The Breakdown - Bitcoin Reclaims $30K as the Macro Discussion Shifts From Inflation to COVID-19 to Growth

Episode Date: July 22, 2021

Bitcoin is up just over 7% in the last 24 hours, following its first close below $30,000 since New Year’s Day. On this episode of “The Breakdown,” NLW proposes possible explanations for this reversal, including: Competing concerns of Inflation and slow post-COVID recovery Institutional interest in crypto A few weeks ago, headlines were centered around markets being nervous about inflation. Emergence of the Delta variant and its induced lockdowns, coupled with reports of unexpectedly slow growth in Q2 in China, casts doubt on the inflation concerns. Which concern will prevail and drive the next macro narrative? Many speculated non-fungible tokens would be a fleeting phenomenon, in fashion for a short period of time and then fading away. However, an investment round for NFT platform OpenSea raised $100 million. Is OpenSea’s success an indicator of renewed long-term investor confidence in crypto? -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is sponsored by NYDIG https://nydig.com/nlw/ The Breakdown is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Nuthawut Somsuk/iStock/Getty Images Plus, modified by CoinDesk.

Let's try to take a step back and ask, what did we learn from all of this? I think the biggest takeaway from me here is that the macro narrative is pretty soft right now. In other words, there is not a lot of conviction around what happens next. We went from real nervousness one day to renewed optimism the next, and this is obviously also true in crypto. 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. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk.

What's going on, guys? It is Wednesday, July 21st, and today we're going to discuss, one, Bitcoin's price rebounding, two, some interesting nuggets from the institutional world, and three, a bit of a shift in the broader macro discussion. Let's start off with price. The beginning of this week was super gloomy, and yesterday Bitcoin ended up printing its first close below 30K since New Year's Day. By the way, if you're wondering what it means for Bitcoin to close, given that it's a 24-7 market, it's the price at the end of the day UTC coordinated universal time.

However, lo and behold, we woke up this morning to green, green, green. At the time of recording, Bitcoin is up a little over 7% in the last 24 hours to almost exactly 32,000. So what's the explanation? Well, first, let's acknowledge that the cleanest and realist answer is, no one knows, but it might be as simple as the fact that while Bitcoin seems like it remains relatively weak, it got oversold, and traders didn't think a $29,000 price tag made sense. Second, I also want to point out that I truly do not care about day-in, day-out price when it comes to my own personal holdings or my confidence in Bitcoin in general.

When I discuss price, it is strictly as a lens for asking what larger forces might be shaping markets that are worth being aware of, or which can teach us something about larger global phenomenon. So with that, let's discuss some possible explanation. The first possible explanation that has to do with a shift in the macro narrative. John Authors at Bloomberg wrote a piece yesterday titled Markets Are No Longer Worried About Inflation. Subtitle, The Bad News is that they are now fretting about the post-pandemic recovery. In the piece, authors discusses Mondays move down in global stocks, which was the worst day markets had seen in months. He argued that the driving forces behind it were, one, new headlines and fears around COVID,

and two, in his words, intensifying rancor in the U.S.-China economic relationship and issues surrounding China's economic recovery generally. So let's look at those things in turn. The COVID concerns have to do with two things. A little with the Delta variant, a lot with the increasing politics around vaccines. Basically, we've watched a wave of infections in the UK and other places around the world based on this Delta variant of COVID-19, and this has some concerned. In the UK, deaths have continued to flatline even as case numbers have grown, with the vaccine

reducing the worst of the symptoms. In the U.S., however, vaccine uptake is highly variable. Some states have more than half of adults still unvaccinated. In that context, markets are starting to get jittery about the possibility of disruptions again. This doesn't necessarily mean full lockdowns, but could mean around specific business categories, for example, in the travel and leisure sector facing health-related headwinds once again. To be fair, there's also a bit of narrative making going on. Markets have been extremely freaked out by the idea of U.S. monetary policy being anything

but the super-doveish accommodative type of policy it's been. That's why when, a couple weeks ago, we were talking about markets being nervous about inflation, what they were really nervous about was the Fed withdrawing support that was allowing stocks to get to such high valuations. Ben Hunt and the folks at Epsilon Theory wrote about this sort of narrative making around the COVID variant and what's really behind it today if you're interested in more on that. Now, the China issue is both one of continued, if not growing, tension between administrations as well as just simply questions of growth. China's growth for Q2 was less than expected, and the return to slower growth post-COVID recovery came fast.

