The Breakdown - Bitcoin's Big $100K Rebound

Episode Date: January 17, 2025

After a week of macro jitters, Bitcoin has rightsized and seems to have stabilized above $100k. Is it anticipation of a new administration or the clear signal from the CPI numbers? NLW explores. Sponsored by: Ledn Need liquidity without selling your Bitcoin? For 6+ years, Ledn has been the trusted choice for Bitcoin-backed lending. With transparency, security, and trust at our core, we help you access your BTC’s wealth while HODLing. Discover what your Bitcoin can do at ledn.io/borrowing. 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 Thursday, January 16th, and today we are talking about why we are so back. 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 week in the show notes or go to bit.ly slash breakdown podcast. Well, friends, after a week of macrojitters, Bitcoin is back to 100K. Bitcoin continued its price recovery on Wednesday, surging back to the psychologically important

$100,000 price level. It couldn't go any higher with the rally stalling out multiple times below 101, but still strong support above $99,000 gave Bitcoin a tight range for the day. Proximate cause of the rally was the release of the December CPI inflation data in the morning. Bitcoin surged by almost 3% in the hour following the release before markets opened in New York. All week, the concern had been that an uptick in labor market statistics from last week would be followed by a hot inflation print. That could have changed the game plan for the Fed entirely, requiring not only a long pause, but perhaps even putting rate hikes back on the table.

It turns out, though, that the inflation print was nothing to be alarmed about. Headline inflation ticked up slightly to 2.9%, coming in mildly above forecasts, but the big news was in core inflation, which strips out food and energy. That reading slowed to 3.2%, its first reduction in almost six months. This is, in fact, not only not a sign of returning inflation, but the first sign of further progress on sticky inflation that we've had in a very long time. A rise in gas prices is essentially the only driver of inflation at the moment, which isn't something the Fed can do much about. The data also showed progress on shelter inflation, which climbed 0.3% for the month, its slowest increase since 2021. Shelter is the largest component of the CPI at 44% and is known to be

extremely laggy. This data print seems to validate an opinion recently expressed by Fed Governor Christopher Waller. He suggested the sticky inflation is really just the lag of imputed prices, rather than prices that are actually measured in the economy. Bloomberg economists led by Anna Wong wrote, December's surprisingly soft-core CPI print keeps alive the idea that disinflation is still progressing, yet demonstrating how volatile opinions are at the moment, Seema Shah, the chief global strategist at principal asset management said, for the Fed, this is certainly not enough to prompt a January cut. But if today's print were accompanied by another soft CPI print next month, plus a weakening in payrolls, then a March rate cut might be even back on the table.

Earlier this week, analysts were firing off research notes that declared the cutting cycle over and suggesting that rate hikes could be in the picture. Market pricing is also adjusted rapidly. A March cut is back on the table, albeit at only a 30% probability. The longer-term bias has also shifted, with one or two cuts priced in for the year. On Monday, market pricing had suggested either one or zero cuts. All of this seems to validate Fed Chair Jerome Powell's view of the economy. For months, Powell has suggested that further progress on inflation is coming without the need for Fed intervention.

More importantly, his opinion has been that the labor market has decoupled from inflation at these levels, meaning that job gains won't necessarily lead to a resurgence of inflation. This is, of course, still just one macro data point, so important not to extrapolate it too much. However, it flipped market sentiment from marginally concerned to marginally hopeful, which is a big change in trend. If the macro data continues to play out in this manner, 2025 could be a year of strong labor market growth with disinflation, aka a Goldilocks condition for risk assets. At the very least, this data has likely taken any fed surprises off the table until March. Now, with macro conditions a little more settled, we can reflect on how wild the sentiment swings have been in crypto markets.

