The Breakdown - Bitcoin ROCKETS Past $43,000 - What's Driving It?

Episode Date: December 6, 2023

Bitcoin is on a TEAR, smashing up past the psychological barrier of $40,000 and then just continuing. NLW explores what's going on and what the prospects for more are. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown 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 Tuesday, December 5th, and today we are talking, of course, about this Bitcoin rally. 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, Breakdown Pod. Hello friends. Well, first of all, a big apology for it not being here yesterday. We had a death in the family and over the weekend had to unexpectedly travel for a funeral.

I had thought I was going to have some time on the flip side when we got home yesterday, but alas, it just did not work out. Now, that said, the theme for that show would have been pretty similar as the theme for today, which is, of course, this face-ripping rally. At the time of recording, Bitcoin was up around $43,500. But really, markets began surging on Sunday night, with a 4% move which continued into Monday, with Bitcoin settling in by Tuesday morning around 7.6% higher than it was at the beginning of the weekend, and as we know, it just went up from there.

Bitcoin is now up more than 150% for the year. Now, after breaking through the $40,000 level on Sunday evening, the price did struggle to continue through the meme level of 42,000. That level was tested twice throughout Monday with a relatively minor drawdown each time. Of course, we know it was eventually able to punch up above, but beyond the memes, getting above $40,000 is important not only as a round number, but also as a key level from the beginning of the bare market.

Throughout the first quarter of 2022, $40,000 acted as a price floor after the first leg of the sell-off. It was also the final local high on Wednesday, May 4th, which was the day the Luna ecosystem unraveled. For the first time then during this year's recovery, we can say that Bitcoin has at a price not seen since April of 2022. Just like the industry as a whole has begun to move on following the conviction of Sam Bankman-Fried, the arrest of Doe Kwan, the plea deal of CZ. Well, on top of all that, the charts are now saying that it's time to put the disastrous events of Crypto Winter behind us. Now, usually when we see noteworthy price action, there are violent liquidations driving the move. This time around, future markets were relatively

sedate. The bulk of the liquidations occurred on Saturday rather than in the final leg of the weekend move. Around 200 million in short positions were liquidated throughout the weekend. This was the largest wipeout for shorts over the past few weeks, but pales in comparison to the fast and violent liquidations were more used to seeing. The lack of a large liquidation wave could to indicate the price movement was primarily driven by spot accumulation. Or it could be a sign of market shifting away from high-leverage speculation to better capitalized institutional traders. Now, part of the story could be a supply issue on exchanges. According to Glassnode data, more than $1.4 billion worth of Bitcoin has been withdrawn from exchanges over the past three

weeks. Strong outflows from exchanges are typically viewed as a bullish indicator suggesting strong demand. While the Bitcoin balance held on exchanges has been trending down over the past six months, late October did see a brief period of inflow. That trend is now terminated with Bitcoin held on exchanges reaching its lowest level since early 2018. Cryptotrater Ben Simpson pointed out the ways that, quote, this 40,000 BTC is different in so many ways. He went on to write, 75% of supply held by long-term hoddlers,

incoming having, institutions adopting, ETFs on the cusp of being approved, still little retail interest, Fed balance sheet increasing again. The fomo of retail and institutions in 2024 will be huge, well done for surviving the bear. Now, others were cautious to not get out ahead of ourselves, at least when it comes to our emotions. Leverell-Vellez writes,

Bitcoiners, don't you dare, act surprised. Do not show people that. Be cool, calm. You've got this. You always did because this is what we've known. This is what we always said would happen, so act like it. Don't give these angry bozos that were calling for Bitcoin doom and gloom the satisfaction of even seeing you excited.

No need to put it in their face. Your silence will scream volumes. They know. If someone you've been trying to orange pill finally gets back to you, act like nothing is going on. If they bring up Bitcoin, say, yeah, cool, and change the subject. Don't get emotional. It's just the beginning. Now, on that front, Robin Hood reported a massive surge in crypto volumes on Monday. On top of that, the FinTech Exchange saw a 75% increase in crypto volume in November compared to the previous month. Crypto trading on Robin Hood has been depressed throughout the year.

