The Breakdown - Bitcoin Rallies as Both Hedge and Risk-On

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 Wednesday, April 23rd, and today we are talking about the continued resurgence of Bitcoin. 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 in the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown. All right, friends, well, we are in one of those periods where really every day is just a continuation of the day's story before it. It is a very fast-moving environment, of course, and I'm happy to report that Bitcoin's resurgence continues unabated. Yesterday, Bitcoin saw a 6% gain, shooting above

Starting point is 00:00:54 $93,000 for the first time since early March. Price is now basically flat year-to-date compared to a 13% drop in the NASDAQ. Monday's positive price action had suggested that Bitcoin was being used as a vessel for capital flight and a hedge against further uncertainty. However, Tuesday was a clear relief rally as the Trump administration stepped back from the brink of a total collapse in world trade. Stocks were also green on the day with both major indices posting 2.5% gains, which was their best result in two weeks. Aldcoins were hugely reflexive to the upside, with multiple tokens seeing double-digit pumps. Several big macro news stories hit the tape throughout the day. In the morning, the IMF released their world economic outlook, downgrading global growth,

Starting point is 00:01:35 from 2.7% to 1.8%. They also increased their inflation forecast from 1.9% to 3%. The report predicted a global economic slowdown in stark terms as a result of the trade war. Not good news for the world, but Bitcoin responded by surging above $90,000. In an afternoon press briefing, President Trump said that he had no intention of firing Jerome Powell. Given his fairly consistent antagonism towards the Fed chair over the past week, the statements were to some pretty baffling. One asked to clarify, Trump said that when it came to his intention to fire the Fed chair, he had, quote, none whatsoever, never did. He declared that the quote, press runs away with things. Frankly, no one is asking too many questions, and pretty much everyone is happy to tow the party line

Starting point is 00:02:17 rather than deal with another self-inflicted monetary crisis. CNBC then broke the news that Treasury Secretary Scott Besson said that there would be a, quote, de-escalation with China in the very near future. The comments were leaked from a private meeting with Wall Street investors hosted by J.P. Morgan earlier in the day. Besson told attendees that neither side, quote, thinks the current status quo is sustainable. We have an embargo now on both sides, right? He insisted that the aim of the policy wasn't to decouple from China, but acknowledged that negotiating is likely to be a slog. Besson actually mentioned that the de-escalation, quote, should give the world and markets a sigh of relief. Markets definitely breathe the sigh of relief, with the news carrying stocks in Bitcoin

Starting point is 00:02:54 into a strong close to the day. White House Press Secretary Caroline Levitt ratified this view of the world, stating that Trump wants people to know that, quote, we're doing very well in respect to a potential trade deal with China and that he's setting the stage for a deal with China and the ball is moving in the right direction. Trump's direct comments were that the final tariffs in China won't be close to the current 145 percent, and that, quote, we're going to be very nice, we're going to live together very happily and ideally work together. Ultimately, what I think market showed yesterday is that whether you are in the camp that this is the most chaotic first hundred days of an administration and living memory, or if on the other hand it's just textbook art of the deal,

Starting point is 00:03:29 At least we have learned that there is indeed pain threshold. We also learned this week that there is a strong bid for Bitcoin as a hedge asset alongside performance as a risk-on trade. Citrini Research wrote, Bitcoin, digital gold and beneficiary of changing global order, but will also rip if we go risk on. Pretty asymmetric. BitWiCIO Matt Hogan tweeted,

Starting point is 00:03:50 Bitcoin is rallying because they broke the economy and the way they'll fix the economy will make Bitcoin rally harder. Still, Trader Andy Constant doesn't trust this de-escalation one bit, writing, classic strategy to walk an economy down in normalized markets. Create relief rallies for lower highs all the way to destination so you don't break anything on the way. Markets in mayhem tap the sign, commenting, the most violent and unforgiving rallies happen during bare markets. TLDR, we are very clearly not out of the woods yet, but at least there is a slight reprieve. Now, speaking of Bitcoin, the Financial Times is reporting that Brandon Lutnik, son of Commerce Secretary Howard Lutnik,

