The Breakdown - Bitcoin Up 100% in 2023, Hits Pre-Luna Crash Prices

Episode Date: October 24, 2023

Bitcoin made a massive move up on Monday evening, bringing with it the first taste of the very early bull market. NLW explores the drivers and interpretation. 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

Worth noting is that the SEC is under no obligation to approve anything before January 10th. That could be a long time for this narrative to hold. And so the question is, can inflows continue in the meantime, or do we reset to some new level? What I do know is that the energy is starting to flow back into the space, big moves coupled with powerful narratives like those being offered up by Larry Fink, are capturing attention even outside this community. And that is the recipe for the very, very, very earliest beginnings of what will in time become the next crypto bull.

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, October 24th, and today we are talking about, well, of course, we are talking about Bitcoin's crazy price surge. The bull market is back, whether you're ready or not. 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 slash breakdown pod. Hello friends. Well, yesterday, as you know, we did a little bit of

an October is back episode, but my goodness was yesterday a breakout. Today we are going to talk about what the heck is going on, and we're even going to extend it a bit into traditional markets as well. I think a very good summary of the sentiment comes from Blockworks, Jason Yanow, who tweeted this morning, in 24 hours, crypto Twitter flipped from bear market angst to bull market FOMO. There is no middle ground. So let's start with what actually happened. Monday's Bitcoin price action was volatile, lively, and energetic, and most importantly, it was positive. Late on Sunday evening, as you heard yesterday, Bitcoin had pushed through the key psychological level of $30,000. By 9 a.m., Bitcoin had already spent the past 12 hours trading above that line,

but had fully retraced the early morning price action. Once traders were at their desks and the opening bell was wrong on Wall Street, Bitcoin began to take off. Both the morning and the afternoon sessions each saw a respectable 1.6 gain, with Bitcoin closing out normal trading hours at around 31,700. All by itself, that would have been the highest daily close since June of last year, narrowly surpassing previous bare market tops in April and July. However, one of the things that makes Bitcoin different is that, of course, it never closes.

And when the stock market shut down, Bitcoin clearly wasn't done. At 6 p.m., Bitcoin took off in one of the largest god candles we've seen over this bare market. Now, as you heard yesterday, many had noted that 32,000 would be a significant level to test for a breakout, and that thesis turned out to be entirely correct. Once the price broke above 32,000, it moved violently upwards with Bitcoin gaining around 7.5% in just minutes. That move ended up just shy of 35,000 before retracing back to around 33,000.

Notably, the positive price move continued into the late evening rather than breaking down. The $35,000 level was tested a second time around 1030 with every dip being bought along the way. Overnight on Monday, Bitcoin seemed to hold onto strong support at the $34,000 level after one of the more remarkable days of price action in a long time. Bitcoin is now back at levels not seen since May of last year when the collapse of the Luna ecosystem first plunge crypto markets into what would become a long crypto winter. Now, there was a lot of surprise at this move. Crypto news aggregator Tier 10K said,

Ayo, what's going on? Also, there was lots of talk about the breakout. Bitcoin Jack wrote, Clearing 32K is significant in finding support sets up some range that I expect to grind higher until shorts run out of money again at which point price continues, supported by spot demand. Tente's Dan Tapiero had an even simpler explanation. Bitcoin, he wrote,

Melt's all faces, but especially Boomer Naysayer faces. And D-Gen Spartan posted a classic copy pasta from recently arrested Su-Zoo. One of the fastest ways to talk to yourself as a crypto pleb is to ask, what's the reason for the Bitcoin pump today? Its path to $1 million is preordained. On any given day, it needs no reasons. Now, of course, clearly the biggest narrative driver for recent price action has been the approval of spot Bitcoin ETFs shifting from a hope into a firm and perhaps even

imminent reality. On Monday morning, Davis-Polk finance lawyer Scott Johnson noted a few key details from the most recent BlackRock filing, which had to do so. that point gone unnoticed. Specifically, the BlackRock ETF had received a QSIP, which is an ID number used in electronic trading in asset management systems. They had also disclosed a plan to cede the fund with assets sometimes this month. The seeding isn't expected to be a massive amount of Bitcoin buying, but rather a nominal amount of a few million dollars to ensure the fund can trade smoothly on launch day. Now, a little later, Bloomberg's senior ETF analyst Eric Balcunis

pointed out that the BlackRock ETF had been assigned a ticker symbol and listed in the DTCC's trade clearance system. Once the fund is launched, it will trade under the ticker IBT on the NASDAQ exchange. Valcuna's tried to tamp down excitement, saying all part of the process of bringing ETF to market, but man, having that ticker be real definitely made this whole thing a lot more real to everyone watching. 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. PVII, DBA, Cracken. Monday morning also saw the release of the court's final mandate in the Grayscale case. Some had been looking for additional instructions and guidance from the court on how the

