The Breakdown - Bitcoin’s Worst November in Years

Starting point is 00:00:00 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 Monday, December 1st, and today we are talking about our worst November in years. 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. All right, friends, welcome to the beginning of December. And now that November price action is in the books, what a dismal month it was. Bitcoin was down 17.7%.

Starting point is 00:00:48 As far as November's go, this was the worst November since 2018. For those of you keeping track at home, that means it was even worse than the November of 2022, when FTX collapsed and marked the end of a year-long crypto winter. And while last month was miserable in absolute terms, the relative weakness compared to other November's was a big part of the story. November is historically the best month for Bitcoin's seasonality. In fact, it is kind of the recipient and beneficiary of the October narrative, even though we always celebrated around October. Once again, this year, many were expecting a big run-up to end the year. That wasn't to be, with a series of macro factors weighing heavily

Starting point is 00:01:24 on Bitcoin and making it the worst November in years. Now, zooming into just the Thanksgiving weekend, the price action wasn't actually all that bad. Bitcoin surged on Wednesday afternoon, in Bitcoin was sitting at around $91,000 as the turkey was being carved on Thursday. That price level held throughout the weekend, but Bitcoin plunged on Sunday night as the CME futures market opened. The price was crushed by more than 5% across a few hours to reach a low of around 85,600. With no obvious crypto news driving the price action, some pointed to a collapse in Japanese government bonds that coincided with the drawdown. The move-in JGBs arose from a Monday speech from BOJ Governor Uweda, who said the central bank would consider the pros and cons of a rate hike.

Starting point is 00:02:02 Those comments were enough to put a rate hike on the table and cause the 10-year rights to spike to 1.85% a multi-year high. The Japanese policy decision is due on December 19th, a little over a week after the FOMC meeting. The big moves in both asset classes lined up perfectly, so perhaps this was a liquidity shock moving through the global financial system. Zatrini wasn't convinced, however, tweeting, going to lose my mind if I see another tweet about how the reason Bitcoin is down

Starting point is 00:02:26 having anything to do with Japanese government bonds. Get a grip people. Byzantine General, meanwhile, is simply tired of the macro-land. landscape, commenting, it's impressive that Bitcoin correlates 100% with literally any asset or index in the world that goes down only. Some noted that the move felt more mechanical than anything else. The Kobayisi letter wrote, as seen countless times this year, Friday night and Sunday night, often come with large crypto moves. Just now, we saw Bitcoin fall by $4,000 in a matter of minutes without any news at all. Why? liquidity is thin. Then add to this fact that leverage in markets

Starting point is 00:02:57 is at record highs right now. As a result, the sudden rush of selling volume leads to a domino effect sell-off, which is only amplified by the historic amount of lever positions being liquidated. This crypto, quote-unquote, bare market is still structural in nature. We do not view this as a fundamental decline. An analyst called Grain of salt noted that one of the few market actors of any real size at the moment is micro-strategy buying from OTC desks. These buys are hedged with futures, so when the buying window closes, those upside hedges unwind into a very illiquid market. Grain wrote, none of this requires macro news, yen carry drama, or mysterious catalysts. It's just how Bitcoin trades in a market dominated by synthetic hedging and perp leverage.

Starting point is 00:03:33 Looking ahead, we have another disappointing start to a month that could see Bitcoin end the year in the red. Remarking on the week November, analyst Timothy Peterson wrote, It feels bad because it is bad. Coin desk analyst James Van Stratton tweeted, At this point, with one month to go, Bitcoin finishing the year red would be the best thing for 2026, which would completely end the four-year cycle debate. Looking for a silver lining, LVRG research director Nick Ruck said, while November will be printing in the red for crypto, the capitulation signals an opportunity for smart

Starting point is 00:04:01 investors to start buying back in. Over-leveraged participants in unsustainable projects have been largely cleared out, which gives way for new long-term holders to scale in ahead of a promising new year. Essentially, the bull thesis is that the past few months have served as a mini-crypto winter, rinsing out a lot of the excesses of the bull market without doing too much damage to core crypto assets. Taking a look at the charts for meme coins and crypto treasury companies, there is a certain logic to that view. The question will be, how long we have to wait for a solid recovery rally. Fed cuts are now being priced in at almost 90%, so they could provide a solid catalyst next Wednesday, or maybe the huge amount of pain and capitulation over the past month