Starting point is 00:04:26 is partnering with SoftBank, Tether, and BitFinex on a massive new Bitcoin joint venture. The consortium will create a multi-billion Bitcoin acquisition vehicle in an attempt to replicate the success of micro strategy. Reports state that Tether will contribute $1.5 billion in BTC, while SoftBank and Bitfinex would contribute $900,600 million in cash, respectively. The vehicle is also seeking to raise $200 million in a private placement equity deal, and $350 million from convertible bond sales. In total, it sounds like around $1.5 billion in fresh capital going into, Bitcoin markets to build a Bitcoin stack worth more than $3 billion. The FTs suggested the deal would

Starting point is 00:05:01 be announced in the coming weeks, but caveated that it could still fall apart. The new vehicle will be called 21 Capital, and Lutnik is reportedly looking to take it public via SPAC. As well as being the son of the Commerce Secretary, Brandon Lutnik succeeded his father as the chairman of Cantor Fitzgerald earlier this year. This means the new venture will have the direct backing of a major Wall Street Investment Bank to assist with fundraising. Bitcoin derivatives expert Juthika wrote, you start to think that Bitcoin is rallying as a sound money store of value inflation hedge, but the market gods have a sick sense of humor. It turns out it was just a Cantor SoftBank Tether Microstrategy 2.0 all along. Ryan Watkins' of Syncrasy Capital is a little uneasy,

Starting point is 00:05:38 tweeting, so another micro strategy clone backed by Cantor, SoftBank, and Tether, with 550 million of dry powder to start, one is an outlier, two is a trend, doesn't start to look like bubble behavior, can already see the headlines of all these levered clones unwinding years from now. Others, though, focused on soft bank CEO Masayoshi Sun returning to Bitcoin. Parker Lewis noted that this isn't Masa's first rodeo, tweeting, you've got to give Masayoshi Sun some credit. He bought 200 million worth of Bitcoin at the top in 2017, and reports have him having realized a $130 million loss, couldn't take the volatility. But despite Bitcoin Rising 8x, he got over the negative psychology of that mistake. There's a lesson here. To put it differently, even if you're the head

Starting point is 00:06:18 of a multi-billion dollar investment firm, everyone buys Bitcoin at the price they deserve. Speaking of Micro Strategy Clones, Japanese hotel chain-turned Bitcoin acquisition company Metaplanet is standing firm on their treasury strategy. The company has seen a 16% drop in their share price over the past month, and investors are starting to get nervous. CEO Simon Girovich posted on Twitter, some shareholders have expressed concern about our share price. We take these concerns seriously and would like to express our sincere gratitude to all shareholders for their continued support and belief in our mission, even in today's volatile market environment. Metaplanet's goal is to create long-term corporate value not to achieve returns based on short-term

Starting point is 00:06:54 stock price fluctuations. We are steadily executing on a clear strategy as a Bitcoin treasury company, aiming to become one of the most valuable companies in the world in the future. He noted that the company has more than doubled their Bitcoin holding since the beginning of the year, well ahead of their 35% quarterly acquisition target. The firm is now holding around 4,900 Bitcoin worth around 430 million at current prices. They aimed ahead of 10,000 Bitcoin target by the end of the year. Gerevich wrote that Metaplanet is, quote, the fastest growing Bitcoin holding company in the world, and the second fastest in absolute volume after strategy.

Starting point is 00:07:25 We're just getting started. Today's episode is brought to you by Crypto Tax Calculator. If you're looking for accurate crypto taxes with no guesswork, check out Crypto Tax Calculator. Get accurate CPA-endorsed tax reports with full support for IRS rules. For those who have fallen down the on-chain rabbit hole, CTC has you covered with more than 3,000 integrations. They have full support for defy staking and NFTs. import directly to TurboTax or H&R block or share securely with your accountant. Create an account, import your sources, and review. It's that easy.

Starting point is 00:07:59 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

Starting point is 00:08:32 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. Alongside all of this, Bitcoin ETFs are also roaring back with the strongest inflow since January.

Starting point is 00:09:06 The funds had been slowly bleeding out over the past few weeks, but their fortunes seem to have, at least for the moment, changed. Monday saw a $381 million inflow, already the strongest day since Bitcoin's all-time high in late January. Yesterday was even better with a massive 912 million worth of inflows. Hunter Horsley, the CEO of Bitwise, is very pleased with his firm's performance tweeting, over $100 million into the Bitwise Bitcoin ETF in the last two days. Investors want more Bitcoin. And indeed, analysts from Intellectia AI see the institutional bid as the main driver of Bitcoin returns this year. They wrote that demand from Bitcoin ETFs and traders looking to hedge macroeconomic risk could push price beyond $200,000 by the end of the year.