SEC should proceed in reconsidering the Grayscale ETF conversion. application. Legal analysts have been consistently warning that court mandates don't really work like that, but are simply a formal registration of the decision. When the mandate was released, it was devoid of any detail, leaving the issue up to the SEC and Grayscale to resolve among themselves. However, although nothing significant change today, Grayscale's recent actions have suggested to some that the asset manager is engaged with the SEC, and things are moving forward towards the conversion of GBT. Scott Johnson again tweeted, still no refiled 19B4 for Grayscale even after the mandate today, instead relying on the original from 2021. If this remains, have to think Grayscale and SEC had the

convo and SEC is okay with no refile. Otherwise, this is a big risk for Grayscale to take, in my opinion. I think it portends good news. When it comes to a driver of this price, the point is that we don't really have any more solid information than we did before about when an ETF is coming. We just have an accumulation of small signals, which seem to point more towards approval. Reflexivity researches Will Clemente summed it up. Rumors of SEC communicating with. with potential Bitcoin ETF issuers, issuers update filings, BlackRock's Bitcoin ETF listed on the depository trust and clearing corporation, judge orders SEC to revisit Gracekill Spot ETF filing, the signs are all there, it's coming. Now let's talk market structure

for a moment. One of the noteworthy things about Bitcoin's slow grind up to 30,000 over the past week was that it happened with relatively few liquidations. Future's open interest had been steadily ramping throughout the past week, but traders had largely been able to hold on to their positions. Now, of course, coin telegraph's fake news announcement of an ETF approval last Monday had shaken out around $100 million in both longs and shorts, but since then, leveraged trading had been relatively sedate. That changed on the violent early evening price spike. Over 100 million in short liquidations were processed across all exchanges just during the move. By the time the books were closed for the day, a total of 275 million of shorts had been wiped out,

according to coin glass data. That made yesterday the largest day of short liquidations since at least late June. Over the weekend, Galaxy Digital head of research, Alex Thorne, had been paying close attention to options positioning among marketmakers. He noted that sellers of bullish call options, which grant the buyer the right to buy Bitcoin at a fixed price, had dangerous exposure as the price moved up. Options market makers could easily hedge their inventory below 30,000, but this prospect became more and more difficult at higher prices. As Bitcoin's price moved above 30,000, dealers would need to buy spot Bitcoin to satisfy their outstanding options contracts, thus covering the risk. Thorn had determined that Max Payne for dealers was at around 32,500.

Past that point, they would need to buy spot Bitcoin at market price in large volumes to properly hedge their books. Thorne wrote in a market report, at its peak around 32,500, almost 20 million of Bitcoin will need to be purchased by options dealers for every 1% move up to stay delta neutral. This positioning implies that market makers need to buy back increasing amounts of delta as spot moves higher, which should add to the explosiveness of any move in the short term. Of course, this price-insensitive buying from marketmakers likely contributed to Monday night's massively reflexive move. Now, what about investor positioning?

Well, TradFi investors appeared relatively well prepared for the move due to strong inflows into exchange traded products last week. CoinShare's latest report showed 66 million worth of inflows into crypto funds, which was the fourth consecutive week of net positive flows. Bitcoin-based products picked up 83.7% of that flow, indicating that investors had a fairly singular focus last week. Notably, the pro-shares Bitcoin Strategy ETF, which is the largest crypto exchange traded product, saw weekly outflows of $10.7 million, bringing it to $20.1 million about flows over the past month.

