The Breakdown - Bitcoin SMASHES Through $30,000 As Institutional Excitement Returns

Episode Date: June 21, 2023

Bitcoin is up above $30,000 and the return of the institutional narrative is driving it. NLW explores the good and bad.  Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribeto 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 Wednesday, June 21st, and today, you know we are talking Bitcoin bullishness. Before we get into that, 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. right, friends, it is vibe check time and the vibe is good. Drew Morris yesterday tweeted not always easy to tell the difference between hoping for a vibe shift and an actual

legit vibe shift. I quote tweeted it yesterday and said, this morning when we woke up, it was the former, but now it's the latter. And as I sit here watching Bitcoin try to punch up above 30,000, I feel even more strongly that that is the case. So what's going on? Well, let's talk price action first. As soon as the bell rang on Tuesday morning, market participants were hitting the bid on Bitcoin. Over the course of the morning, Bitcoin punched through the 28,000 level on the back of heavy volume. Price action was a little less violent in the afternoon, but still up into the right, ending the day with a 5.8% gain. Market action was firmly focused on Bitcoin with other major coins left in the dust. Ethereum, for example, saw a robust but still comparatively weak

3.4% gain on the day. And obviously overnight and into this morning, that price action just continued. Now, in terms of the total crypto market cap, Bitcoin has now moved above a 50% waiting for the first time in two years. Joe DiPasquale, CEO of Crypto Fund Manager Bitbull Capital, said, it wouldn't be surprising if Bitcoin continues to lead the market for now. On the top side, 30K is the obvious resistance. So what was behind this? Well, yesterday's morning move looked like a massive short squeeze and was reported as such across multiple sources. However, the data just didn't back that up. Only 90 million in short liquidations were recorded by coin glass, certainly not nothing but mild compared to larger squeezes observed in April. Crypto Quant CEO

Kai Yang-Ju put it best, tweeting, this is not a short squeeze, but someone is just buying Bitcoin a lot. I repeat, this is not a short squeeze, but someone is just buying Bitcoin a lot. Now, exchange data gave some interesting insights. Coinbase had a massive influx of volume in U.S. market hours, implying that the buying splurge was at least partially correlated with institutional enthusiasm. One wild moment happened when Binance U.S. printed a major dislocation around 250 a.m. on Wednesday morning on the East Coast, recording a Bitcoin trade at 138,000. The anomalous price action was recorded on the Bitcoin tether pair, which has been showing much greater illiquidity than other pairs on the embattled exchange. Market depth, a measure of liquidity, has fallen by 76% since May on

Binance, according to Kiko reports published earlier this month. And of course, recent problems with U.S. banking relationships have no doubt contributed to the problem since then. The Grayscale Bitcoin Trust also had a stellar day. catching the glow from enthusiasm surrounding last week's BlackRock ETF filing. GBT's shares traded up more than 11% for the day, outpacing the rise in Bitcoin's price. At the peak, the GBT discount narrowed to 33%. Now, of course, the discounted price on GBT shares to the underlying Bitcoin held in the trust has largely been viewed as a sentiment indicator for how likely the firm's ETF conversion

is to be approved. Yesterday, the discount hit its narrowest points in September, beating out the discount contraction in early March when Grayscale appeared in court to duke it out with the SEC. So what was behind all of this action? Well, friends, the institutional narrative is back on the menu. Yesterday saw a flood of ETF filings for major asset managers following up Thursday's application from BlackRock. By the end of the day, Wisdom Tree, Invesco, and Bitwise, all had their applications for spot Bitcoin ETFs back on foot. One of the biggest differences between the previous filings and BlackRock's application was the proposal of a market surveillance mechanism

to detect market manipulation. This has been a cornerstone of the SEC's rejection of prior applications for spot Bitcoin funds. Wisdom Trees filing echoed the BlackRock point, stating that the firm is willing to enter into a surveillance agreement with a, quote, operator of a U.S.-based spot trading platform for Bitcoin. Bloomberg's senior ETF analyst, Eric Balcunis, is wildly optimistic about BlackRock's chances for approval, going on the record to say he expects it to be a done deal by the end of the year. He followed up in a tweet, just to add some context, I bet a steak dinner with another analyst that it would be approved this year, because, as I said, I'm betting BlackRock knows something. That said, our team is giving

at a 50% chance of approval by end of year. Either way, it's an exciting development in this saga. Now, one major outlier in the institutional space is Fidelity, who have yet to get an ETF application moving. Instead, rumors are swirling that the firm is looking to buy out the Greyscale Bitcoin Trust. At APAvacus writes, update, DCG and Grayscale have been offered nearly $2 billion for the Grayscale Trust's assets and brand. Three separate offers have been proposed by one public and two private entities. All three offers were quickly and summarily rejected. Now, the community really caught the energy around all this action. Bitcoin Jack writes,

