their decision-making around Bitcoin.

The Layer 1 TradFi analysis is that it doesn't have anything to do with it at all. For example, Bloomberg ETF analyst James Safart tweeted, how badly is Vanguard suffering after denying Bitcoin ETFs? Just one of their ETF's VOO is casually doing more than double Ibit's flow this year, $15.7 billion. This is just the norm for VOO and not even worth mentioning typically. They're doing just fine, my friends. Senior ETF analyst Eric Belcuna's tweeted,

I can literally hear all the heads exploding right now with see what happens when you F with Bitcoin. But I'm 95% sure it has nothing to do with that decision. On the flip side, a new CEO could open the door to a repeal of the ban, who knows. I do predict they'll lighten up over time. I don't know, though, friends. This really feels to me like the bell curve meme,

where in the middle, you have all of the tradfi and the clever folks saying, no, of course, this isn't about Bitcoin, there's a million other things going on. Vanguard is doing just great. And then on either side of the bell curve at the bottom and the top, they're saying, this firm missed one of the most exciting investments in a generation. Here's one scenario, as articulated by Beanie. He wrote, Tim Buckley getting pushed out of Vanguard for not allowing customers to purchase Bitcoin ETF is the most bullish news yet. He's one of the most powerful people on the planet,

with C-suite exec at only 40 years old, Harvard MBA and dad chief surgeon of Harvard's teaching hospital. He not only missed out on easy billions and fees by adding a Vanguard Bitcoin ETF, which would probably be number one, but actually, blocking customers from it and having Bitcoin moon right after is a major blow to the top asset manager in the world. Was an odd bet with no real upside for him. No way, a 55-year-old in the peak of his career at the top dog at the biggest asset manager in the world just decided to hang it up for no reason whatsoever. James Levish said, if you're a Vanguard advisor, your company protected your clients from a 50% gain in a month in the Bitcoin ETFs. What would your clients do without you?

Like I said, my guess is that normally, most of you listening right now, would assume that I would be in the camp of saying, no, this isn't, of course, about Bitcoin. But I don't know, man, I'm pretty captivated by this question as well of why a not particularly old Titan of industry decided to step away at just this moment. I'm sure there is more going on than just Bitcoin, because there always is. Every story is always more complex than it seems. But damn if this won't go down as an unbelievable cell phone for Vanguard. BitWi-CIO, Matt Hogan appeared on CNBC's Squawk Box on Thursday morning to talk about the wildly successful two first months of the Bitcoin ETOFs. Even with record-breaking performance, Hogan thinks we're just getting started. He said Bitwise

is mostly seeing demand from retail investors, hedge funds, and independent financial advisors so far, but added, I think there's an even bigger wave coming in a few months as the major wirehouses turn on. Those major warehouses are, of course, starting to show up in the headlines to leak that they are coming online soon. Referring to January's launch as Bitcoin's IPO moment, Hogan said, when you think about Bitcoin pre-the-ethefs, there was only a small set of investors who could buy. Now, almost everyone can buy it, and the supply demand dynamic is just off the hook. There were 30,000 Bitcoin miners purchased by ETFs this week alone. Bitcoin miners have only created less than 3,000. That's what's driving the price. When pushed to give a price target,

Hogan noted that at the beginning of the year, Bitwise published an $80,000 projection. He added, based on what we're seeing in our ETF and these other ETFs, I think we have to revise that upwards. Could be 100,000, it could be 200,000, it could be higher than that. There's simply this massive supply demand dynamic going on, net new demand and a fixed supply. Sometimes investing is complex, Sometimes it's easy. With Bitcoin, it's just about supply demand, and there's too much demand and not enough supply. 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

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Hello, breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap and stake without sacrificing on security or self-custody. Ledger features cutting-edge technology in the form of a certified secure chip and a proprietary operating system, but also brings ease of use.

This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. In terms of trading, yesterday's ETF volumes were extremely high once again. They weren't quite as hot as Wednesday's absurd numbers, but still comfortably ahead of any other trading day. Once again, Bloomberg's Eric Balcunas wrote,

Volumes for the Nine came down today, although still clocked their second biggest day ever. They're going to end up trading more this week than their entire first month on the market. New normal or temporary burst, we will see. Still, the big story was in the flow data, with grayscale recording almost 600 million in outflows. This was the second largest outflow from GBT since it converted into an ETF and was completely unlike anything we've seen over the past month. Many suggested we could be seeing the impact of the Genesis estate selling their GBT shares. That liquidation was authorized two weeks ago, but may have taken some time to arrange.

At these prices, Genesis had about $1.9 billion in GPTC to offload, so we could see some higher-than-average outflows over the next week if that is still underway. GBT has now seen $7.8 billion in outflows, but still has $27 billion in assets under management. amazingly BlackRock managed to cover GBT Outflows, recording their second consecutive day of inflows above 600 million. Ibit is on pace to take in more than 2 billion in fresh capital this week, representing the fun, adding a third of its AUM. Rob Payone, Cryptobobabi, shared a meme of Tom Hardy dancing and said, Barry dumped half

a billy today and we're at 61K. Now, Bloomberg's senior ETF analyst Eric Balcunas, who we've quoted a couple times this show, things were heading into a Bitcoin mania with the ETFs trading this hot and showing no signs of slowing down. During an interview on Thursday, he said, Because it's a scarce asset and there's not a ton of people trading it, a lot of people just hold, the float on it is pretty small. The more demand from ETFs, the more the float is affected.

