The Breakdown - BTC Held By Institutional Products Hits ATH

Episode Date: November 14, 2023

Even before the formal approval of a Bitcoin spot ETF, Bitcoin funds have seen weeks and weeks of continuous inflows, reaching a new all-time high for BTC held in institutional funds. 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

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, November 13th, and today we are picking up right where we left off last week with the shift in bullish sentiment. 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, like I said, we are picking up right where we left off with the bullish sentiment in

crypto markets continuing across the weekend. Ethereum cemented its gains from Thursday's announcement of a spot EFTF application from BlackRock. Now, there was a 5% pullback from Thursday's seven-month high of 2130, but throughout the weekend, Ethereum traders defended the $2,000 price level and saw a slight price improvement into Sunday night. Ethereum ended the week up more than 8%, extending its streak to four consecutive weeks. with gains of 5% or more. Bitcoin traded sideways over the weekend, but that means it's stuck close

to the $37,000 level. What's more, the week began with excitement around Bitcoin and the possibility of preliminary ETF approvals coming soon. Now, last week, of course, had begun with excitement around Bitcoin and the possibility of preliminary ETF approvals coming soon. Toward the end of that week, that enthusiasm rotated into all coins. Indeed, Bitcoin slightly underperformed the broader our crypto market with a 5.8% weekly gain, but overall, with the 124% year-to-date price move, Bitcoin has filled in most of the negative price action dating back to the collapse of Luna last May, and is now trading at more than half of its all-time high. One other indicator of how things are changing is the stable coin market cap.

Stablecoin market cap as a percentage of overall crypto market cap has been steadily decreasing over the past month. At the beginning of October, stablecoins represented almost 10% of the overall crypto market. But last week, that figure continued. contracted to around 7.4%. Now, that's still a long way from getting below the 4% stable stable coin dominance levels, which we saw at the euphoric highs of the last bull run, but the last month has been the longest continuing streak of decreasing stable coin dominance throughout the crypto winter, and levels are at their lowest point since May 2022. Now, if you're trying to make sense of what that would actually indicate, think about it this way. A lot of money in crypto doesn't actually ever leave

the crypto markets. It simply moves between different assets based on what's performing, and so of course, when things are bad, when we are in the depths of a winter, and there's not much opportunity to be had, people simply hang out in stablecoins. The percentage of the market cap that comes from stablecoins going down is one indicator that more money is moving back into the other parts of the market. Now, of course, there were lots of vibes on Twitter to match all of this action. Size Chad writes, the bull market is back, baby. Bitcoin or BitPain writes, how have we gone up 38% in a month with no serious corrections? What absolute beast is devouring Bitcoin every dip. Now, someone who is trying to have a little bit of chill when it came

to this was Chris Berdisky from Placeholder Ventures. He's been using the analogy of getting drunk and noted that while crypto Twitter appeared to be a few drinks in, he said that he wasn't going to question the uptrend until everyone appears five plus beers deep. He added, although signs of intoxication are appearing, when Black Rock's handing out booze, it's hard to know when the party will stop. Still, he said, for me, it doesn't matter. This isn't a big bash, and so I'm still not buying, not selling, just riding. 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. PVI, BVI, DBA, Cracken. Now let's talk about those institutions for a moment. During the past week, assets under management of Bitcoin-based funds reached all-time highs in Bitcoin terms. Bitcoin Exchange traded products now hold over 863,000 Bitcoin according to data from Byte Tree. Over the past month, funds have added 22,100 Bitcoin to their holdings. This data was corroborated by coin shares who have reported six straight weeks of net inflows for Bitcoin funds. The 670s,000,000,000,

million added to Bitcoin funds during that period is the strongest inflow since the 2021 Bull Run. That data also doesn't even include the last week, which no doubt added to the streak of bullish inflows. Bytree founder Charlie Morris wrote in this week's report, Little wonder the price has been so strong of late. Demand for safe havens is growing. Now, the existence of ETFs as a way to getting exposure to Bitcoin was a new phenomenon during the last cycle. Prior to 2021, there were relatively few spot Bitcoin exchange traded products available. Throughout the cycle, however, products were launched in Canada, Switzerland and Australia, giving institutional investors a way to tap into Bitcoin without dealing with

