The Breakdown - Bitcoin Pops As Uptober Returns

Episode Date: October 2, 2023

8 of the last 10 October's were green for Bitcoin. Can we expect the same this time around? NLW looks at some of the bullish catalysts, as well as watching the first day of trading for Ethereum Futures ETFs. 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, October 2nd, and today we are talking uptober. 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 of the show notes or go to bit.ly slash breakdown pod. Well, friends, today we are doing our normal slate of news, but we are couching it in a slightly different framing, which is, of course, October. Now, to understand what I'm referring to,

let's look at a tweet from Stack Hodler who writes, Welcome to October. Eight out of the previous 10 October's were positive for Bitcoin, average gain plus 22%. Looming bullish catalysts. ETF approval leading to Bitcoin marketing pushed by BlackRock, Fidelity, Franklin, Templeton, bond markets forcing central bank intervention, awareness of U.S. debt spiral spreading, search for a hard asset alternative to bonds, overpriced equities and real estate still priced for 3% mortgage rates, looming halving in early 2024, the weak hands have been brutally shaken out. If you held through the bare market, your patience has been tested. Bitcoin's volatility is designed to scare off

everyone who doesn't understand the asset, but in the end, Bitcoin always rewards the patient long-term thinkers. StackSats enjoy fall. So today what we're going to do is look at the news of the last couple days, but in this framework of October. And sure enough, October got off to a hot start on Sunday with Bitcoin Ethereum and numerous alts pumping hard on Sunday night. Bitcoin surged by 3% in just 15 minutes, while Ethereum gained 4.7% across the same time frame. Now, part of October's history with Bitcoin can probably be explained by how dismal September tends to be. Over the past 10 years, for example, September has seen an average loss of 5.6% for Bitcoin, although this time around September was actually slightly positive with a 3.9% gain.

That could reduce the tailwind of mean reversion for crypto markets, which would leave any bullish momentum reliant on a strong narrative push. Now, when it comes to bullish narrative, of course the last week has been all about Ethereum and the imminent launch of new exchange listed products. Nine of those products, specifically Ethereum futures ETFs, were slated to begin trading this morning. Competing products from asset managers including Vanek, BitWise, ProShare, and Valkyri, battled it out for a share of the first day inflows. Giving a preview of the day, Bloomberg senior ETF analyst Eric Valcunas tweeted,

All right, we got nine funds ready to go in the Ether's Futures ETFs derby, which begins 9.30 a.m. Monday. This is totally unprecedented to have so many ETFs doing the same thing launching the same day. Going to be a fascinating experiment and great foreshadowing an undercard to the spot Bitcoin ETF race. I'm setting the over-under for total AUM for all of them at the end of weak at $200 million. Logic being that Bitcoin Futures did $1 billion and ETH funds globally have 20% of the assets under management of Bitcoin funds. Also, I think issuers will tap their client list to get as much volume and flow as they can get early. Now, at the time of recording, it was a little lackluster. Again, Eric Balcuna's tweets, pretty meh volume for the Ether futures

ETFs as a group, a little under $2 million. About normal for a new ETF, but versus BITO, which did $400 million in first 15 minutes, it is low. Tight race between Van Eckers. and pro shares in the single ETH Lane. Now, going into a little bit more about some of the specific products that launched, one of the Ethereum ETFs that began trading was a strategy change from Valkyrie. The asset manager had been granted approval to convert its existing Bitcoin Futures ETF into a mixed Bitcoin and Ethereum fund. The ETF, which trades under the ticker BTF, had struggled since its 2021 launch, gathering just 25 million in assets under management. As a Bitcoin-only fund, the Valkyrie product had launched several days after the offering from pro-shares.

That gave ProShare's a dominant first mover advantage, allowing it to gather a near monopoly in the market for futures-based Bitcoin ETFs. Now, on Thursday, Valkyrie had begun accumulating a small amount of Ethereum futures positions ahead of their strategy change becoming effective. Although this move appeared to be technically allowed, analysts noted it gave Valkyri a jump on the competition. On Friday morning, Valky announced, however, that it had reversed course and would not continue accumulating Ethereum positions.

