The Breakdown - Bitcoin's Brutal Crash: The Five Most Important Stories in Crypto This Week

Episode Date: March 1, 2025

NLW and Scott Melker discuss the most important stories in crypto, including the painful market reset, the response to the Bybit hack, and much more. 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 Friday, February 28th, and that means it's time for the Friday 5. 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, back with another Friday 5 this week, and obviously the main topic of conversation is the bloodbath and markets out there. Melker and I discuss how much this is about macro conditions

and volatility and tariffs versus reflects things that are going on inside crypto itself. Lots to dig into, so with no further ado, let's dive in. You can like the show, but you don't have to like the market. Going to bring on NLW right now. The one thing I do like, as I said to you right before the show, is that I am not at East Denver because that seems like the worst place on Earth you can possibly be right now. Yeah. Yeah. I mean, I guess there's probably a lot of places that have open bars and stuff at night. So there's some upside. But beyond that, I don't know, man. Drink away those sorrows, man. First, listen, it's the Friday 5. We review the biggest stories of the week.

But there's one that just hit that's an honorable mention that has nothing to do with crypto that just had me laughing. So I got to bring it up. City Group mistakenly credits customer account $81 trillion in near miss. So they're supposed to this person who's supposed to get $280.80. And Citigroup, just small rounding error, threw $81 trillion into this person's account, which begs the question, how do you make a mistake like that? But be like, how does a bank just have $81 trillion to credit to someone's account? I think there needs to be like a finder's keeper's rule where if a bank makes a mistake that egregious, you get something out of it.

I mean, that's just an absurd number, $81 trillion. You should get to at least keep like $800 or something, you know, like that. our fraction, round to the new point 0.000. Here we are looking at the market. Bitcoin at 82,000, actually looking kind of decent at the moment when you know that it went as low as 78 to 29. Obviously, all coins getting shattered alongside it, which leads everyone to wonder what happened to the golden age of crypto. What happened to the world's most pro crypto president? Is that what's going to happen here? Obviously, I saw on Bloomberg today, 80% of the gains in legacy markets have been erased since the election.

Over 50% of the stocks in the S&P 50, S&P 500 are down more than 50%. Obviously, all coins largely trading below where they were at the election, but Bitcoin's still holding up a bit. Bitcoin's set for worst month since June 22. Crazy. Worst week since November that year, we had the worst three-day slide since FDX, and that wasn't even counting yesterday. This is pretty savage.

obviously the headlines just keep on coming. What's going on here, man? I mean, I think that everyone's trying to figure that out. The obvious proximate cause of all of this is volatility following, you know, Trump policies and the shaking fear that maybe the man doesn't care about the stock market in the way that we thought he was going to, right? I mean, that's really what it feels like. It feels like the markets are.

One, nervous about the idea that their assumptions around how much the stock market was going to be used as the metric of administrative performance is actually true. But two, it also kind of feels to me like they're putting this new administration to the test, right? The market is trying to, you know, scream and holler and make their opinions known by virtue of this. You know, they're basically saying there's going to be a cost, you know, a political cost for these policies. And, you know, you're going to have to decide what to do with it. It feels very much, you know, crypto in this situation feels very wrapped up with the rest of the risk asset world versus something that's sort of independent. Now, of course, to the extent that it is about Trump and Trump policies, crypto is highly associated with those things. So it's, you know, perhaps a little bit more than even its normal kind of leading edge indicator type of approach.

But that's what feels like it's going on to me. But, you know, I'm sure there's lots of other analyses and interpretations out there as well. Yeah, it's certainly a huge part of it, obviously, all of these stories about tariffs. And I think market ate uncertainty. And one day it's a tariff on, one day it's a tariff off. One day it's 25%, one day it's 10%. So I think there's a lot of confusion. But listen, when you add up Doge and tariffs and all these things, we're effectively in a low liquidity environment with austerity of sorts, right? And I don't think that people kind of had that mentally as their framework when they approach the Trump market. To be fair, I think, rip the

band-aid off if this is what you intend to do and get it over with now, probably the best time politically for them to allow the market to fall, get what they need done, and then attempt to pump it, I guess, into midterms. But this is not what people signed up for, certainly in crypto when they were thinking about the Trump presidency. But how much do you play in, which we'll get into the hack, obviously, I mean, there's been just a few kind of things unique to crypto, I guess, that have been bad, the hack being one of them and the tariffs here. Do you think that any of those kind of crypto-native narratives have much to do with it? Because the market's down, but it's not down. I mean, all coins are down 60, 70 percent a month. So we had already identified. I mean, we've been

