The Breakdown - Can Bitcoin Stay Bipartisan?

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. The breakdown is sponsored by nexus.io, Arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, February 26th, and that means it's time for the weekly recap. However, before we get into the show, if you are enjoying the breakdown, please. go subscribe to it, give it five stars, leave a nice review, or if you want to get deeper into the conversation, come join us at the Breakers Discord. You can find a link in the show notes or go to bit. Dotley slash breakdown pod. Also, as always, a disclosure. In addition to them being a sponsor

Starting point is 00:00:51 of the show, I also work with FTX. So what we're going to do today is go quickly through a set of stories from the crypto space that were pushed out of focus, obviously by bigger geopolitical events. and then we're going to come to a main question, which is whether Bitcoin can stay bipartisan. Let's start, however, back a week ago on Friday night when everyone started freaking out because they were discovering that their NFTs on OpenC were gone. For a number of hours, there was a real fog around what was going on. Was it a smart contract exploit? Was it some sort of hack? When the dust settled, it was a fishing attack that had gotten a bunch of users to press a button

Starting point is 00:01:28 that they shouldn't have, which allowed attackers to exploit and steal their NFTs. This produced an extremely tense weekend with recriminations flying and the blame game all over. But I think the main takeaway and the thing that I want to point out and I'm drawing attention to is that this is absolute catnip for regulators in particular who say that this space is not ready for the mainstream, that investors are not well protected. And look, there's always going to be a higher burden on the individual in the context of an industry that is fundamentally about a self-sovereign technology. There's no way you're escaping more potential for human error. However, it makes security literacy even more important because we just can't give people

Starting point is 00:02:13 that sort of ammunition when they want to stop or malign what we're doing. Speaking of giving people less ammunition, we had the latest Tether Reserve attestation. Now, these reserve attestations are something that many think should just be a part of how stable coins function. But in Tether's case, they are, court mandated as part of their settlement with the New York Attorney General. Now, in previous attestations, one of the things that people have pointed out or highlighted is the amount of their reserves that are held in commercial paper, a form of short-term corporate debt. In the latest attestation, Tether's commercial paper reserves have come down significantly, 21%, from $30.5 billion to $24 billion.

Starting point is 00:02:53 What's more, the maturation on the notes they do have is shorter. 13.4 billion of it matures in 0 to 90 days, versus previously where the norm was 91 to 365 day maturation. Cash and bank deposits are also down from $7 billion before to $4 billion now. Money market funds grew from $1 billion previously to $3 billion now. But the biggest increase was in treasury bills from $19.4 billion to $34.5 billion. This suggests to me that Tether is trying to position itself to be in sync with what they anticipate a forthcoming U.S. stablecoin regulatory regime is going to look like. which one has to imagine might include a higher burden and a higher percentage of required reserves

Starting point is 00:03:35 held in something as safe as treasury bills. Speaking of crypto and the government, let's come over now to the Bitmex settlement. Arthur Hayes and Bendello, the co-founders of Bitmex, have pled guilty to violating U.S. anti-money laundering law. They've each agreed to pay $10 million, and as part of their deal, they will have a hearing to determine a prison sentence between six months and one year, although of course they can argue for a lesser sentence in those hearings. Broadly speaking, we're in a period of moving from one era to another when it comes to the crypto industry as a whole. I see this settlement as part

Starting point is 00:04:08 of the end of one era and the beginning of another. Next, a topic that easily could have held its own show. Earlier this week, Sudonymous X-650D was putting up a lot of 104 cryptopunks with Sotheby's in an auction event that Sotheby's was promoting heavily in which they called Punkett. It was supposed to be another huge milestone in the development of the NFT space, but instead, minutes before the auction was supposed to start, the lot was pulled. A loudspeaker announcement at the in-person event said following discussions with the consigner, tonight's punk at sale has been withdrawn. Thank you to our panelists, guests, and viewers for joining us. Now, this lot was about 100 floor punks. That means punks that are the cheapest, most basic, most normal, least rare of the whole collection. The consigner

Starting point is 00:04:55 had paid about 5.5 million for the batch last summer, and at the time wrote about why they made that approach. Last August, the collector said, why buy 100 floor punks instead of a single rare one? The short answer is liquidity and diversification. If you get to own a Picasso, do you care which one? The answer maybe should have been, yeah. After the announcement at Sotheby's Zero X-650D tweeted, never mind, decided to hoddle. He then used a meme to suggest he was quote-unquote rugging Sotheby's. Now this is a person who said previously that the reason they wanted to sell was to take Cryptopunk mainstream. It wasn't, of course, about the money. The reality is it seems like it was about the money. From CoinDesk, quote, Eli Tan, who was on the scene last night, reported that, quote,

Starting point is 00:05:39 the highest bid on the table behind closed doors and before the sale was just $14 million, far short of the $20 million to $30 million estimate previously provided by the auction house. The lot's reserve price was $14 million. So the question, of course, is whether this was just a particularly bad circumstance, or whether this represents an actual turning point for NFTs. Every big NFT moment with an auction house has been huge, bigger than anticipated. NFTs have seemed to defy gravity this year when it comes to how their prices have been impacted by larger geopolitical events, although that seems like it might be changing. I'm certainly not prepared to make some big assessment about where in the cycle we might be for

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Starting point is 00:07:45 The breakdown is sponsored by F-TX-U-S. F-T-X-U-S is the safe, regulated way to buy and sell Bitcoin and other digital assets with up to 85% lower fees than competitors. There are no fixed minimum fees, no A-C-H transaction fees, and no withdrawal fees. one of the largest exchanges in the U.S. FDX U.S. is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCS, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. But now let's get to something that I think outside of the Russian invasion of Ukraine has had the most chatter in the Bitcoin Twitter world. And that is Senator Ted Cruz's speech at the Conservative Political Action Conference CPAC in Orlando, Florida on Thursday.