Starting point is 00:04:36 is enough to form a bottom. Now, with Bitcoin sweeping the lows, we got another round of Tether fud. On Thursday, Ratings Agency S&P downgraded its stability assessment of Tether to a 5, the lowest rating on their scale. Referencing Tether's Q3 out of station, published in October, they warned that Tether's reserves no longer have a sufficient buffer to weather a drawdown. Tether now holds 5.6% of their reserves in Bitcoin, exceeding their 3.9% reserve buffer. To be clear, Tether is still over-collateralized in terms of their overall reserve holdings, S&P is simply warning that they don't have enough treasuries to fully back the stablecoin. In fact, Tether now holds 24% of their reserves in Bitcoin, gold, secured loans, and corporate bonds, up substantially from

Starting point is 00:05:14 the 17% non-Treasory holdings from Q3 of 2024. S&P also warned that Tether has a number of governance issues, citing the lack of transparency around counterparties and a lack of investor protections. Tether CEO, Paulo Arduino, was completely unconcerned by the report stating, We wear your loathing with pride. In a separate post, he claimed that Tether had $7 billion in excess equity and $23 billion in retained earnings in addition to stated reserves. Realistically, the details aren't all that important. The question ultimately is whether or not Tether could weather a run of redemptions,

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Starting point is 00:06:17 Through liquid infrastructure, networks can now be financed in real-time, operated more efficiently and scaled to meet the $3 trillion telecom and utilities market. This is fintech for infrastructure, connecting capital directly to builders and returning revenue seamlessly to funders. No middlemen, no bottlenecks, just sovereign, resilient infrastructure that works for people, communities, and investors alike. Learn more at Althea.net and find them on Crackin to join the future of infrastructure finance. The more interesting angle was a very loud critique coming from within the industry. On Sunday, Bitmex co-founder Arthur Hayes tweeted, folks are in the early innings of running a massive interest rate trade. How I read this audit is they

Starting point is 00:06:57 think the Fed will cut rates, which crushes their interest income. In response, they are buying gold and Bitcoin, that should in theory moon as the price of money falls. A roughly 30% decline in the gold plus Bitcoin position would wipe out their equity, and then USDT would in theory be insolvent. I'm sure some large holders and exchanges will demand a real-time view of their balance sheet so they can assess the solvency risk of tether. Get out your popcorn. I expect the media to run wild with this, especially all the editors with TDS, who want to crap on Lutnik and can't for backing this stable coin. Hayes generated a huge amount of pushback with that controversial take. Joseph Ayub, the former lead digital assets analyst at Citi tweeted,

Starting point is 00:07:31 I spent hundreds of hours writing research on Tether, Hayes misses a few key points. He noted that Tether has further assets that don't get included in reserves, make around $10 billion a year in profit, and can sell their highly valuable equity in a worst-case scenario. Primarily, he pointed out that typical banks only hold around 5 to 15% of their reserves in highly liquid assets, adding, Tether is different, but holds similar qualities to a bank in this regard and is significantly better collateralized. A key difference is banks are backed by lender of last resort, the central bank, but Tether is not. TLDR, Tether isn't going insolvent, quite the opposite. They own a money printing machine.

Starting point is 00:08:05 Some critics pointed to Tether holding treasuries rather than cash in the banking system as a problem, arguing they might not be able to redeem their treasuries in a hurry. Nick Carter thought this was pretty ridiculous, tweeting, I see it's that time of year when the most brain-dead criticisms of Tether circulate on this website. Imagine thinking that tether's 135 billion of short-dated treasuries, the most liquid asset on the literal planet, can't readily be turned into cash on short notice. To some, the big take was that tether fud is a signal in and of itself. Joseph Ayud again commented, historically tether fud has marked bottoms. Bitcoin Jack tweeted when they fud tether, it is usually signal. Scott Melko wrote,