New investments were instead focused on purchasing products from Swiss-based 21 shares, which captured $45.5 million worth of inflows for the week. Now, while all of these numbers were pointed in the right direction, coin shares analysts noted that they were still tepid compared to previous narrative shifts. They wrote, While the most recent inflows are likely linked to excitement over a spot Bitcoin ETF launch at the U.S., they are relatively low in comparison to June announcements. This suggests that the lower inflows this time around, despite the positive news from

the Grayscale v. SEC court ruling, are indicative of investors adopting a more cautious approach this time. Still, Monday saw an additional rush of new inflows. Over 43 million in new funds was committed to Bitcoin exchange traded products, led by the 21 shares in Galaxy Bitcoin funds, which each received over 11 million worth of inflows. Now, while Bitcoin got off to a hot start on Monday, traditional markets struggled. Both major stock indices slid during the first hour of trading and looked to be heading

decidedly lower. Stocks have struggled over the last week with the S&P 500 losing 3.4% and the NASDAQ falling by 4.3%. Many noted this divergent move, suggesting that we might finally be seeing the return of Bitcoin price action decoupled from broader risk markets. The biggest trad-fi story on Monday played out in bond markets. since May the yield on long maturity treasuries has steadily marched higher as markets began pricing in the Fed's attempt to hold rates higher for longer. In recent months, hedge funds have piled into

bond trades. Market-neutral spread trades, which capture a widening gulf between spot and futures pricing, had become a crowded trade, and a large amount of funds had also taken directional exposure betting on higher rates by shorting long maturity treasuries. One of the loudest asset managers recently betting on higher rates was Bill Ackman of Pershing Square. On Monday morning, as 10-year treasury rates hit 5% for the first time since 2007, Ackman tapped out. At 945, he tweeted, we covered our bonds short. There is too much risk in the world to remain short bonds at current long-term rates. The economy is slowing faster than recent data suggests. Bon yields immediately began falling in a disorderly move. During the morning session, the 10-year rate fell by 15 basis points,

which is hugely volatile for bond markets. Alex Kruger wrote, what a beast! Moving the bond market as a crypto-influencer moves shi coins. Jim Bianco said, hell is coming 2.0? Referring to Ackman's appearance on CNBC in March 2020 when he triggered the start of the COVID selloff. Ackman famously made around $2.6 billion during that move. Still, I think Bitcoin analyst Dylan Leclair got it best when he said, no, I don't invest in bonds. I'm too risk-averse for that. Thanks for asking. Now, the net impact of all of this is that it is really reinforcing Larry Fink's flight to safety narrative. Nick Tomeino wrote, Bitcoiners have been patiently waiting for over a decade for two things. One, an ETF. Two, Bitcoin to act as a flight of safety in times of economic and geopolitical

uncertainty. They're now both happening at the same time. Dysopia Breaker tweeted, Larry Fink is talking about Bitcoin as flight to safety meme, ETFs are about to get approved, and every day there's a new How Crypto died article in mainstream media, and there's a smug, plucky Netflix comedy called Crypto Boy about how crypto is a scam that was just released. And we've sacrificed all of the previous cycle demons to the blood gods. I'm thinking we're back. Indeed, I even saw some of that famous crypto hyperbole creeping back into the story. Crypto intern tweeted, BlackRock issued Bitcoin ETF, Larry Fink telling the world to bid as a flight to safety, directly into the halving, the most bullish event in the history of

crypto. Travis Kling noted the very significant shift that we're all experiencing and living through, and asked whether we take advantage of the opportunity. He wrote, Over the last month, many people have been paying attention to crypto for the worst reasons, Sam. Starting today, many more people will be paying attention for the most classically crypto reason. Number go up. Looks like we're going to get another shot. Can we do better? And lastly, signaling the thaw more than perhaps anything else, the long, dormant and quiet Kobe tweeted, I hope you're all happy, healthy, and pre-rich. Now, I of course do not know where we go from here. It does seem like there is a big dose of market structure here, but there is also some significant positioning heading into

what people assume will be a spot ETF approval. Worth noting is that the SEC is under no obligation to approve anything before January 10th. That could be a long time for this narrative to hold. And so the question is, can inflows continue in the meantime, or do we reset to some new level? What I do know is that the energy is starting to flow back into the space, big moves coupled with powerful narratives like those being offered up by Larry Fink, are capturing attention even outside this community. And that is the recipe for the very, very, very earliest beginnings of what we're going to be able to

what will in time become the next crypto bull. No matter what happens, it's been the most exciting beginning to a week we've had in a very long time, and for that, I am thankful. I want to say thanks one more time to today's sponsor, Cracken. Go to Cracken.com slash the breakdown and see what crypto can be. Until next time, be safe and take care of each other. Peace.