It's Everyone Go File Time. While Nate Garassi, the president at ETF store, writes, Quick inventory of spot Bitcoin ETF filing since last Thursday. I shares, the world's largest ETF issuer. Bitwise knows the space inside and out. Wisdom Tree, a top 10 issuer. Invesco, a fourth largest issuer. What changed recently?

SEC has been on the warpath against crypto. Something's up. Res, a trader at proximity labs, writes, Trad 5 FOMO. Market is betting on Grayscale winning the case versus SEC, or Market is betting on BlackRock's ETF to be approved before regardless, or players are filing applications just in case to not be left behind with a competitive disadvantage. Or all of them. Mark Jeffrey from the Boolean Fund writes, I love the thought of the SEC getting dedossed with Bitcoin ETF applications right now post BlackRock. Adam Cochran adds this is just going to be a constant onslaught until the SEC caves.

Now, there were some folks who tried to rein in our enthusiasm just a little bit. Alex Thorne, the head of research at Galaxy Digital said, guys, yes, BlackRock filed for their Bitcoin ETF, and that's news. The rest, not new info. Wisdom Tree and Invesco both filed in 2021. Fidelity has been deep for years. EDX was reported 12 and 9 months ago. Bullish, but let's not let the clickbait accounts make everyone go crazy, please.

Others, though, say, nah, be that bullish. Cryptodon Alt writes, We had entire bull markets based on the idea we might get an ETF at some point. This is the closest we'll ever get. If BlackRock can't do it, no one can. I don't really see a reason to fade, especially given the fact that this news gives bigger fish the balls they need to deploy. Dispositionally, I am always closer to Alex here, in terms of not letting our enthusiasm get ahead of ourselves. But rationally, I'm a little closer to Don as it stands. First of all, when it comes to EDX, which you're going to talk to in a moment,

there's a massive difference between having plans floating around and having the exchange launched. Second, although yes, Wisdomtree and Invesco both filed in 2021, they withdrew their applications once it was clear they weren't getting approved. The fact that they've reapplied suggests that they, like Balcunas, think that BlackRock has a better-than-average chance. At the end of the day, this is a watch-what-people are doing, not-what-they're saying moment, and everyone is moving to actually get involved. So let's come around to that other dimension of the institutional story. EDX, a new exchange backed by Tradfied Giants, including Citadel Securities, Fidelity Investments, and Charles Schwab, has gone live nine months. after it was first announced. EDX announced the commencement of trading on Tuesday, but has quietly been executing trades for weeks ahead of the formal launch. EDX says its approach draws on best

practices from TradFi exchanges and differs in a few ways from most crypto exchanges. The exchange is non-custodial, meaning it doesn't directly handle customer funds. Instead, the exchange maintains the order books, and then settlement of trades is conducted between parties. EDX plans to launch a clearinghouse to help facilitate settlement later this year, but even then it plans to warehouse customer funds with independent banks and custodians. This separation of functionality has, of course, been a hot topic in recent SEC lawsuits, with one of the key critiques of existing crypto exchanges being the inherent conflict of interest in a single firm acting as an exchange, Clearinghouse, and custodian. Now, unlike most crypto exchanges, EDX won't serve individual investors.

Instead, it will operate a wholesale order book for other exchanges to route trades through. This model replicates the structure of major stock exchanges like the NASDAQ and New York Stock Exchange, where individual traders do not have direct access to the exchange, but rather, post their orders with individual brokerages like Fidelity and Schwab. EDX CEO Jemiel Nazarali said, the failure of FTX had driven demand for a crypto exchange without the inherent risk of storing customer funds. The exchange will offer trading in four cryptos, Bitcoin, Ethereum, light coin, and Bitcoin cash, which are notable as not having been named as securities by the

SEC. Now, the huge narrative focus here was on the idea of Operation Choke Point and all of these failures and the aggressive response to them, basically clearing the way for Tradfi actors to come in and swoop up the business. Hasika Trades writes, there it is. Crypto Exchange EDX markets backed by Citadel securities Fidelity Schwab starts operations. Drowd the crypto-native exchanges in lawsuits, generate fear around them, and then let the Tradfi vultures swoop in. Austin Campbell from Columbia was really skeptical. He writes, like, who is this for? How do you use it? If I want my tokens, how do I get them? How do we even settle a trade? This is like building a half pig, half fish, only you stopped at the half a pig.