tracking for the last couple of weeks, the broader shift and the imbalance between, not just retail attitudes and institutional attitudes, although that was part of it, but also the vagaries of retail, right? The difference in Robin Hood retail versus, you know, by bit retail for lack of a better term, meme coin retail. And so there already had been that split. I think that the where we were even before all of this was significant narrative exhaustion around everything that wasn't Bitcoin.

You know, Solana was being dragged by the rest of the sort of meme coin come down. So crypto had more sort of farther to fall it felt like because of it was running up against those walls already. But I don't know. I think that everything is about sort of the bands of what would be. It feels to me like the macro is driving the overall, but there's all these reasons to be not that enthusiastic about the absolute dog shit that's available in the crypto markets already that just makes it in this context just hurt even more.

So I think that if you're trying to understand the part of it that's connected to macro, Bitcoin is going to continue to be your best, you know, your best most interesting barometer for that. And everything else sort of shows the crypto-native pieces surrounding it. Yeah. And my take is, once again, short-term pain for long-term gain. We'll get into a lot of it. But the tailwinds for Bitcoin are still astounding. All the things Trump largely said he would do for the industry, he is doing. So these are very short-term things as the market absorbs it. But the fact that we have the SEC that we'll get into what's happening there, all of the pro-crypto appointments across the board, all exceptionally bullish to be long-term. Yeah. No, I mean, listen, I think that the other thing about this is that

this bull market, the sort of straight-line bull market, since it looked like Trump, you know, since basically the crypto markets determined that Trump was going to win this thing, hasn't had any sort of big term correction. Now, I don't really think that this sell-off is, you know, the standard or kind of historic 30% bull market, you know, shed that we've seen in the past. However, you know, it, it, one thing that's bullish, I guess, for, for Bitcoin is that because we do have that patternicity, even if the circumstances are totally different, it creates a, kind of a narrative floor, I think, that as we start to turn, you know, once we, you know, once we, once we kind of like hit wherever the bottom is going to be now, there's going to be,

there's this natural narrative that people are going to be able to draw from that says, hey, look, you know, we always experience these 30% drawdowns, you know, on our way back to the top. So don't stress about it. You know, we'll keep going. And a lot of these things are psychological games we play with ourselves along the way. So I certainly am not waking up in cold sweats or anything because of this. It's just the most dramatic one of these we've had since the sort of full bullishness of a change in guard in Washington taking over, you know, really, really started to get digested by the market, you know, at this point, nine months ago now. Yeah, I mean, just to wrap the price action conversation for transparency, I bought Bitcoin

at 82,000 and 79,000 year. I bought Ethereum at 2100. I bought Salana at 1.26.50. When I take a look at the Fear and Greed Index at 10, which is year, multi-year low, when I see everything massively oversold. For me, as a chart guy, I see bullish divergences with RSI on every single chart. It just seems like we hit that irrationally oversold and are looking for a big bouts. I think, the bottom is close. Yeah. And so I'm in buying here.

Even if the bottom isn't close, obviously, like none of this is financial advice, but even if the bottom isn't in, it's, we're clearly discounted relative to where people were, right? Like, you don't see these big multi-day 25% sell-offs. And I think that, you know, the mistake that, one of the most common mistakes is people think they have to perfectly time things rather than just generally time things, right? This is a discount opportunity. You know, it may not be the biggest discount opportunity we have this whole cycle, but it's a good one, you know? So.