crypto exchanges. Interestingly, the crypto winter wasn't too hard on these products. Max drawdown in Bitcoin held by these funds was only 7.5%, meaning they seem to have served as another place where Bitcoin supply has become permanently locked up. Futurespace ETFs have also seen massive inflows over recent weeks. The pro-share's Bitcoin Strategy ETF or BITO, which is the largest futures-based Bitcoin ETF in the world, has rapidly grown. The combination of inflows and appreciation in the Bitcoin price has doubled the value of BITO's assets since early October. The fund now warehouses 1.37 billion worth of Bitcoin futures on behalf of the investing public. And over 240 million worth of inflows to BITO have been recorded during that same period. Now, of course, all of this is seen as a proxy

for interest in what a spot Bitcoin ETF might do. Some of these inflows could be firms front-running ETF approvals and preparing to sell the news. But what's for sure is that right now, Bitcoin is back on Wall Street's radar in a big way. Indeed, a quote that has gotten a lot of A lot of traction on Twitter comes from Eric Weiss, the CEO of the Bitcoin Investment Group. He said in an interview, the day that the Bitcoin ETF gets approved, that is the day that the retail era comes to an end, and the institutional era for Bitcoin begins. I'm sure we will have a chance to talk about all of not only the good things, but also the bad things that will come with that as that reality comes to fruition.

Now, with Bitcoin and Ethereum trading relatively flat over the past few days, space has opened up for all coins to catch up. Solana in particular has outperformed. It notched a 20% single-day rally on Friday and is now trading 45% higher than it was at the beginning of last week. Solana has put in a 500% price increase so far this year and appears to be shaking off its stigma as a Samcoin, closely tied to FTX. Part of that is, of course, driven by the developers who have stuck around and put in work improving the protocol. That includes projects like Firedancer, a validator client backed by Jump Crypto, which is now operational on the Salana TestNet. Now, while critics have pointed to the lackl lesser TVL metric, indicating there's very little activity in the same,

Solana Defi ecosystem, the story of Salana's outperformance this year is definitely more a story of the worst-case scenario not playing out. Developers didn't abandon the blockchain after the collapse of FTX, and the teams that survived have continued to build. What's more, the last few months of token liquidations from the FTX estate appeared to have been much more mild than anticipated, and it even seems like a significant portion of those sales have found buyers through over-the-counter deals, with firms eager to get exposure. Now, interestingly, the Alt-Coin rally extended well past Solana, with multiple Alt-Layer 1 tokens putting in gains of 20% or more for the week, which overall seems to be a story of altcoins filling out their space in the now increasing

crypto markets. In mid-October, the value of the entire crypto market dip below $1.1.1 trillion, but that mark is now a little below $1.5 trillion creeping back to levels from May 2022. That's a boost of 36% over the past month, almost exactly the same as the increase in Bitcoin's price. Now, trying to understand why this matters and why the breakdown is going into markets, which is so far from our normal focus, we are right on the verge of a lot of different psychological barriers right now. We are just coming off Sam Bankman-Fried being found guilty, and now we have a market retrace that basically goes back to just before Luna. The recovery has followed the patterns that you might expect, with Bitcoin leading the way and then dragging other things along with it, with the ever-present

institutional narrative being one of the big drivers. And so while ultimately prices don't matter any more than they did a week ago or a month ago or a year ago, they are telling a particular story right now that reflects where the market is overall. You're also starting to see some shifting narratives even beyond just the institutionalization. Indeed, one of the things that I'm expecting to see is that while during the crypto winter, the narratives were driven by the huge number of bankruptcies. Going into this next cycle, some of the narrative is going to be driven by firms that have survived. One of those, for example, is Mike Novagrat's Galaxy Digital. The firm was launched in January 2018, right as that period of Bitcoin euphoria was coming to an end.

Now, the original mission for Galaxy was to bring institutions into the blockchain space, and it's quite clear that with that thesis playing out, founder Novogratz could not be more excited. During Galaxy's third quarter earnings call, he told investors that, quote, 2024 literally is going to be a year of institutional adoption, primarily first to the Bitcoin ETF, which will be followed by an Ethereum ETF. Novogratz believes that the approval of crypto ETFs is now not a matter of if but when, end quote. His theory, is that institutions will begin to broaden their exposure through infrastructure and venture investments, adding, as institutions get more comfortable, if the government gives its seal approval that Bitcoin

is a thing, you're going to see the rest of allocators starting to look at things outside of that. And so, money will flow into the space. Regarding spot Bitcoin ETFs and the effect they'll have on the industry, Novagrat said, this ETF is giving us all breathing space, putting life in the system. That brings in capital that allows the rest of the stuff to flourish. But I think if you look at the crypto long-term plan, it's on target. Interestingly, however, he's not as bullish on Ethereum ETFs. He thought that they might struggle to see adoption, saying,