faster than many expected. The natural consequence is that some are wondering if Western economic recovery is also weaker or more fleeting than it might seem. Take this together and all of a sudden you've got a big shift away from the previous concern. Too much growth, too fast, with too many structural shifts, means rising inflation, means a pullback of accommodative monetary policy, means a shift away from tech stocks and other risk assets. Now what's returning in its place is the main concern being too little growth. Here's how authors sums it up. Effectively, the bond market is saying that inflation isn't an issue at all. It's no more of a concern that it has been for most of the last decade, and the pervasive problem during that period has been the lack of growth and inflation.

All of that said, it's not like the inflation concern has gone away. Authors continues, quote, businesses are already convinced that they are in the grip of cost inflation, while consumers are bracing for price increases ahead. These are based on solid empirical questions, and if businesses and consumers are thinking this way, they're likely to act accordingly, which will drive higher inflation. All in all, things are mighty confused, but the point here is that Monday showed serious concern in the macro markets, and the question, going back to where we started on the show, is could this have dragged crypto with it? Sam Trucco of Alameda tweeted a thread on this and said, quote, the stock market did react negatively yesterday to various pieces of news about the new delta

variant of COVID. As we learned last year, when the stock market moves off of big, especially COVID news, crypto follows. But the stock market partially recovered today. Why didn't crypto recover too? Either this wasn't a big effect, or it's still going to, or I don't know, crypto is weird or something. Now, 12 or so hours after this thread, crypto did indeed follow. So let's briefly talk about the stock recovery, he mentioned. The FT led with a piece this morning, Wall Street stocks bounce back after COVID-Delta-fueled retreat. Focus shifts back to optimism over economic growth and recovery in corporate profits. The first line reads, Wall Street stocks clawed back losses after a global route a day earlier as investors dialed down

caution over the spread of the Delta coronavirus variant to focus instead on economic growth. It basically reiterates everything that the piece from the day earlier had said that I was just quoting from, but investors seem to remind themselves in that subsequent 24 hours that in spite of all those concerns, all of the preconditions that had made the first half of the year run up so big were still there. A strategist at State Street said, quote, the underlying factors that were driving markets in the first half of the year are still there. Economic recovery, better earnings, super accommodative monetary policy, and a lot of money on the sidelines from savings and cheap borrowing. It is all still there. The breakdown is sponsored by Nidig,

the institutional grade platform for Bitcoin. As long time, listeners know, NIDIG is a major force in the Bitcoin space, and they're now making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers to offer Bitcoin. That mainstream access is critical for all of us, and you can learn more about it at NIDIG.com slash NLW. That's NIDIG.com forward slash NLW. Let's try to take a step back and ask, what did we learn from all of this? I think the biggest takeaway from me here is that the macro narrative is pretty soft right now. In other words, there is not a lot of conviction around what happens next. We went from real nervousness one day to renewed optimism the next,

and this is obviously also true in crypto. On Monday, Galaxy Digital's Mike Novogratz writes, markets are ugly this morning, crypto-heavy, stocks heavy, rates bids, summer plus Delta, plus China slowing, plus everyone had gotten really long. Rates might have one more surge lower. If this is a correction in stocks, it's just starting. Feels bad and we're are only 3% from all-time highs. That was Monday. And then just today, we have the return of euphoria. Scott Melker tweeted this morning,

Bitcoin drops a few hundred dollars. We're going to 10K. Bitcoin goes up a few hundred dollars. We're going to 50K. But as you can see right now, that sort of real volatility around people's psyches is not just crypto. Okay, so as I mentioned, though,

I've really been discussing two things simultaneously. The first is this larger macro shift that I find interesting. The second is Bitcoin price in the crypto market resurgence in general. As we've been covering, one of the positive explanations for the recovery up is just crypto markets following the general macro trend. Given that these moves haven't been that dramatic, this seems plausible to me.