It would also unwind all existing positions that had been entered on Thursday. Bloomberg ETF analysts speculated that the SEC must have threatened them to get them to reverse course. Now, moving out more broadly, once it became clear that multiple Ethereum ETFs would be launching on the same day, analysts noted that the battle lines would be drawn against two dimensions, fees and marketing. It's very clear that however these initial results look, the companies are going to be pushing very hard. From a fees perspective, Van Eck is at 66 basis points compared to 85 from bitwise and 95 from pro shares. That said, due to a difference in structure, the Vanek ETF will have a less different tax treatment, which could make the savings

and fees slightly less appealing. However, on the marketing side, Vanek premiered two 30-minute advertisements on Thursday in anticipation of this week's launch, mostly to positive response from the crypto community. Bankless co-host David Hoffman said, I've been impressed with how crypto-native and on the frontier everyone I've met at Vanek is. This ad isn't a fluke. They get it. Now, in seeming validation of that point, on Friday night, Vanek announced that they would be donating 10% of profits from their ETH-ETF to the Protocol Guild, a group of over 150 Ethereum core developers. They also said that they're committed to making the donation for at least 10 years. Vanek explained their rationale in a Twitter thread stating,

Our upcoming Vanek-Ethereum strategy ETF launch is simply a reflection of your imagination and dedication, as well as our hope for Ethereum's mainstream adoption in the future. Protocol Guild is a grassroots funding mechanism for 150 individuals instrumental to maintaining Ethereum's core protocol. It provides mutual support for peer members, and a way for the broader ecosystem to support protocol work. Alongside the rest of the community, its members were involved in bringing the recent merge in Shanghai upgrades to life. This includes work in areas of research, implementation, testing, coordination, and more. If Tradfai stands to gain from the efforts of Ethereum's core contributors, it makes sense that we also give back to their work.

We urge other asset managers and ETF issuers to consider also giving back in the same way. Now, the response to this was super positive. Protocol Labs, Carl Svone wrote, huge precedent here. A traditional institution making a long-term commitment to decentralized public goods funding and supporting open source devs. Kamakazi said, Super interesting, wonder what other capital attraction tactics we will see. We'll be a furious battle to the death next week since the ETH ETF with the highest short-term AUM likely to become the leader in perpetuity.

Strong incentives for the new ETFs to find major inflows. Anika Lewis said, to be clear, Van Eck is a Tradfai company founded in 1955. An entity like this recognizing the importance of core protocol development is incredibly encouraging for the ecosystem. Monbier, a community manager at Consensus said, way too based. A goosebumps moment to see an institution like Vanek contributing towards Ethereum Protocol R&D straight out of their ETF profits, sets the stage for the rest of the institutions to follow.

Ethereum alignment has been achieved internally and externally. Mike Bundo simply said, this is the most wholesome Tradfai and Crypto News I've heard all year. Now, of course, when it comes to expectations around how well this will perform or what it will do for price, it is worth being very tempered. Cryptodontal tweeted, do my eyes deceive me, or am I seeing people celebrating the ETH Futures ETF as a narrative worth buying? Now, if you're still around from 2021, you might remember the last batch of CryptoFuture ZTF launches didn't end so well. The question many will be watching throughout this November is whether this will also be a

sell-a-new sort of event. Now, ultimately, my best guess is that while this won't mark some sort of top, I don't think that the existence of these products is all of a sudden going to create some major demand for these products. My base case is not that there's a bunch of pent-up institutional demand that's all ready to go and just needs the right products to pour in. And by the way, I feel the same way when it comes to a Bitcoin spot ETF. I do not believe that there would be some crazy rush in right after it got approved. I think that we need to get a little bit more fully out of this cycle. And I think that there's going to need to be a combination of narrative, price appreciation, and new people coming in that starts small, grows a little bit bigger and eventually becomes a flood