Unless they can figure out an ETF that actually passes through the staking rewards, it will be kind of a subpar product from just owning Ethereum with someone like us and having it staked. In other words, holding a Bitcoin ETF rather than holding your own private keys, comes with risks but not a massive financial tradeoff. However, holding an Ethereum ETF would mean missing out on staking yields, which are currently around 3%. One other random, interesting, institutional thing that caught some people's attention was investor Steve Weiss going on CNBC on Friday to say that while he still doesn't believe in

crypto and doesn't understand crypto, he's loading up on exposure to Bitcoin. Ten T's Dan Tapiero said, This guy says he doesn't believe in Bitcoin, says no real use case for it and for all cryptocurrency. He is on CNBC saying he is buying. Imagine if he had done the work. Imagine when guys like him all eventually do the work, Tradfai adopters to drive the next bull market. Still, not all institutions are optimistic about a bullish continuation. A recent research, report from JPMorgan said that this crypto rally looks overdone. Their analysts acknowledged the bullish catalyst stating that, quote, a spot Bitcoin ETF approval would help crypto markets to attract fresh and new capital as the newly approved ETFs see inflows, and that the quote,

approval would cement a win for the crypto industry and a setback for the SEC, thus making it more likely that going forward the SEC approach toward the crypto industry will soften. Still, they noted that spot crypto ETFs in Canada and Europe have gained, quote, little interest from investors since their inception. What's more on the regulatory front, JP Morgan analysts recognized that the ripple and grayscale cases have been major defeats for the SEC, but wrote, it is far from clear that the regulatory tightening of the crypto industry will lessen significantly going forward, given how unregulated this industry is. They added that, U.S. crypto industry regulations are still pending, and we do not believe U.S. lawmakers would shift their stance because of the above two

legal cases, especially with the memories of the FTX fraud still fresh. Now, one more negative thing to put a fine point on the idea that it is not all roses and sunshine just yet. Polonex was hacked on Friday morning, with over 110 million in crypto being drained by the attackers. Assets were transferred out of an exchange hot wallet labeled Polonex4 on EtherScan. According to blockchain security firm Sirtek, the exploit was likely a private key compromise. The firm also noted that funds were drained into four externally owned wallets with one wallet swapping assorted funds into Ethereum. A different wallet bought $20 million worth of Tron, which pushed the token price up by more than 25%. Justin's who claims to be merely an investor in the exchange, tweeted on Friday morning, quote,

We are currently investigating the Polonex hack incident. Polonex maintains a healthy financial position and will fully reimburse the affected funds. Additionally, we are exploring opportunities for collaboration with other exchanges to facilitate the recovery of these funds. He also offered a 5% White Hat bounty to the attacker in exchange for the return of the stolen funds. Now, this is the second time in exchange affiliated with Sun has been hacked in the past two months. In late September, HTX, formerly Huobi, was exploited for

7.9 million. Sun claimed the losses were immediately covered by the exchange. And during that incident, he also offered a 5% White Hat Bounty, which now appears to be the going rate for ripping off Sun-affiliated exchanges. Now, this is not the only news around Justin Sun, as he was also mentioned in a letter to Democrat Senators Elizabeth Warren and Sherrod Brown. The letter from non-profit ethics group campaign for accountability warned the senators that Tron was widely used in money laundering via the stable coins available on the network. Curiously, the letter chose to focus on Circle's USDC, which only has 400 million minted on Tron. Indeed, the letter appeared to be an exercise in linking Circle and more broadly its investors, including Goldman Sachs, Bank of New York

Mellon and Glacrock to Tron. It noted that Tron and its founder's son are currently under investigation by the SEC and then took the leap in logic to claim that Tron has been extensively used in terrorism financing. The letter stated that, quote, recently published studies and reports of law enforcement operations indicate a prominent U.S.-based cryptocurrency company backed by major Wall Street investment houses may be directly or indefinitely. indirectly compromised by its integration with an Asia-based network of trading platforms and cryptocurrencies. Just really adding onto the pile of claims, the letter also said that, quote, Justin Sun is reported to have direct ties to the Communist Party of China.

So I'm not going to go deep into the specifics of this letter, nor am I going to touch the plenty of questions coming up for Justin Sun that are all over X slash Twitter. I'm only using these as examples to point out that we are far from pristine, clean, and ready to go in the eyes of many, and that even as things start to feel better, and indeed too be better, we've got some fights ahead of us. Still, it's nice to finally be swinging with some momentum, and so until next time, be safe and take care of each other. Peace.