The Breakdown - Could a Robinhood Exec End up SEC Chair?

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 Tuesday, October 8th, and today we are asking whether an official from Robin Hood could end up the next head of the SEC. 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. Well, friends, we are sort of in the dog days of October. And really what I mean by that is that right now, so much of market behavior, particularly in crypto, is hanging on the conclusion of this crazy election cycle that we've had.

Starting point is 00:00:53 We've discussed before on this show around how different analysts are viewing the various outcomes, depending on a Kamala win versus a Trump win. And mostly, I just think we're in a period where uncertainty is tamping down enthusiasm. Now, that is contrasted by the fact that October is one of the crypto industry's most respected holidays, and so all of that sets the context for the things we're talking about today. Now, one interesting note on October, as we discussed over the weekend, it seemed like October sentiment was flooding back into the discourse, and on Monday, a pair of research shops endorsed that idea, declaring October to be back on.

Starting point is 00:01:26 QCP Capital wrote, after a shaky start, October seems to be back on track with Bitcoin holding steady at level similar to where it started last Monday, with additional rate cuts lined up in Bitcoin's strong correlation to equities, we remain optimistic about a strong October. They pointed to strong non-farm payroll reports as the key catalyst for the renewed enthusiasm. Looking ahead, analysts flagged Thursday's CPI inflation print as the next macro data point to watch. Bigger than QCP Capital, though, is that JP Morgan analysts are also getting on board with seasonal optimism. Their report featured a chart of past October's demonstrating how strong the month has been historically. They wrote, while previous performance is not a predictor of future performance,

Starting point is 00:02:03 we think this popularization of October may influence behavior and result in a positive month for Bitcoin this October. Basically, the self-fulfilling prophecy is real. As additional tailwinds, analysts pointed to Fed rate cuts, approval of Bitcoin ETF options, and Ethereum's upcoming Petra upgrade. Regarding Fed rate cuts, they noted, we have yet to see the pop in cryptocurrency prices expected from lower rates since the Fed September 18th cut. Their conclusion was that the market could be waiting for a more sustained stability before making a decisive move higher. They also recognized that we're in uncharted territory, adding, crypto assets really only emerged in the early to mid-2010s, and rates were near zero for most

Starting point is 00:02:38 of their existence. It's possible that stable rates, rather than just low ones, will benefit these markets the most. Moving to Bitcoin Options, the report said these products should deepen liquidity and attract new participants to the market. Analysts wrote, with options, investors now have a more dynamic way to engage with the ETF and drive liquidity in the underlying asset. We still have no time frame on when ETF options will go live, with the process now in the hands of the Options Clearing Corporation in the CFTC. Anyways, basically the big thing here is that J.P. Morgan is now officially referencing October. Moving back, though, to that political context, which is shaping so much of the

Starting point is 00:03:09 discourse, a lot of people yesterday were paying attention to Polly Market, where Donald Trump has expanded his lead to the widest margin since Kamala Harris was installed as the Democratic nominee. According to Polymarket betting odds, Trump is now sitting as a 53.4% favorite to win the election. The candidates were running neck and neck early last week after Trump spent the second half of September catching up. The odds spiked dramatically on Monday morning to give Trump his widest margin in over two months. Prediction markets are now firmly mainstream, with all manner of pundits and public figures referencing the odds. Elon Musk tweeted, claiming more accurate than polls as actual money is on the line. Polymarket, however, is now noticeably out of step with leading

Starting point is 00:03:45 polling forecasting platform 538, who have Harris still in the lead by two and a half percentage points. Speaking of Musk, he hit the campaign trail with Trump for the first time over the weekend, attending a rally in Pennsylvania. Some are sniffing out conspiracy here. A political better going by Domer on Twitter laid out the theory. He pointed to a polymarket user called Freddie 999, who is the largest whale in the political markets. Freddie has bet over $6.4 million on a Trump victory and began buying large positions in late June shortly before Musk went public as a Trump supporter. However, Swan Marcus doesn't think it even needs to be that complicated, tweeting, it's hilarious how Elon keeps tweeting about polymarket, right-wingers flood polymarket to put money on Trump in response, Trump's odds skyrocket,

Starting point is 00:04:24 and then they use those odds as proof he'll win. Hey guys, betting markets aren't predictive if Elon uses Twitter to influence them. Maybe more directly relevant for us over here in Cryptoland, however, are reports of a new frontrunner to head up the SEC should Trump win. Politicoe reports that Robin Hood, Chief Legal Officer Dan Gallagher, is emerging as a leading contender. Gallagher previously served as an SEC commissioner during the Obama administration. One former senior SEC official told Politico he'd be a natural choice. Republican lawmaker Bill Huizenga recently said, Dan would be great. I've had a great relationship working with him even when we disagreed on some stuff. Ultimately, you want someone who's thoughtful, experienced, and not just ideologically,

Starting point is 00:05:01 politically driven. That's been the problem with Gensler. According to Politico, other names being considered are former CFTC chair, Chris Giancarlo, former SEC General Counsel Robert Stebbins, and current SEC Commissioner Hester Purse. If Gallagher gets to nod, he would be put in the awkward position of chairing the agency that is looking to sue his former company. The SEC served Robin Hood with a Wells notice in May, alleging that they are operating as an unregistered securities exchange when it comes to crypto. Gallagher told Politico, it's a dog of a case. He pointed out that Robin Hood offers a tiny fraction of the tokens available on other exchanges and has steered cleared of crypto lending and staking products. Gallagher continued, we've been forging revenue for the company