Their last quarterly report declared a 55% drop in crypto revenue compared to the same period last year. Importantly, Robin Hood is currently only available in the U.S., so should be a reasonable proxy for American retail interest in crypto beginning to return. What's more, this trading volume increase has been broadly mirrored across exchanges. According to data from the block, crypto exchange volume came in at $1 billion for November. This was the highest volume since March and represents a 60% increase from October. Volumes are still a long way down from the trillions of dollars that move through exchanges each month during the height of the last bull market, but monthly volume is already above anything seen prior to January 2021, indicating that the next cycle is starting

from a much higher base of market participation. Bitcoin on-chain data shows a daily volume of $32 billion currently. That's a new year-to-date high and surpasses anything seen since November 2022. On top of that, Mike Ippolito from Blockworks pointed out something really interesting. He wrote, most of my friends are completely unaware crypto has moved at all. It's pretty remarkable, actually. I would guess retail doesn't return until 50 or 60K. Hard to overstate how bullish that is. Trader Jesse Echle wrote, I had someone comment on a post on YouTube that there was quote-unquote no way I could have made money on crypto in the past year. We all look at the charts often, but the average retail investor doesn't. They read headlines which have been nothing

but negative for the past year. We forget that CT is less than 1% of the planet. We might all clearly see the bull run, but 99% of people are still completely unaware. Now, as most of the aggressive Bitcoin move occurred over the weekend while stock markets were closed, Bitcoin-related shares staged an impressive gain on the Monday open. Both Coinbase and Micro Strategy added more than 4% for the day. These two companies are viewed as straightforward proxies for crypto exposure, which are available on public markets, and able to be bought using tax-advantaged retirement accounts. Coin mining stocks also had an impressive day. Marathon Digital added 8.5% while its rival Riot platforms added 8.9%. Price gains for crypto-related shares appear to be completely independent of movements in the broader

stock market, given that the NASDAQ index was up only 0.6% for the day, with mega-cap tech stocks, each losing a couple of percentage points. The S&P 500 also struggled losing half a percent. 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 question, what if? It invites people in instead of leaving them out. It's on 24-7-365 and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the

highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc., PVI, DBA, DBA, Cracken. Now, following their largest monthly buy in several quarters, Micro Strategy's Bitcoin investment is beginning to show massive profit. The company now owns a little over $7.3 billion worth of Bitcoin and has paper gains of more than $2 billion. Microsoft's average

Bitcoin acquisition price is just a little over $30,000. Of course, during the depths of the bear market, Micro Strategy dipped deep into the red on its Bitcoin holdings, and the paper losses were so severe that unfounded concerns about margin calls and insolvency circulated on crypto Twitter. Impressively, MicroStrategy shares have now slightly outperformed Bitcoin since Michael Saylor began buying back in August 2020. The stock is up 290% since then, while Bitcoin has gained 240%. Ryan Selkis from Masari wrote, Michael Saylor owns 25% of Microstrategy. He used other people's money to notch a $500 million gain for himself so far on a massive Bitcoin bet. This is like running a fund with carried interest but only betting on the fastest horse. Wealth creation on easy mode,

respect. Now, a much smaller but no less significant Bitcoin allocation from the last cycle was El Salvador. The South American nation accumulated around 2744 Bitcoin at an average price a little below 42,000. They only began buying in September 2021 and spent a comparatively reasonable $127 million on the strategy. Their Bitcoin portfolio is now in profit likely for the first time. President Naibu Kelle marked the occasion with a tweet, stating, El Salvador's Bitcoin investments are in the black, After literally thousands of articles and hit pieces that ridiculed our supposed losses, all of which were calculated based on Bitcoin's market price at the time. With the current Bitcoin market price, if we were to sell all our Bitcoin,

we would not only recover 100% of our investment, but also make a profit of $3.6 million as of this moment. Of course, we have no intention of selling. That has never been our objective. We are fully aware that the price will continue to fluctuate in the future, and this doesn't affect our long-term strategy. Nonetheless, it is important that the naysayers and the authors of those hit pieces take back their statements.

The responsible thing to do would be for them to issue retractions, offer apologies, or at the very least, acknowledge that El Salvador is now yielding a profit, just as they repeatedly reported that we were incurring losses. If they consider themselves true journalists, they should report this new reality with the same intensity they reported the previous one. We'll see. Stay tuned. I'll give you one guess as to how likely anyone on crypto-Twitter thinks that sort of

journalistic humility might be. Now, obviously one of the big themes, if not the big theme driving all of this, is the institutional narrative. A new report from Bybit research took a look at institutional allocations into crypto. Analysts found that institutional traders are currently holding 45% of their portfolio in stablecoins, 35% in Bitcoin, and 15% in Ethereum. Altcoin allocations were a minor afterthought at just 5%. Now, this cohort of traders have doubled their Bitcoin allocation over the first three quarters of this year.

This behavior diverged from retail traders on the platform, whose Bitcoin allocations have remained relatively flat at around 20% of portfolios. The report suggested that the high use of leverage by retail traders could be the reason, with traders using stablecoins as their preferred choice of collateral. Institutional holdings of Ethereum have remained relatively constant, with analysts suggesting that the preference for Bitcoin is related to looming ETF approvals. Still, September saw the sharpest decline in stablecoin holdings for institutions, suggesting that these firms chose to deploy capital as bullish sentiment picked up.