If you're offering BCH and LTC as 50% of your new product launch in 2023, you're not going to make it. It's how crypto tech and anyone under 65 know to ignore you. This is like launching a new stock trading platform today and starting with four stocks, two of which are Enron and Lehman. Eric Golden made the connection back to BlackRock saying, The SEC rejected prior Bitcoin ATFs because the belief the market could be manipulated and therefore exchanges needed to be regulated. If the SEC feels differently about EDX,

then perhaps that is the final piece needed to get the BlackRock BTC trust approved. Is that what has changed that gave BlackRock the confidence to file? Attorney Collins Belton said, quote, these players treating ETH as a non-security is a good indicator. Rahm Alawalia, meanwhile, zoomed out a little bit to try to see if he could suss out what EDX's long-term plans might be. He writes, EDX avoids directly serving retail investors.

EDX caters to institutions providing APA-based trading access rather than a traditional front-end user interface. It's possible that EDX may have aspirations to evolve into a regulated ATS and ultimately a national securities exchange. I'm speculating here, but the approach is awfully consistent with that pattern, and that would be good for crypto markets. I Am Nomad had some skepticism. He wrote, EDX started building at a time when, quote, crypto needs an institutional class exchanges was the meme around the big names. I wrote them off because there were about 16 of these things that were copy-paste.

The problem so far in this narrative is global retail does more volume than a few institutional participants. So market makers end up trading with themselves, more or less. Absent retail flow, there just isn't a lot of money to be made, so total trade. sizes and volumes are small. Maybe this time will be different. Still, as I said, the biggest theme was coordination around priming this space for traditional actors to come in. APAvacus again says update. Yes, the news story today regarding EDX is exactly what you think it is. Tradfye filling the gap that the SEC has cleared for them. Citadel Schwab and Fidelity will gobble up US spot Bitcoin and ETH volumes. LackRock Bitcoin Trust will be approved quickly, followed by Fidelity and a host

of others. This was all coordinated. Preston Pish writes, I'm sorry. But after watching BlackRock, Fidelity, Schwab, and now Deutsche Bank all apply for Bitcoin ETFs, spot exchanges, etc., only a few days after the SEC drops a TRO on Binance and Sue's Coinbase, how can't you think this entire past year was a giant inside job coordinated between the Wall Street parasites and government regulators so they could catch up? Now, one thing that Preston mentioned that I just wanted to give a little breath to is Deutsche Bank. Also happening yesterday, news broke that German banking giant Deutsche Bank had applied for

regulatory permission to operate a crypto custody service. David Lynn, who runs the Lenders' commercial banking unit said at a conference, quote, We're building out our digital assets and custody business. We just put our application into Baffin for the digital asset license. Baffin, for those unfamiliar, is the German securities regulator. The move comes as Deutsche Bank's corporate division looks for ways to increase fee income and mirrors a push into digital assets for the investment division. Specifically in April, Deutsche announced a partnership with Galaxy Digital to offer exchange-traded products for a variety of digital assets. Now, Deutsche is one of the largest banks in the world, with 1.14

trillion in assets under management. That's a similar size to Goldman Sachs and Morgan Stanley. And so sitting back, taking a moment, we now have a Charles Schwab and Fidelity-partnered wholesale exchange, as well as a G-Sib or globally systematically important bank custodian. Hard not to see the trend there. So is this just Tradfai coming in to sweep up all the wreckage of the industry and take advantage of it? Are these plans that were long in place even before SBF was revealed to be a fraud? Or does it just not matter? From a viability, from a viability, from a viability, standpoint, I'm not so sure. Will Clemente tweeted yesterday, BlackRock, Citadel, Fidelity, Fidelity, Schwab, Wisdom, Trie, Invesco, Deutsche Bank, all entering the market within two weeks of both

a downside decoupling from stocks and finance and Coinbase both getting sued. He then attached a meme, a most perfect riff on Albert Camus that said, in the midst of It's So Over, I found there was, within me, an invincible, we're so back. Until tomorrow, be safe and take care of each other. Peace.