100K Bitcoin is clearly now the psychological line in the sand, given that dipping down in $90,000 caused crypto Twitter to absolutely lose their minds. Earlier this week, there were analysts calling for a deep drawdown to 80K, 70K, and some were even lower. Those calls have mostly all gone silent now. The intern account posted, Bitcoin under 100,000, low self-esteem, trouble sleeping, intrusive thoughts, weird looks from girls. Bitcoin over 100K? Aligned with destiny, magnetic energy, validated life choices, potentially misguided feeling that girls could like you. This is one of the fastest sentiment flips from It's All Over to We're So Back during this cycle.

given that Bitcoin never moved out of a 10% range either side of 100K. One of the most interesting things about Bitcoin as an asset class is that its price is heavily correlated to volatility. There's basically no history of Bitcoin rising while volatility is low, so whipsaw price movements tend to be a necessary part of bull markets. In other words, Bitcoin never goes up in a straight line. Chris Berniske of Placeholder Ventures extended that theory to volatility and sentiment, tweeting, Angry as bull market crypto has ever seen.

From a wall of worry perspective, you'll love to see it. Byzantine General commented, As far back as 24 hours ago, CT was unironically discussing if this was the forever top. Another longtime Bitcoiner going by Tim 444 posted, I'm in love with this crypto market. Literally two days ago, market will break down, 80K will come, 60K will come, 50K will come, blah, blah,

one could feel the fear on CT. Meanwhile, veterans and real traders were paying attention if the range breakout would be a fakeout or not. It was and massive volume came in. I saw bears getting screwed. Today, 100K is nothing. Crypto is the future. We are so back. Green P&Ls everywhere. Fartcoin will reach the top 25 and is the future again. Stating that crypto Twitter is bipolar is an understatement. Are you starting to understand it now? It's not that this market is so difficult. On the contrary,

it is your lack of emotional discipline, lack of risk management, and lack of independent thinking for yourself outside of crypto Twitter, which is causing all the suffering. Veteran trader Alex Kruger commented, if a 13% price correction lower on a 60-ball asset such as Bitcoin can make you question your entire worldview, the next time make sure to take more profits on the way up, so you are not a for-seller on the way down. This may sound superficial, but it's actually key. Profit-taking can be one of the most difficult things to do. If you're in that camp, then consider implementing automated portfolio rebalancing or profit-taking to minimize the

emotional component. Now, friends, I don't disagree with anything that anyone else has said here, but there is, it seems to me, one other possible explanation, which is that the same, that the entire point of crypto-Twitter is to talk about whatever's going on, and when there's not that much going on, except the price in the context of a social media setup that rewards extremes, let's just say I think that the volatility of sentiment is at least a little bit performative and a little bit based on boredom. Regardless, I am happy to be back on this side of the sentiment train. And with macro risks off the table, attention turns of course to Monday's inauguration and the flurry of crypto policy that hopefully will soon follow.

If you've been around Bitcoin for long enough, you've heard the term hoddle and the name Leden. Lennon has been the go-to leader in Bitcoin lending for over six years. They help clients unlock the liquidity of their Bitcoin, allowing them to hoddle while still accessing the wealth of their BTC. They've been battle-tested with their focus on transparency, security, and trust, allowing them to build a proven track record of client's success and security. Leiden has helped tens of thousands of clients harness the value of their digital assets, issuing more than $6.5 billion in loans over the years.

But as the crypto industry says, don't trust verify. Check out Ledin's trust pilot or their reviews on social media. And to learn more about what your Bitcoin can do for you, check out leaden.io slash borrowing. That's LEDN.com.com. Please visit leaden.io slash legal for product terms and disclosures. Product availability varies by jurisdiction. So far, information has been pretty tightly held about what to expect. We know that Trump is planning to sign executive orders related to crypto on day one. The rumor mill is very quiet. All we've really heard is that SAB-121 is in line for repeal, allowing banks to custody crypto. We also know that dealing with crypto debanking is one of the top

priorities and could form part of an executive order. But we haven't really learned the contours of what a day one Bitcoin Reserve would look like or whether that is even the plan. Even Washington insiders seem to be in the dark. Blockchain Association, Director of Government Relations, Ron Hammond tweeted, all eyes are on the Trump administration in its first week announcements via executive orders and priorities. A crypto-related EO is likely in the initial batch from various reports and likely will reflect campaign promises made by Trump. It's unclear if these EOs will come on day one or 100 as drafting takes time. Potential topics include establishing a crypto advisory council, pausing current litigation, allowing admin staff to hold crypto, preventing debanking, and more.