Yeah. I mean, I have pretty high conviction at some price that will trade multiples higher and not many multiples lower. That's all I need to know to be a buyer. 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

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and their ecosystem what they have available to you. So thanks, once again, to Ledger for sponsoring the show. The next story, obviously, is the by-bit hack, which sort of dropped after we did the show on Friday last week, obviously that has now been attributed to North Korea and the Lazarus group for those who missed it. And I know you didn't because we've been talking about it all week, $1.5 billion, largest hack in history, Ethereum hack. But now we're starting to get some actual clarity onto what happened here, whose fault it was, how they were able to exploit cold wallets and multi-sig. And I think one of the bigger stories here is how successful Lazarus has actually been in laundering this.

with the entire world watching. To me, that's been one of the shockers that they've still been able to cash out hundreds of millions of dollars here, which is obviously being chased. Here's that forensics report. Maybe you can dig into us what happens here with this hack. It is so beyond my pay grade to really dig into to this hack. I think that the key takeaways, though, from kind of a layperson standpoint, is that it was extremely sophisticated. It was not like some, you know, by bit sitting there being, you know, twiddling their thumbs like idiots or anything like that. I think that the takeaway is that Lazarus has gotten extraordinarily more sophisticated when it comes to these things. Security gets more, not less challenging. We cannot

operate as though we just think we have these things solved. We're going to need to expect more from exchanges, more from sort of the existing custody infrastructure. I think it's another great reminder of the challenges of keeping your crypto on exchanges, although even that's sort of, you know, less clear than it was. One of the positive pieces of this is that rather than the Spider-Man finger-pointing, the industry is doing a lot of trying to rally and collaborate to, you know, it's basically crypto versus Lazarus right now is sort of the vibe out there. And I think that that's very positive. I think that crypto is an extremely, when it marshals its power together, it can do very, very powerful things. We've seen this with policy. A lot of credit to Bybit for the way that

they've sort of rallied the world behind them. My impression is that they haven't shirked responsibility where they've needed to have responsibility. But, you know, I think that Lazarus is a fact of the world that we live in. And they just rose up and showed that they are, you know, really, really good at this. And to fight, we're going to have to be really good as well. Yeah, it seems like the wall of infrastructure from SAFE was actually where the major exploit was that by bit followed their normal protocols. But listen, we all know that any system that's been. built online, hackers are going to be one step ahead and you're just trying to catch up and

figure out what they can do. And they showed exactly what they can do here. It's pretty terrifying, to be honest, because you know, you're told don't keep your wallet in exchanges, self-custody, but a lot of these same sort of exploits and fishing and mistakes are made in self-custody as well. Like, it's pretty amazing to me. I shouldn't, I'm not surprised, but it's eye-opening that custody is still such a massive problem in crypto at every level. Yep. I mean, look, nothing is a silver bullet. This is why it's sort of, you know, imperative for everyone to take it seriously, right?

To figure out the systems and risks that they're willing to take. It's not as clean and clear. You know, I think that to your point, for a long time, it's just been a, just use a, you know, a hardware wallet and you're good. And it's not even that clear. or not even that obvious as well. Obviously, these systems are getting more and more sophisticated. The good news is that there's a lot more incentive for, you know, especially as institutions

come in to have sort of different levels of custody and different approaches to custody, but it's a real challenge out there and it's one that's not going away. I don't anticipate that we will ever in crypto have a time where we just feel comfortable with this. The incentives are too high. The opportunities are too immense. You know, it's just going to be a fact. active life forever. There will probably be a time in the future when we're talking about

Bitcoin being stolen from Bank of New York Mellon or State Street. Almost for sure. Yeah. So it's kind of just be an issue of how well you're insured and how well they cover customer assets and what systems they have in place for that. The next story, obviously, Coinbase case dropped by USC as agency reverses crypto stance. This was dropped with prejudice. You can see Pride Armstrong simply case dismissed. And of course, Paul Greywall, their headcount, of good buy and good riddance. But this really isn't the only story right now from the SEC. It's almost hard to keep up.

I mean, in the last week or 10 days, roughly, Coinbase, Robin Hood, Uniswap, OpenC, consensus. Did I miss any? I mean, they have just unwound Gary Gensler's entire legacy in a matter of weeks. Yeah, I mean, this is what I think a lot of folks were waiting for. We had all of these indications that things were turning around and that this SEC was going to handle things differently.

the big outstanding question had been the court cases, right? The actual legal actions, the enforcement actions against companies. That has now clearly started to shift. You know, the last question for some had been, you know, is there any logic or reason to which ones are outstanding versus not? It seemed as though it was literally just a matter of the sequence of upcoming court dates from a prioritization standpoint. And that continues to look like the case.