Starting point is 00:08:34 Ted Cruz himself tweeted a clip of the speech and said one of the reasons I'm bullish on Bitcoin is because it's decentralized. You should really go listen to this excerpt, but what it has is, one, it talks about the context of the Canadian trucker protests. Cruz then goes on to read the letter from Nunchuck, the Bitcoin organization that was targeted with an injunction to stop donations to truckers, and which said both politely but also snarkily that it didn't have the capacity to stop the movement of Bitcoin in the way that they wanted, and that perhaps they should go learn about Bitcoin. Cruz then goes on to

Starting point is 00:09:09 Laud Nuncheck for telling the government to, in his words, go jump in a lake. And then basically goes on to argue that this is why China banned Bitcoin, because it's so uncontrollable. Now, all of this got lots of applause at CPAC, and it also got lots of applause on crypto Twitter. Suu from Three Arrow's Capital said very inspiring articulation of Bitcoin by Ted Cruz at CPAC, the most powerful conservative political conference in the U.S. Bulley Esquire wrote, I've never heard a politician talk this way about Bitcoin and Crypto. What a terrific speech.

Starting point is 00:09:39 Let's get this guy elected president in 2024. Now, if you used to know the old bully Esquire with his Zach Morris Avatar, this is the guy who was avowedly on the left, but is kind of now a refugee from the left. And indeed, that's what I think is the most important part of this conversation. Cruz made this explicitly political. In addition to this being his focus at CPAC, which is truly one of the biggest conservative conferences in the country. His tweet was clear on this. I read you the first part, one of the reasons I'm bullish on Bitcoin is because it's decentralized, but the second part is the left hates Bitcoin

Starting point is 00:10:13 because they can't control it. There is a growing discourse that Bitcoin may be increasingly partisan. Sue said something along these lines when someone asked about this in his comments, but so did Stefan Levera, who wrote, the idea that Bitcoin will be bipartisan might just be wishful thinking. Bitcoin clearly aligns more with one side's view of the world than the other. Bitcoin as a tool is neutral and can be used by enemies. But the idea of non-state-controlled money is deeply political. Now, I have said clearly in the past that I think Bitcoin partisanship could be a dangerous thing.

Starting point is 00:10:47 The U.S. political system is toxic, and it tries desperately to force every issue, every idea, every person into left and right dialectics. I think on the one hand that it is completely reasonable for people to be excited to hear a sitting senator talk in this way about Bitcoin and crypto, even if they come from a political perspective that that person doesn't have. People are allowed to, and in fact in a healthy democracy, should change and challenge their priors and come to new conclusions. They should go seek out the parties who seem to represent the beliefs that matter to them. And to the extent that Bitcoin and crypto are the issue that drives you most, that animates you most, going and building relationships and affinity for the politicians

Starting point is 00:11:35 who seem to want to protect and extend this space only makes rational sense. At the same time, and this is truly not a discussion of Ted Cruz, I think that one, we need to be incredibly skeptical of political affinity marketing. This is an extremely loud and well-financed industry and community. Over time, of course, politicians are going to flock to it. That doesn't mean that they can't turn from it just as fast. I don't like ascribing motives to people, and I like taking them at face value. Ted Cruz has clearly done a lot of work to understand Bitcoin. If you've heard him talk about Bitcoin mining and how it can be a powerful asset as part of an overall energy grid, this is not a Johnny come lately who's just trying to get in our pockets. At least it doesn't seem like that.

Starting point is 00:12:23 But that doesn't mean that we shouldn't treat his or any politicians' comments around Bitcoin with skepticism. Of course, the other piece outside of just affinity marketing is that politicians can turn from things they want supported quite quickly to the extent they find it is politically expedient to do so. And that brings me to point two. We can't forget that if Bitcoin does become partisan, then its place in the public policy discourse is largely dictated by whether the party representing it or not is in power. That can be a good thing. If things are firing on all cylinders for that particular party, there's going to be a lot more that gets done if it's a priority of that party. And often the things that are priorities for a party are the things that they uniquely

Starting point is 00:13:02 own a narrative claim to. However, if an asset, if an idea has wiggle room, if it actually is and can flow between parties, it may not have the extreme upside of a party being willing to throw down is its major issue. But it also never is cut out of the discourse entirely, never subject to the worst whims of whoever is in power if they are not a political ally. These are just cautions in what I believe is an inevitable process. There is no way for Bitcoin to become more relevant in the United States without it being subject to push and pull, without it being subject to partisan pressures. I don't think we should be scared about it. I just think we should be clear-eyed about it. And I think that the people who don't want it to be partisan, myself included, have tools at their disposal to help tell

Starting point is 00:13:49 why it should be relevant for the side that's not as loud about supporting it now. I do want to also call out Alex Gladstein's post about this as well, where he said, we have now reached the point in the timeline where software decentralization, censorship resistance, and self-custodial Bitcoin are getting cheers at major American political gatherings. His point, of course, is that this is further indication of just how far Bitcoin has come, and I think that that's true. At some point in the next couple episodes, I'm going to go deeper on this idea of Bitcoin as an amoral, apolitical force. I think you're going to see this come to the fore even more with the Russia and Ukraine situation, given that on the one hand, there's growing

Starting point is 00:14:28 concern in mainstream media and among some politicians that Russia will use Bitcoin and crypto to evade sanctions. But at the same time, right now, organizations supporting frontline troops in Ukraine are using it to raise funds that are being shut down by centralized services like Patreon. More about that at the beginning of the week, but for now, I want to say thanks again to my sponsors, nexus.io, Arculus and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Can Bitcoin Stay Bipartisan?

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