Starting point is 00:09:45 Faye Chen, the company's chief investment strategist, said, while the forecast is optimistic, it's also conditional. Any Black Swan from a major regulatory clampdown to a geopolitical event can disrupt trajectories. Jeff Kendrick of Standard Chartered is also on the lookout for Black Swans, but sees most of the possibilities as bullish for Bitcoin. He wrote that Bitcoin's primary role in portfolios is to hedge against risks to the financial system, whether they come from the private sector such as bank failures or from the government sector like current concerns around Fed independence.

Starting point is 00:10:13 Kendrick commented, The current threat to the Fed's independence via Powell's potential replacement falls squarely into the second of these categories. In terms of what is measurable, the current threat plays out via U.S. Treasury term premiums, which is now at a 12-year high. Indeed, although Trump has walked back threats to fire the Fed chair, the 10-year yield has only moderated a little, suggesting markets are still pricing in a significant risk.

Starting point is 00:10:33 Across the Atlantic, meanwhile, the European Central Bank is having a full-on freak-out over dollar stable coins. A policy paper viewed by Politico said that support for American crypto risks causing a financial contagion that could blow up the European economy. The central bank is reportedly demanding an urgent rewrite of crypto legislation that took several years to negotiate and only came into force at the beginning of the year. The monetary policy wing of the European Union is primarily concerned that efforts to expand the reach of the dollar will undermine efforts to become strategically independent.

Starting point is 00:11:01 They're also worried it will prompt capital flight to the U.S. Last Thursday, ECB president Christine Lagarde said that legislation would need to change now and that the unique threat of stable coins was understood by EU institutions. Politico revealed that these comments came after an acrimonious exchange of research papers at the highest level of European politics. Earlier this month, financial ministers met to discuss U.S. digital asset policy and its impact on EU financial stability. The ECB and European Commission reportedly circulated their own papers on the issue, which were directly contradictory. The ECB argued that Europe should clamp down on the so-called multi-issuance model, which allowed U.S. firms to enter Europe

Starting point is 00:11:35 with the benefit of substantially larger resources than domestic issuers. They were primarily concerned about run risk if U.S. firm struggle and draw resources out of their European subsidiaries. This encroachment from the central bank into the executive branch was not well received according to multiple sources. One told Politico, the commission was quite clear that they had very different views on this topic. Not very many countries supported the idea that we should now jump the gun and start making quick changes in rules based on this alone. Austin Campbell, a professor at NYU Stern School, really summed it up when he wrote, the EU is afraid that if their citizens get access to the dollar, the euro is doomed.

Starting point is 00:12:07 telling on themselves. Finally today, Paul Atkins has been sworn in as the new SEC chair. During his tenure as a commissioner during the W. Bush administration, the libertarian-leaning policymaker warned of pointless over-regulations stifling the investment ecosystem. His arguments have never strayed into wholesale deregulation. He simply argued that new regulations are a cost for consumers and so should be targeted and effective. Since his prior term, Atkins has built up a thriving fintech and crypto advisory firm, so he knows the industry and the regulatory issues well. Commissioner Hester Purse heralded Atkins, is the new chair, stating, he cares about economic growth and how the markets that we regulate can support economic growth. I would love the chance to work with him on trying to reorient the agency so that it does take into consideration all aspects of our mission. During his first prepared remarks, Atkins said, a top priority of my chairmanship will be to provide a firm regulatory foundation for digital assets through a rational, coherent, and principled approach. We will work to ensure the United States is the best and most secure place in the world to invest and do business. Atkins is viewed as very positive for the crypto industry, although we all said

Starting point is 00:13:07 the same thing when a cryptocurrency professor from MIT was appointed to lead the SEC in 2022. Still, Atkins enjoys the endorsement of Commissioner Perth, so that is good enough for me at the moment. Michael Saylor is also on board tweeting, very simply, SEC Chairman Paul Atkins will be good for Bitcoin. So there you have it, friends, a little bright spot after some serious gloom. However, 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.

The Breakdown - Bitcoin Rallies as Both Hedge and Risk-On

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