Another reason some have mentioned is displays of long-term investor confidence in the crypto sector. NFT platform OpenC raised $100 million at a $1.5 billion valuation. When you've heard people wonder aloud whether NFTs were just a flash in the pan, a blistering trend, the ICOs of this particular bull market. But then some of the most successful VCs in the world put nine figures into a company well after peak hype has happened. It makes one reconsider whether maybe calls of NFT's early demise have been greatly exaggerated. And then, of course, there was FTX's Monster Round. The exchange raised $900 million at an $18 billion valuation.

Now, anyone who has read my Twitter bio will know that in addition to this podcast, I do communications consulting with companies in the space. In general, I make it a point not to talk about companies I work with on the podcast for obvious reasons, and Blockfolio, who were bought last year by FTCS is one of those companies. Given that, I will just say that the thing that's interesting about the investor pool of this round, which, by the way, I had no part in helping raise, includes a number of more traditional market investors, including Paul Tudor Jones, Dan Loeb, SoftBank, that suggests that interest in this space among the non-crypto set hasn't dwindled entirely. In fact, it might still be there pretty strongly. Speaking of traditional financial institutions,

there were a number of additional Tradfai nuggets. By the way, I can't get myself to say that word tradfi. There are a number of additional traditional finance nuggets that seemed to have accelerated this rally. The FT this morning writes, quote, two of the world's largest custody banks have publicly backed cryptocurrency trading platform Pure Digital, in a move that points to growing demand from traditional asset managers for Bitcoin and other digital tokens. From my read, basically, BNY Mellon has joined a consortium of six banks that also includes State Street plus a number of unknown partners that are launching a digital asset platform called Pure Digital.

BNY's global head of foreign exchange said, quote, digital assets are only going to become more embedded in global markets in the years ahead, and this collaboration accords with BNY Mellon's wider strategy to develop a digital asset capacity for clients across the entire trade lifecycle. The Financial Times calls it the first cryptocurrency trading venue in which banks are involved as the driving force, and it sort of reminds me of Hulu, which was created by a consortium of big media companies as a way to catch up around internet streaming. Still, if anything is looming large on the horizon right now, it's Kathy Wood and Arks Bitcoin

Conference today, cheekily called the B-word. It's all about institutions embracing Bitcoin, and there are some great speakers, Lynn Alden, Nick Carter, and many others. But the thing that everyone is really anticipating is the discussion between Jack Dorsey and Elon Musk. This year, these two have come to represent two very different types of billionaire friends of Bitcoin, friends perhaps in air quotes. While Elon is fickle, capricious, and seemingly in need of devotion, Jack has an incredibly strong sense of what it means for Bitcoin to be the internet's native money. Elon's joining this event was, at least it seems, all spontaneously arranged via Twitter comments. However, I made clear then, and I'll reiterate now, that I'd be willing to bet that Kathy Wood,

one of Elon's longest and most stalwart supporters perhaps had some behind-the-scenes role in facilitating this conversation. Either way, there is much speculation about what will be said. I really have no idea. I have no idea what to expect, but I do think it's notable that at current prices right now, it's like Elon never existed, and there's something to be said for that. Both the Bitcoin Treasury narrative and the Bitcoin environmental narrative currently are worse off because he showed up. Is there something that he will do or say today that can shift that balance? Perhaps. and you know if he does, I'll be here to tell you about it tomorrow. Until then, guys, be safe and take care of each other. Peace.