The more the floats affected, the price goes up, which would create more demand. You could have an upward spiral that goes a little while. For some perspective, before the products launched, Belcunas thought they would see between $10 and $15 billion worth of inflows for the year. This was viewed as pretty optimistic at the time. Net inflows are currently at $7.5 billion across all the products, and 15.9 if you exclude GPTC outflows. He said, if the price cooperates, they're probably going to do multitudes of my estimate. The way people are talking and the sort of volume-increased match with

the price increase, it's all feeding on itself. Then again, for JP Morgan analysts, this pre-having rally is getting a little too hot. They are forecasting a massive crash after the hype dies down. Their latest report predicted that Bitcoin's price could fall to $42,000, once, quote, Bitcoin-having-induced euphoria subsides after April. Analyst noted that minor production costs typically form a lower boundary for Bitcoin prices. They currently have that penciled out at an average of 53,000 post-having. Embedded in their forecast is a 20% reduction in hash rate as higher-cost miners switch off machines, which they claim would bring the average down to 42,000. Bank analysts pointed out that publicly listed miners are better positioned to, quote, fight for survival. To get a sense of

what the industry thought of this report, Swan Stephen Lubka wrote, this is one of the dumbest things I've ever read about Bitcoin. But when it comes to crypto, not everything is about the ETF as much as it seems like it should be. Over in Washington, the House Financial Services Committee has voted to advance a resolution which would rescind controversial SEC accounting guidance. The SEC published Staff Accounting Bulletin 121, better known as SAB-121 or Saab 121 in March of 2022. Saab 121 directed financial institutions who offer crypto custody to hold their customer assets on their own balance sheet. This goes against the way that all other custodied assets are dealt with denying the ability to make client accounts bankruptcy remote. More importantly,

Sadly, Saab 121's interaction with bank capital requirements meant that U.S. banks were effectively unable to offer crypto custody at all. Scores of objections against Saab 121 have been lodged by the banking lobby alongside crypto advocacy groups. The measure also came under fire from the government accountability office late last year. The GAO found that the SEC had improperly circumvented the standard rulemaking process by introducing substantial changes as a staff bulletin. They ordered that Saab 121 would be subject to congressional review in the same way as normal SEC rulemaking. Following this decision, numerous lawmakers pledged to strike down Saab 121 in order to allow banks to launch crypto services. During Thursday's markup hearing, Congressman Mike Flood spelled out the

problem, stating, Saab 121 prevents banks from effectively ever playing a custodial role for these assets. You're locking out the most regulated institutions from a market they know well, which is custody. Flood noted that the stakes have been raised by the launch of Bitcoin ETFs, which are currently custodying billions of dollars of Bitcoin with non-bank entities. Flood pointed out that the SEC instituted Saab 121 without conferring with prudential regulators who are the experts on regulating bank custody. He added, that's a pretty big oversight. Wiley Nicol, who has been leading the charge on this initiative, put a finer point on the issue, raising questions of consumer protection. He said, whether you support crypto or not, you should want the most heavily regulated financial institutions.

They're experts in custodial banking to safeguard assets. Otherwise, people will have to turn to riskier, unregulated options, putting both consumers in the financial system at risk. We're seeing this issue with Saab 121 play out in real time. Congressman Tom Emmer said, Saab 121 is one data point of many demonstrating both Chair Gensler's insistence on overstepping the SEC's authorities and his unrelenting prejudice towards the digital asset ecosystem. Emmer characterized the guidance as a deliberate and illegal attempt to circumvent public comment and congressional oversight, adding, the impact of this illegal rulemaking is introducing more unnecessary and avoidable concentration risk into the digital asset ecosystem,

making our markets not fair, not orderly, and not efficient. Emmer noted that foreign banks are currently offering crypto custody while U.S. banks have been locked out of the industry. Perhaps unsurprisingly, Democrat committee leader Maxine Waters wasn't convinced, stating that Saab 121 was merely, quote, offered by SEC staff to provide industry with the clarity they asked for. The final vote was supported by a majority of committee members along bipartisan lines, with 20 Democrats voting against the resolution.

A companion resolution has been introduced in the Senate by Cynthia Lummis. The resolution will need to be passed. by both full chambers of Congress before it becomes effective. And so, yes, even as we are making progress on Wall Street and in markets, we are also making progress in D.C. and in the legal sphere. It is a good time to be alive, friends, and a great, let's call it early spring, not late winter, Friday. One more big thank you to my sponsors for today's show. Ledger, once again, check out the Bitcoin Ledger Nano, 5% goes back to Bitcoin developers, and of course to Cracken. Go to crackin.com slash the breakdown and see what crypto can be.

Until next time, be safe and take care of each other. Peace.