before we actually see big results. ETF approvals are a part of it, but frankly, more from a narrative perspective and a shifting of the cycle perspective, I think, than from unlocking some mysterious batch of capital that isn't here yet. Now, taking a backseat to the frenzy surrounding the launch of Ethereum ETFs, there were some minor updates in the quest for a Bitcoin spot-based fund as well. On Friday, the SEC acknowledged a new application from Franklin Templeton. The regulator also delayed their decision on Wisdom Tree's application. No announcement has been made regarding applications from Vanek and Fidelity,

but those are expected to be delayed in line with the other products. Now, the next key decision point for a Bitcoin spot ETF will be in January when the Arc 21 shares product is due for a final decision. Interestingly, however, Franklin Templeton was in the crypto news for another reason over the weekend. Speaking at a CNBC event, Templeton's CEO Jenny Johnson doubled down on her bullish take regarding the tokenization of real-world assets. Johnson called Bitcoin, quote, the greatest distraction from the greatest disruption that is coming to financial services. She said that the idea of moving assets onto blockchains would be like, quote, securitization done on steroids. Explaining how she saw blockchain technology improving traditional financial markets, Johnson said,

one is it allows a payment mechanism, number two, it allows smart contracts to be programmed into the token, and three, because it is a general ledger, it has a source of truth. So whoever has the token, all rights in that token are granted to that person. Johnson even gave a few examples where tokenization could be used for alternative assets. She discussed Rihanna's Super Bowl, NFT, launch, and explained the potential use case for tokenizing and automating royalty payments. She also said the tokenization could be a big deal for athletes. saying, athletes who are going to sign a big contract, they'll say to their fans, I'm going to

sell off tokens worth 10% of my future revenue stream. I'm going to sell 100,000 tokens, and boom, the fans are probably going to pay a premium for it. Johnson said, it's merely that this technology is enabling it, and it's also enabling other very interesting companies that will disrupt some of the traditional business models that we have today. Now, before you get too worried that we are headed back to the blockchain, not Bitcoin sort of narrative, remember that my bet on what will mark the beginning of the transition of this cycle to a more positive bullish environment, was the filing of Black Rock's ETF application for a Bitcoin Spot ETF. And in the days and weeks that followed that application,

Larry Fink not only went to bat talking about the industry, but he absolutely obliterated the narrative of blockchain versus Bitcoin. Even when interviewers tried to pull him in that direction, he rejected it soundly, singing the praises both of Bitcoin and what it represented, as well as the potential for the sort of tokenization and real-world asset themes that are so clearly of interest to the traditional financial world. I would be very, very surprised if we got a full-on resuscitation of that blockchain, not Bitcoin.

I think they were moving into a both and world instead of an either-or world. And I think that that's only going to be more the case, to the extent that we get some sort of common-sense regulations that, for example, determine which regulator actually has oversight of the Bitcoin spot market in the United States. Now, lastly, a quick follow-up to something that we were tracking, of course, throughout the last week. A government shutdown was averted with an 11th-hour deal. On Saturday night, President Biden signed a last-minute deal to fund the government for a further 45 days. Senate Democrats supported the deal which included no new funding to the Ukraine war effort,

which was a major plank of the Republican position. In exchange for getting the deal done, Republicans abandoned calls for restricted social spending. The president's Instagram account posted late on Saturday, I just signed a law to keep the government open for 47 days. There's plenty of time to pass government funding bills for the next fiscal year, and I strongly urge Congress to get to work right away. The American people expect their government to work. Let's make sure it does.

Interestingly, some people tie this to the Bitcoin move on Sunday. Cryptotrater Husd wrote, This 4% up Bitcoin move was one of the easiest trades of the year. Government shutdown was averted on Saturday, so you know Tradfai hedges will be closed in correlation bid right as CME opens at 6pm Eastern time on Sunday. Additional short interest created in the last few days as people speculated. A local top given technical resistance levels, giving fuel. Bitcoin is also illiquid on the weekend, providing capacity for a large move. Not only is there correlation between Bitcoin and Trads, but some also hedged against the shutdown by shorting Bitcoin. Double whammy.

We will keep an eye for the rest of the week to see whether that actually plays out in terms of how things evolved from here. But for now, until proven otherwise, I'm going with the idea that it's just because September became October, and we all know what that means. Until next time, be safe and take care of each other. Peace.