So, you know, not everything has been closed out at this point. But it certainly appears that the trajectory is all of those enforcement actions getting closed or resolved in some way. Yeah, it feels like if you're left in a week or two, maybe there's actual fraud there that they're investigating because clearly the SEC's new mandate with the way they're setting up their systems and organization is to go after actual fraud and leave anybody who's trying to innovate alone. Yeah, how about that?

Crazy. Crazy that they actually would follow their mandate. the law. But I think that this goes back to the conversation at the beginning, which is that the things that are happening under this administration are long-term exceptionally bullish for crypto. Like these tariffs and the macro and all the things we discussed at the beginning, even a hack here and there or the Trump token should be nothing in the face of this turnaround from our biggest enemies. Yeah. Look, I think that the one, agree with all of that. Two, to me, the big thing to start watching for, we're still in policy cleanup phase. Where it gets really exciting

is when we get to actual policy making phase, particularly, I think, with the SEC and the potential for safe harbor type stuff. I think that the most deterministic impact that this SEC could have on the shape of crypto is creating regulated, safe legal space for experimentation with security-like things around tokens. That's where the floodgates get open. And that's where people actually start to do really interesting things that they wanted to do for a decade now. That's where people have an incentive to stay inside the regulated market instead of go outside of it. And we're still not even there yet. We're getting kind of nudging towards that.

But basically the point being that even as bullish as all this stuff is, there's more bullishness to come, I think, when it comes to the likely trajectory of policy in the U.S. Yeah, they've used the eraser to get rid of everything that's bad, but still need to flip that thing around and start writing actual regulation and legislation that will give us clarity. But I think we're going to get a safe harbor type proposal and things are going to move forward nicely. We're talking about getting rid of our worst enemies. Well, speaking of worst enemies, you've got Circle and Tether trade views on U.S. regulation as stable coin war heats up. Jeremy Aller firing some public shots across the bow of Tether, basically saying that anyone who's going to operate in the United States should be heavily regulated here, maybe have a banking relationship in the United States. This is sort of him saying the quiet parts for many months out loud. And then Palo Ardoino quickly firing back from Tether and basically saying that U.S.DT is the most

successful tool for U.S. dollar hegemony and distribution across emerging markets. These guys are going to, you know, obviously fight for their own companies and the future of their stable coins in the United States in the broader sort of, you know, context of stable coins being the lowest hanging fruit and probably the first thing to be legislated on in the United States. Yeah, I mean, this battle of this clash of the Titans was completely inevitable. It's been playing out, you know, behind closed doors in Washington forever. It's now breaking out into the mainstream. There's clearly narrative jockeying going on, Circle taking advantage of the fact that, you know, everything right now is bring it back to America, do it in America. You know, that's sort of all the rhetoric that we're getting for this administration. I think that they're playing off of that. You know, there's huge financial stakes here. I think that Circle has for a very long. time been positioning itself as the sort of de facto U.S. digital dollar. That's what they want to be that. And so this makes sense of that context. However, I also think that there are

fairly serious consequences for many in the crypto industry who do not like this sort of approach to business competition. Nick Carter's real loud about this right now, and he's hardly alone. I have a feeling that the bigger narrative and stable coins as we approach actual legislation is going to be the crypto incumbents like Tether and USC, first, the big banks that are coming in. Yeah, there's absolutely a lot. This could backfire very aggressively to sort of be, you know, squabbling amongst ourselves when Bank of America is determining that they're going to launch a table.

Let me show you guys a video. Here's the CEO of Bank of America for anybody who may have missed his comments this week. Let's just show the video. Which is going to be a full of dollar-backed, you know, type of this thing, which is, no different than a money market fund with check access. There's no different than a bank account, really. And so if they make that legal, we'll go into that business. So you'll have a, you know, a Bank of America coin and a Bank of America coin and a U.S. dollar deposit and we'll be able to move back and forth because now it hasn't been legal for us to do it. But it's just then like another

foreign currency. The question of what it's useful for is going to be interesting. I mean, this is pretty clear here that we're going to have J.P. Morgan coin and Goldman coin and Bank of America coin and everyone else coin. And if we're looking for institutional adoption of Tether or Circle, where do you think the institutions are going to go when we have our trusted Wall Street banks here saving the day with their own stable coins? I like to think that everyone knows that Bank of America is a piece of crap and they're super lame. And so maybe they won't get a lot of traction. But Jamie Diamond Coin is definitely going to be a hard competitor is when push comes to shove. Yeah. So I really think that Circle and Tether.

they're going to sort of have to get on sides with one another and fight for the industry and the private stable coins that they have before the big banks take over everything. Yeah. And finally, this is back to the SEC and Commissioner Hester Purse. Hard to keep up with everything they've been doing. But SEC publishes meme coin stance reinforcing Hester Purse's comments that meme coins are not securities. Here's that staff memo.