So essentially then, day one policy is still a massive wildcard. Something seems likely to happen, but we don't know exactly what. To the extent we have rumblings, that next week's policy will be big, Senator Cynthia Lummis is clearly trying to get ahead of something. Yesterday she posted, just a little reminder as things are about to get crazy, emotions and excitement can run high, don't send Bitcoin or crypto to some random wallet address or QR code, as ever do your own research beforehand. She later downplayed the statement saying she's not Nostradamus, her words. And yet, still Joe McCann underscored the tweet, commenting, a sitting U.S. senator just said things are about to get crazy. To the extent that we can confirm

something real happening in D.C., Bitcoin Inc., the parent company of Bitcoin Magazine, is throwing a crypto ball on Friday in honor of Trump's inauguration. The invitation heralded Trump as the quote first crypto president and tickets for the black tie gala sold out almost immediately at $2,500 ahead. Trump is unlikely to attend, but the event will be hosted by crypto and AIs are David Sacks. Excitement was off the charts for Bitcoin high rollers. We'll have to see how the crypto crowd polishes up. With Anchorage Digital CEO Nathan McCauley tweeting, anybody else not worn a tux since prom? see you all at the Crypto Ball on Friday. More on what is definite for next week. Over at the SEC, work is getting underway to move the agency in a pro-crypto direction. Reuters reported that Republican

commissioners Hester Perce and Mark Ua had been empowered to overhaul the agency's stance on crypto beginning from next week. SEC sources said the top agenda item was beginning the process that would lead to guidance or rules clarifying when a crypto token would be considered a security. In other words, the single great question that we've been debating in this industry on this show for way more than a half decade now. In fact, it's been the question, effectively for as long as anyone's been paying attention to tokens. Now, if formal rulemaking is the chosen path that will involve a period of industry feedback, for that reason, it's best to get the process started as soon as possible. The sources also said the commissioners are planning to begin a review of some of the ongoing crypto lawsuits

in the first days of the administration. The report suggested that the SEC could, quote, potentially free some litigation that does not involve allegations of fraud. Ultimately, withdrawal of some cases is also on the table. Roiders frame their sources and people who have been briefed on the matter, suggesting the process is already ready to go. Speaking with coinage media last month, Commissioner Perce had mentioned that some smaller things could be done extremely quickly. She mentioned in-kind ETF creations and redemptions, as well as allowing staked Ethereum ETFs as examples. The reporting makes it sound as though Republicans want to take care of all preliminary steps well in advance of new SEC Chairman Paul Atkins

being installed. Atkins' confirmation hearing has not yet been scheduled, but the former SEC Commissioner should be a fairly uncontroversial pick. In the meantime, the commissioners, has a few unfulfilled seats. Both Gary Gensler and fellow Democrat, Jamie Lizaraga, have handed in their resignations. The third Democrat commissioner, Caroline Crenshaw, was not confirmed for a second term in the dying days of the Biden presidency, and so we'll hold on to her seat until a replacement is confirmed. Without three votes, Republican commissioners won't be able to pass rules or make decisions about litigation, but it does sound as though Personueta can ensure the commission can hit the ground running as soon as Atkins has been

confirmed. One thing that we discussed a bunch on the Friday 5 show with Scott Melker last week is whether the U.S. government actually has any right to the seized Bitcoin that it has. Interestingly, on that front, U.S. attorneys have filed a motion recommending that the Bitcoin stolen from BitFinex should be returned to the exchange in kind. Rather than fight to retain the Bitcoin or argue that BitFinex should receive the cash value at the time of the hack, the government the government has elected to hand it all over. It's highly unlikely that the court will see the situation any differently when the matter is heard in February. This is a gigantic chunk of the Bitcoin held by the government. Once orders are completed, Bitfinex would receive over 94,000