Starting point is 00:08:39 Tether fud is the dumbest part of every cycle. For Vijay Boyapati, this level of noise is simply a sign that shorts are pushing their luck. He commented, expect an enormous amount of fud over the next few days is a clean break upward for Bitcoin is going to push a lot of short positions into the danger zone. You'll hear TetherFud, MicroStrategy Fud, Quantum Fud. Mark it down. Speaking of MicroStrategy Fud, their CEO has laid out the conditions that would trigger a Bitcoin sale. For multiple cycles now, Micro Strategy selling has been one of the largest possible bearish catalysts. Critics have constructed complicated reasons that the company's debt load could force a sale. In a recent appearance on what Bitcoin did, CEO Fongle,

Starting point is 00:09:14 explained that Micro Strategy wouldn't be forced into selling their Bitcoin, but they might consider it for other reasons. He explained that if the company's equity traded below the value of their treasury and financing dries up, micro-strategy would be mathematically justified to protect their stock price. Fong added that this would be a last resort, commenting, I would not want to be the company that sells Bitcoin. Still, Fong played out the hypothetical scenario where the company has debts come due while their equity is trading at a discount. In that scenario, he argued that selling Bitcoin would be preferable to diluting shareholders with equity issuance at those depressed levels. According to Fong's calculations, Micro Strategy has around 800 million

Starting point is 00:09:48 in obligations to meet on an annual basis, including all of their interest payments and dividends. His plan is to fund those payments out of equity as long as it trades at a premium. Fong also noted that although defaulting on dividend payments is an option, it's not a particularly good option. He commented, the more we pay the dividends out of all of our instruments every quarter, that's seasoning the market to realize that even in a bare market we're going to pay these dividends. When we do that, they start to price up. That refers to preferred stock, like the stretch perpetuals which are currently trading at 97 cents on the dollar. The value implies a slight risk that micro-strategy won't make good on their promised 10% yield. Essentially, micro-strategy finding a way

Starting point is 00:10:22 to make good in their obligations allows them to stay in the game. A Bitcoin sale would hurt, but failing to pay out on their promises would make additional fundraising impossible. And while the discussion of Bitcoin sales isn't a particularly good sign, it's probably good that Fong was able to have a frank discussion about the current situation. Micro Strategy stock is currently trading at a 20% premium to their Bitcoin holdings. They're also facing a very real risk being delisted from MSCI indices at the beginning of the year. Rather than denying reality or blaming J.P. Morgan, Micro Strategy's CEO has now laid out the game plan in very real terms. They're a seller of Bitcoin if and only if they've exhausted all other fundraising options, but selling Bitcoin is

Starting point is 00:10:57 preferable to diluting shareholders or defaulting on their obligations. One more piece of FUD to finish up, SpaceX has transferred 105 million worth of Bitcoin to new wallets. Archam Intelligence reported that the startup moved over 1,000 Bitcoin on Wednesday night. This is the first notable movement of funds since the end of October, when SpaceX moved 280 Bitcoin to a new wallet. At this stage, the movement of funds is assumed to be a change in custody arrangements or some other wallet consolidation. The funds have been moved once and there's no real indication of a sale. Overall, SpaceX holds around 6,000 Bitcoin worth some $550 million. SpaceX first bought Bitcoin in the first half of 2021, around the same time that Tesla made their

Starting point is 00:11:32 acquisitions. Both companies sold off the bulk of their holdings in 2022, adding to the massive drawdowns that year. While this could be preparation for a sale, Elon Musk doesn't seem to be bearish on Bitcoin. During an interview published over the weekend, he said, energy is the true currency. This is why I say Bitcoin is based on energy. You can't legislate energy. Probably we won't have money. Probably we'll just have power generation as the de facto currency. So that's where we are starting this December. I think the big question will be how we head into the new year. Of course, we will be keeping track of that every day. For now, though, that is going to do it for today's breakdown. Appreciate you listening as always. And until next time,

Starting point is 00:12:07 be safe and take care of each other. Peace.

The Breakdown - Bitcoin’s Worst November in Years

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