This also echoes what David Sacks has been saying, largely in defense of Trump token, that these are more akin to collectibles than they are to securities. This is just a lot more clarity on a nonsensical market. This is kind of what we assumed, but still good to have it on paper. Yeah, I read an early version of the memo that was titled, Stupid, comma, but not securities. Just kidding, that's not true. But, yeah, no, look, Hester has been pushing, I think, the most middle of the line common sense argument about this, which is basically it's not the

SEC's job to tell you what stupid thing you can or can invest in. It's also not our job to fix it when it goes bad. But the great thing about liberty is you get to make those decisions and this sort of, you know, is the legal instantiation of that approach, which is good. You know, look, meme coins should live or die on the basis of their own merits, not based on some weird regulatory treatment. Yeah, I mean, we didn't have this story queued up, but obviously, as we have Hester Persz talking about meme coins not being securities, we also have the House Democrats floating legislation that's taking aim at Trump crypto meme coin, but basically saying that no federal agent or politician should be able to launch their own token. I have no idea whether this

will make it through or not. I wish I had the video of the guy pointing at a thing explaining what a rugpole was. I don't know if you saw it. He's on that floor of Congress with like a poster board who says rug pull is. But explaining this. So listen, I mean, we're going to get more clarity, I guess. I would say that they should be focusing on insider trading from politicians as well. But maybe politicians also shouldn't be firing off mean points. I'm, there are a lot of things to be annoyed at Democrats about. Extending the sort of, you know, traditional understanding of the types of ways that you can benefit from your office to not being able to pump a meme coin seems fairly reasonable to me if we're going to be trying to give any side credit at any time. I do think

that there's always a prioritization question. Anything, you know, look, you know, anything that has the word Trump associated with it is, you know, political fire, you know, either good or bad. So it gets messy when those things get connected. But look, it feels completely inevitable to me that all of these sort of crypto interactions will just be treated like normal financial stuff where you kind of can't do that while you're in, you know, in office. I also think that in general, look, Americans don't like it that Nancy Pelosi, you know, has made a boatload of money trading stocks while in office. I don't think they're going to like it, you know, if they make money off of crypto either. I think that it's just, this is, you know, we are so divided in so many ways that when you can find

common sense things like people shouldn't profit off their political office, at least while they're in their office. You know, you got to jump on those things. I think Nancy's just a really good trader, you know? So she gets so much she, oh, God, excuse me, her, Paul. That's her husband's right. Yeah. Anyways, yeah, I don't think that politicians in general should be financially capitalizing off of their constituents. Call me crazy. So I'm on board for any of that. I think we covered it all, actually, pretty quickly there. Is there anything we might have missed today? I think everyone's just licking their $82,000 wounds right now. But we'll be back next week.

I think it'll be interesting to see how much has changed. And then we're in a very volatile moment. And look, I think what crypto people need to remember is that we are constitutionally more suited for volatility than any of these normies out there. Like, why are we the ones stressing? It's ridiculous. Like, we're the ones who ride these waves like it's a beach in summer, man. I just hope we're not talking about swastakoyne next week.

We almost definitely will be. God, kill me. the Kanye joke. And if you want something to put in the ceiling, if we get a rally, that your biggest culprit. I'm not going to fully commit to this yet, but I've spent seven years or eight years in this industry, not really like calling out people and being loud about how much awful they are. If this thing happens, I might reverse some policy and go in on some folks. So we'll see. It could be an interesting episode to watch. I had to actually look back. I joined Twitter, I think, in like November 2008. And among my first 10 tweets for my hatred

for Kanye, and it's been consistent for literally decades. So this is one that I will get right. All right. I'm sure everybody's on board with Hating Kanye now. It's great. Tune in next week for Fireworks on the Friday 5. All right, guys, that's all we got for you. Check out the breakdown.

Follow NLW, and we'll see you next week. Thanks, man. Bye, hey, guys.