Bitcoin worth about $9.5 billion. That would cut the government's Bitcoin's stash almost in half. There's also the question of around $6.5 billion in Bitcoin related to the Silk Road hack. These assets sparked panic last week when headlines announced the DOJ had been cleared to sell. In reality, no Bitcoin has been moved from government wallets, and there seems to be a few more legal steps required before a sale could take place. However, if both the Bitfinex and Silk Road coins are removed from the government's coffers, that would leave just $4 billion to cede the Bitcoin's strategic reserve. And yet, starting off with a smaller pile, of Bitcoin could actually increase the sense of urgency for the government to start buying.

Wayne Vaughn commented, this is half of China's Bitcoin holdings. I don't see a world where Trump lets China own twice as much Bitcoin as the USA. Then again, you got to think, it's probably better over the long run to have a strategic Bitcoin reserve that isn't based on retaining seized Bitcoin rather than returning it. Zuming in on the Bitfinex portion of the story, US attorney said the exchange should be treated as the sole victim in the case. After the hack occurred in 2016, Bitfinex established their own recovery plan to make customers whole. This consisted of a token that was freely traded and eventually redeemed by BitFinex using revenue from the exchange. The government invited victim impact statements late last year and appears to be satisfied

that BitFinex has already compensated users sufficiently. The other outstanding issue then is what Bitfinex will do with the Bitcoin once they receive it. In 2022, the exchange said that they would sell the Bitcoin and use 80% of the proceeds to buy back and burn their community token called Leo. They said that they would carry out this process over 18 months, so it shouldn't have too much impact on Bitcoin's price. The Leo token is up by 200% since that announcement and rose deeply after the hackers were convicted, suggesting the market believes this promise will be carried out. Ultimately, most Bitcoin commenters just seem glad the Bitcoin is going back to its rightful owner without a fight, even if it diminishes the possibility of a strategic reserve.

Tales from the crypto wrote, Props for props are due. The U.S. government is doing the right thing. Now, one thing that's important to note is that the BSR idea is not just for governments. Oklahoma is the latest state to introduce legislation for a Bitcoin reserve. The bill was introduced in the state house on Wednesday by Representative Cody Maynard. It would allow the state's pension fund and state savings accounts to allocate a portion of their assets to Bitcoin as a hedge against inflation. Representative Maynard said, Bitcoin represents freedom from bureaucrats printing away our purchasing

power. As a decentralized form of money, Bitcoin cannot be manipulated or created by government entities. It is the ultimate store of value for those who believe in financial freedom and sound money principles. Oklahoma is now the fifth state to introduce similar legislation, the wave started with Texas and Pennsylvania, and last week, bills were introduced in North Dakota and New Hampshire. Nothing has been passed yet, but some of the bills do have a groundswell of support. The North Dakota bill in particular now has 11 co-sponsors among the 81 member Republican supermajority in the House. We've also seen state pension funds in Wisconsin and Michigan make the decision to allocate to Bitcoin ATFs without legislation. At this point,

point, the game theory is pretty clear. One of these states will eventually pass legislation, and the race to accumulate will begin. Indeed, Bitwise CEO Hunter Horsley is dropping hints that even bigger moves are happening. Yesterday, he tweeted, we just provided some information for a nation state asking about Bitcoin ETFs, considering moving some exposure from foreign currency government bonds into Bitcoin. BTC is entering a new chapter. And indeed, that is the story right now, new chapter we turn the page at the beginning of next week. I, for one, am very excited to see what actually happens. Let's get to building, man. For now that that is going to do it for today's breakdown. Appreciate you listening as always. Until next time, be safe and take care of each other.

Peace.