Over the past few weeks, reports from Matrixport have been consistently bullish, calling for acceleration of price action to close out the year. In early November, they called for an imminent breakout and set their sights on $45,000 Bitcoin by the end of 2023. Again, sitting here at $43,500, that now seems prescient. However, last Thursday's report shifted to longer-term predictions. The company's head of research, Marcus Thelian, put his price target for Bitcoin at $60,000 in April of next year alongside the halving. He predicted $125,000 for the end of 2024, which would be a significant 210% gain from current prices. Thelian noted that the Bitcoin cycle typically involves a three-year bull market following each major bearish downturn. He called for a quote,

another three years of this bull market with 2023 being the first year. Regarding the halving, Thelian said, historically the years when Bitcoin mining rewards were halved were generally bullish. Miners tended to hoard Bitcoin before each having. Prices increased by 200%, which would project Bitcoin reaching 125,000. You'll remember that earlier last week, Standard Chartered also forecast $100,000 Bitcoin for the end of 2024 on the back of what they called earlier than expected introduction of spot Bitcoin ETFs. In other words, from where we're sitting right now, predictions of more than 150% returns across 2024 are becoming for these early forecasters something of a consensus. It's also notable that right now we are seeing basically zero

analysts putting for the argument that the halving is priced in. Part of that may be the fact that we're going into the first halving that at least I can remember, where the having is arguably not the biggest price or narrative catalyst. That of course belongs to looming ETF speculation. Then again, if we get all those ETFs in January, who knows how that will evolve over the three months between then and when we anticipate the having to occur. Now, I think the Matrix Port report is really interesting, because I remember that it felt very bullish when it was published, as Bitcoin had only just reached 35K on a big pump that week. Now that 45K end of year call might feel a little conservative. Certainly, as we are

want to do, many Bitcoiners are kind of getting ahead of themselves. Vijay Boyapati tweeted, Bitcoin all-time high before the halving for the first time ever. Blockstream's Adam Back said, that's what I've been saying. My bet is 100K before the halving. Still, the most bullish call so far during this rally has come from an unexpected source. Bloomberg. Their article contained an unattributed call for $500,000 Bitcoin during this cycle. Now, it was presented in a skeptical light with Bloomberg largely including it as an absurd example of a top-end price target.

The article was intended to cover how quickly euphoria has overtaken the crypto-faithful rather than presenting a genuine price target from Bloomberg analysts. Still, the article discussed a, quote, fresh crypto super cycle, which would lead to a, quote, new monetary order taking Wall Street by storm. The article was framed around Coinbase CEO Brian Armstrong's recent tweet suggesting that, quote, Bitcoin may be the key to extending Western civilization. Still, Bloomberg was unable to dismiss the dramatic returns for Bitcoin so far this year, acknowledging the staggering 150% returns, which once again positioned Bitcoin is a top-performing asset. However, filling the role of the Cryptoskeptic was Matt Maley, Chief Market Strategist at Miller, Taback, and Co. He said,

It's getting crazy again. Those kinds of comments show just how quickly sentiment can change for this asset class. Maley suggested there was no hope of another massive bull run unless central banks embark on a massive liquidity program similar to the policy surrounding the pandemic. On the ETF narrative, Michael O'Rourke, chief market strategist at Jones Trading said, The combination of ETF speculation and now hope on interest rate cut easing is another speculative frenzy. Are people who have been waiting for the ETF and missed a $20,000 rally going to pay double because it is an ETF? Probably not. He also added that, the asset is purely speculative gambling, and in the 14 years that it has been around, it has not exhibited any true utility other than speculation

and illicit money transfer, which is important context to know as you judge how to view his opinions. Now, wrapping this all up, the latest coin shares report on fund flows has once again shown strong inflows into crypto exchange traded products. Last week saw a further 176 million allocated to crypto products, bringing the inflow streak up to 10 weeks and 1.76 billion. This is now the strongest period of fund inflows since October 2021, when the first Bitcoin ETF was launched in the US and gathered 1 billion in assets over two days. Bitcoin funds once again outperformed, recording 133 million in inflows for the week. Alongside the high inflows, trading volumes are also elevated. Last week saw 2.6 billion worth of crypto products change hands, which is a

around 12% of the Bitcoin spot volume for the same period. Asset's under management for crypto funds have now risen by 100% over the past year, although they do remain 47% lower than the all-time high of 86.6 billion said in 2021. Regionally, Canada, Germany, and the U.S., registered the strongest inflows with Hong Kong, the lone outlier, seeing 15 million in outflows for the week. Anyways, guys, we will have to see what kind of legs this rally has, but for now it is a hell of a way to start this week and a hell of a way to start this month, and I am quite glad to be back covering this and excited to see what happens next. So until tomorrow, be safe and take care of each other. Peace.