The Breakdown - Bitcoin vs. Altcoins vs. Gold

Episode Date: February 13, 2025

Three different assets. Three VERY different buyer profiles and sentiment stories. Is it the return of sound money or financial nihilism driving the investor train right now? NLW explores. Sponsored by: Ledger Ledger, the world leader in digital asset security, proudly sponsors The Breakdown podcast. Celebrating 10 years of protecting over 20% of the world’s crypto, Ledger ensures the security of your assets. For the best self-custody solution in the space, buy a LEDGER™ device and secure your crypto today.Buy now on Ledger.com. 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, February 11th. Today we are talking about three very different types of assets and asset owners. 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.L.Y slash breakdown pod. All right, friends, welcome back to the breakdown. The specific genesis of today's show was gold reaching a new all-time high on Monday. But as I was watching that, I also had in mind what we were talking about on yesterday's

episode, which is the divergence and sentiment between bit-coiners and the alt-cointers. And so what I thought I would do today is look at three separate groups in terms of what they are experiencing right now as a way to try to get a sense of everything that's going on. You kind of have this interesting, divergent trend, where on the one hand, some people are responding to the changes in the larger macro environment by heading towards sound money, and on the other hand, some people are going straight towards degeneracy and nihilism. Sometimes people are doing both all at once. Of course, the 2010s were marked by low inflation, a decade-long bull run in equities, and very little discussion of how fiat currency works in the Western world. These topics were kept

alive in fringe communities, i.e.Rs, but mainstream discussion was basically zero. Beginning in 2020, sound money had a bit of a resurgence. The rise of MMT, coupled with the Federal Reserve, openly printing money made a natural backdrop for Austrian economics as a counter-narrative. Sound money has only grown in public consciousness in the intervening years. We had global inflation, the seizure of Russian treasury assets, and deteriorating foreign relations that cast sound money in a whole new light. So today we're going to get into some of that, looking at how sound money principles are being viewed in multiple markets. And again, we're going to start with a topic we don't normally cover on this show, which is gold. Like I said, gold reached a new

all-time high on Monday, marking a 12% increase since the beginning of the year. An ounce of gold is now surging towards $3,000. 2024 was the first strong bull market in gold in over a decade. Rising by more than 25%, this was the best annual performance for gold since 2010. The short-term catalysts are pretty easy to spot. This week, the Trump administration announced 25% tariffs on steel and aluminum, signaling a continued commitment to waging a global trade war early in the presidency. In China, the PBOC announced a pilot program to allow 10 major insurers to hold some of their assets in gold bullion, representing around $27 billion if they assign the full allocation. Westpac bank analyst Richard Franilovic wrote in a note,

gold remains in a sweet spot with little standing in its way, an intrinsically unpredictable and disruptive Trump, hurtling tariff threats at allies and adversaries alike, alongside the threats of 100% tariffs on the bricks if they diversify away from the dollar, all point to a lift in gold safe haven appeal. Gold purchases by central banks have ramped up dramatically. Poland, India, Turkey, and China were the largest buyer. last year, the four countries purchased over 280 tons of gold somewhere in the ballpark of

$20 billion worth between them. According to the World Gold Council, 69% of global central banks expect to continue accumulating gold this year. Meanwhile, it appears as though the flow of gold is being strained. Two weeks ago, as the threat of tariffs was raised, there was a rush of physical delivery demands out of the London Metals Exchange. Reuters reported that bullion dealers were borrowing gold from central banks to satisfy deliveries to the U.S. The Bank of England serves as the London-based custodian for central bank gold reserves for many countries. At that stage, minimum wait time for delivery had ballooned out to four weeks. Historically, it's unusual to wait for more than a few days.

The innocent explanation is that the Bank of England is not set up to service high volume. Robert Gottlie, former head of precious metals at Coke Supply and Trading, said, the key with the BOE is that they are not a commercial vault, so not prepared to handle the onslaught of gold borrowing banks or requesting from the central banks. Around 380 tons of gold have been delivered to New York over the past two months, the highest rate since August 22 when assets were first seized from Russian oligarchs. The high flow triggered comments from Bank of England Governor Andrew Bailey, who said, We are not in the gold standard anymore. It doesn't have significance for policy in that sense.

If you want to be involved in that market and you want to trade and use your gold, you really need to have it in London. Domestic physical delivery demands also ramped up. Brinks, HSBC and JPMorgan, the three major bullion vaults in the U.S. are all dealing with record volume, now higher than peak fear in early 2020. This demand has basically come out of nowhere, spiking from a four-year low at the end of last year. And of course, this is the gold market, an event like this comes with the associated theories about unbacked paper claims on gold. One of the more sober takes from precious metals analysts Ronan Manly wrote, The gold clearing banks of London precious metals clearing have exhausted the metal they have available for delivery in their own vaults, so they are trying to borrow as much gold as possible via the gold lending market at the Bank of England. But this

looks exhausted too. These clearing banks need to keep gold in their vaults for their own London liquidity, but it looks like they don't have any more gold to do this. Counterparty risk has therefore risen between all the bullion banks which trade unallocated gold credit between each other. The clearers, the market makers and all the other bullion banks, brokers and traders, about 50-plus entities. Basically, they trade paper claims on gold or the electronic equivalent. These claims are now trading at a discount to reflect the fact that they can't be converted at will into physical due to a lack of availability of sufficient London physical gold. Obviously, we have no idea how true these claims are. There is a sense of occasion in the goldbug community, which has been

warning about this issue for decades. There is also a discussion percolating about the revaluation of America's gold. The U.S. holds 8,134 tons of gold, which is all marked on the government's books at $42.22 per ounce, a price set by statute in 1973. Some believe revaluing the gold to market value would allow the Treasury to spend equivalent to the increased amount, somewhere in the range of $800 billion. This has even been mentioned by Senator Cynthia Lummus as a funding mechanism for her Bitcoin's Strategic Reserve Bill. Others think revaluing the gold much higher would be a way to devalue fiat currencies and resolve the global government debt crisis. Fin account Ben Rickert wrote, The United States stands at the brink of the most profound monetary

overhaul since the 1970s. Evidence suggests federal authorities are methodically laying the groundwork for a managed evaluation of the dollar, coordinating tools such as gold reserves, trade barriers, and strategic asset stockpiling to orchestrate a comprehensive financial reset. This calculated shift signals the emergence of a re-engineered economic framework poised to redefine global monetary dynamics. QE Infinity wrote, There's talk tonight of all of our gold being moved over into the Treasury's TGA account. The total value of it is about $800 billion. I have no clue what they'd plan on doing with it if they did this. Gold-backed currency? Spend it? Keep it there as collateral. I have no clue if this is bullish or bearish for gold,

and there is no confirmation this will happen. Let the conspiracy theories begin. At this point, we are firmly in the realm of gold bug fever dreams, but there is clearly something going on in the gold market. Reporting suggests traders are reading a lot into Treasury Secretary Scott Besson's comments from last week. Regarding the proposed U.S. sovereign wealth fund, Besson said that he plans to, quote, monetize the asset side of the U.S. sheet. For some, this reads, is a sign that the gold reserve would be actively used after a half century of lying dormant. The Financial Times wrote, some hedge fund contemporaries of Scott Bessent, the hegedy-turned U.S. Treasury Secretary, are speculating about a revaluation of America's gold stocks. And so it's impossible to know at this point whether this is just a speculative mania or the

first embers of a global monetary restructuring. 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 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. For now, all we know is that a big story is happening that has some obvious parallel.

to Bitcoin. Bitcoin Policy Institute fellow Troy Cross commented that the problems with gold delivery have a natural throughline to Bitcoin, tweeting, it'd be great if we had something limited in supply like gold, but transportable digitally and secured with a password rather than a vault, and whose supply you could audit and whose receipt you could confirm when you sent it to someone would solve a lot of the problems with gold. Former hedge funder James Lovish commented, The Bank of England is currently struggling to meet demand for deliveries of over 8,000 gold bars due to logistical challenges, and because it's, quote, really heavy, causing delays that will likely last months. Bitcoin, on the other hand, could have met the entirety of those 9.2 billions

of withdrawals in just under 10 minutes and for a tiny fraction of the cost. Obviously, Bitcoin is not yet valuable enough to replace gold as a central bank reserve asset, but there's still a clear comparison to be drawn. With gold's run-up, there's also a yawning divergence between the two prices. Stephen Lubka of Swan Bitcoin wrote, Gold parity for Bitcoin after the recent rally in gold is getting pretty close to a million dollars per coin. Analyst Yele wrote, Bitcoin and gold have moved in tandem in recent years both pushing higher. Gold led the 2024 pump and Bitcoin caught up towards the end of the year. Gold is leading the way again with a strong rally. Can Bitcoin follow once more? At the moment, we are in the middle

of a pretty dire sentiment around crypto assets. The effects are less pronounced in Bitcoin, but sentiment is still low. And one of the interesting notes over the past few weeks is that while retail traders are miserable, institutional traders remain extremely bullish. Last week marked five consecutive weeks of inflows for the Bitcoin ETFs. Inflows are down from their highs following the election, but still ticking over at more than 200 for the week. Looking on chain, the strongest hands in the Bitcoin ecosystem are relentlessly stacking. According to CryptoQuant, permanent holder demand has skyrocketed in recent months. This metric tracks flows into wallets with little history of short-term selling.

It showed a large dip around the election but is now reversed and is approaching a new all-time high. Cryptoquant wrote, historically, the signal strong confidence and often precedes rallies. Digging into the details a little in the past we've observed a spike in permanent holder demand near market tops, it quickly retraced as these wallets take profit. In early January, that pattern appeared to be repeating, albeit in its early stages. This month's reversal hire suggests that big players are getting positioned for another run-up. Smaller investors are also back to relentless Bitcoin stacking, while it's holding less than

one Bitcoin had a brief outflow during December, but are now stacking at a faster rate than anything seen over the past year. CryptoT wrote, retail investors, wallets with less than one Bitcoin, have been buying 100,000 Bitcoin per day since December 2024. Only 450 new Bitcoin are created each day. This is all playing out while the Bitcoin Fear and Greed Index is hovering around the low end of neutral. In other words, no sign of a mania, just steady positioning for further upside during this cycle. Over in the all-coin market, meanwhile, it's difficult to see anything that resembles a positive vibe building. Conflict around the Ethereum Foundation has been dominating the discourse for that community,

with a sense that the protocol is lacking an identity. Ethereum feels like it's stuck in a rough place, losing its place as the dominant smart contract platform, and no longer particularly attractive store of value asset. They a Bitcoin analyst Joe Consorti wrote, Ethereum, aka ultrasound money, has now inflated since the merge. ETH is now inflationary since the update, which was supposed to make its supply deflationary, the slow and painful death of Ethereum.

A chart has been circulating showing the short ETH positions had ramped up by 40% in the past week of the CME hitting a new all-time high. This is really only half the story, though, with Spot Ethereum ETFs recording their largest weekly inflows in over a month. The inflow was extremely concentrated on a single day, suggesting this is a large market-neutral basis trade being put on rather than outright bullish or bearish positioning. For other top 20 coins, the big narrative is ETF listings. Bloomberg's James Safart posted, Eric Balcunis and I took a look at the filings for spot crypto ETFs. We're putting out relatively

high odds of approval across the board, mainly focused on light coin, Solana, XRP, and Dogecoin for now. They gave 90% odds that light coin ETFs would be approved, 75% odds for Dogecoin, with 70 and 65% respectively for Solana and XRP. While we're still months away from any products going live, the baseline of is now that U.S. stock exchanges will have between three and six crypto assets available to investors via ETFs. The Bloomberg analyst didn't mention numerous smaller memecoin ETFs, implying they don't think they're likely to be approved. Nate Garassi, the president of the ETF store, commented on the recent mainstream meme coin launches, suggesting there are prominent demonstration of the technology. He wrote, in the span of 48 hours, a meme coin was

launched with a few clicks of a button, then pumped by Dave Portnoy, gathered 100,000 plus holders and is now listed on major crypto exchange crack-in in 48 hours. Trad isn't ready for this. Memecoin today, real assets tomorrow. Max Schatzow, a financial compliance lawyer, suggested Tradfi really isn't ready for this responding. You speak of this as if it's a good thing, or at least neutral. This is insanity. Garassi said, I'm simply talking about the technology, the sheer speed and scale at which capital can form and include everyone, not just the wealthy, politically connected, et cetera. So what's the point of all of this? Well, the big overarching question is whether we're in a period of history where speed of capital formation and risk assets are valued at a

premium, or if we're heading into a turbulent period where safe haven assets outperform. The gold price appears to be sending a signal, especially when contrasted against U.S. stock indices, which are basically flat year-to-date. We've also already seen the Bitcoin price start to diverge from the rest of the crypto market. At the moment, it's mostly about Bitcoin holding firm in its range while alt-coins are decimated. But if a complete decoupling occurs, it would also be a very clear sign that Bitcoin is a fundamentally different asset to alt-coins. Ask 10 influencers right now, and you'll get about 20 answers around what comes next. Ted Pillows wrote,

Last cycle, people thought 66% was Bitcoin dominance top. Bitcoin dominance shot up to 74%, which led to Altcoin capitulation and started the alt season. This cycle, people thought 60% was Bitcoin Dominance top, and recently Bitcoin Dominance hit 64% and Alts capitulated. I guess it's time for an alt season? Trace Crypto commented, If you zoom way out, there have only been two massive drops to Bitcoin dominance,

ICOs in 2017 and Defi in 2021. We haven't seen any new zero to one of the same magnitude since, resulting in a consistent rise to Bitcoin dominance. I expect this to continue as long as that remains the case. And indeed, that's one of the really striking things about this crypto cycle. In 2021, we had defy-NFTs and Wagmi. The vibe was that crypto is building a decentralized financial layer and every speculation was rewarded. This cycle has been anything but, with violent rotations between meme coins, AI agents, and half a dozen minor sub-themes. Wagmi is gone in favor of very isolated rallies for a narrow sliver of the 11 million tokens than out-flood the market.

The up-only market of 2021 is a distant memory. The theme in all-coin land of there is one remains financial nihilism as popularized by Travis Kling. Narrative-wise, Bitcoin has already decoupled from the rest of crypto. In 2021, there was a sense that Bitcoin was competing for mine share with Ethereum and a host of other upstart layer ones. During this cycle, the retail influx came through the Salana meme coin casino and was quickly separated from their money. They weren't here to participate in the future of finance. They were here to spend the biggest wheel in cyberspace. Meanwhile, the Bitcoin narrative is steady and rapidly spreading. It's digital hard money during a time of great geopolitical upheaval. We don't know how this new administration

will play out, but it's abundantly clear that nothing is off the table. Right now, for many then, it doesn't feel like a time to speculate on risky assets. It feels like a time to bury hunks of yellow metal in the backyard. On-chain analyst checkmatey wrote, sound money assets are outperforming again. Interesting stuff to think about. That is going to do it, however, for today's breakdown. Appreciate you listening, as always, and until next time, be safe and take care of each other. Peace.