Starting point is 00:05:38 by not going hogwild listing coins, and I think that puts us in a very, very unique position. Shooting at the good guys is a really bad policy. Gallagher has been an outspoken critic of the SEC's crypto direction and has gone on record on how he would do things differently. He is in support of the idea tailoring the rules that are already in place to accommodate the crypto industry as well as setting up a registration system for exchanges. Gallagher doesn't seem to want to let the industry go hog wild with token listings, to use his term, but rather pursue some of the common sense reforms that have long been requested. He said, it's an honor to have my name included in any discussion of who may be the next SEC chairman. I care deeply about the agency and my hope for any new

Starting point is 00:06:13 SEC chairman would be that they foster access to the markets and ensure the U.S. remains at the forefront of financial innovation. Coin trader Nick wrote, we're going to have to start pricing this in pretty sharpish. Status quo would be absolutely fine for crypto, but Trump victory would be levels of degeneracy surpassing 2021. Robin Hood chief legal officer as SEC chair? Yeah, that ain't priced in. Stock influencer Ahmed is investing tweeted,

Starting point is 00:06:35 If Dan Gallagher actually becomes the new SEC chair under a new administration, every single company that has a crypto business and is looking for a regulatory framework will get one of the smartest legal minds who embraces crypto and understands how important the technology is to America's dominance in the industry. This would be such a good move and an amazing replacement to get. To which Nick Petrakis replied, I'd be happy to replace him with a Mr. Potato Head and a magic eight ball. The bar is low.

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Starting point is 00:08:06 Permissionless is the conference for Cryptonatives by CryptoNatives, and the reason it's so important this year is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today, the tide is turning. Policymakers have pivoted from fighting crypto to embracing it. Literally now, we are in a major political party's platform, which will lead ultimately to the creation of new financial products, new applications, and ultimately new adoption. Permissionless is the conference for those using and building on-chain products. It's home to the power users, the devs, and the builders. And perhaps more importantly,

Starting point is 00:08:41 I will be there. The location is Salt Lake City, the dates are October 9th to the 11th, and tickets are just $499.9. If you want to get 10% off, use code breakdown 10. Go to the Blockworks website, blockworks.com. There will be links to register for the conference, and again, you can use code breakdown 10 to get 10% off. Here's one that's pretty interesting. Micro Strategy stock has has surged to a six-month high. The stock traded up by 5.5% yesterday, stopping just short of all-time highs. The move comes on a day when the NASDAQ dropped by 1.2% and Bitcoin round-tripped early gains to in the day trading down 0.1%. In other words, micro-strategy seems to be trading on factors beyond the Bitcoin price and broader risk sentiment in the stock market. There's no particular news that could

Starting point is 00:09:25 explain this price action, so analysts are digging into market structure for an explanation. 10x published a report before the open on Monday that found micro-strategy stock is already 44% overpriced based on their Bitcoin holdings. Founder Marcastelian suggested that dislocation was to do with positioning in the options market, writing, market makers may be forced to head their short gamma exposure, as they likely sold calls to retail investors. and hedge funds holding $4.6 billion in short positions on micro strategy shares could face pressure to cover those shorts if the price surpasses the $180 mark. He pointed out that the surge in stock price could allow micro strategy to conduct more fundraising, adding, raising even more debt to purchase

Starting point is 00:10:00 Bitcoin seems logical. A breakout in Micro Strategy's stock could have a tailwax the dog effect, where the momentum in its shares positively impacts Bitcoin's price, creating a feedback loop. The general idea has been that Microstratology should trade like a leveraged exposure to Bitcoin, amplifying moves to both the upside and the downside. Coin desk analyst James Van Stratten wanted to test this theory. He compared daily performance between MicroStrategy, the BlackRock ETF, and CME-listed Bitcoin futures. MicroStrategy did perform to the outside with almost double the average return on green days. However, on days when Bitcoin is down, Micro Strategy experienced a slightly smaller drawn-out on average than the instruments that track Bitcoin's spot prices. This was completely

Starting point is 00:10:37 unexpected. Ben Stratton's only explanation was that the legacy software business could be helping reduced drawdowns. Others, though, have alternative theories. Blockstream CEO Adam Back tweeted, Price Microstrategy based on how much Bitcoin you estimate it can acquire between now and hyper-bitquinization. Jeff Park, the head of Alpha Strategies at Bitwise, commented, Micro Strategy is the only trade in the world that is simultaneously long global carry and short global carry. A valuable thing that represents pure financialization of the hardest asset in the world, capitalizing on both global liquidity and scarcity. 60-40 and 1. Don't fade sailor. Park basically is identifying that Micro Strategy is the only packaged financial product that's long Bitcoin

Starting point is 00:11:14 and short the dollar. At the same time, though, it does feel kind of like Micro Strategy has gathered a cult following among stock traders. Micro Strategy is the only stock of any real size that has outperformed Nvidia so far this year. With the chipmaker taking a slight breather, swing traders are starting to look for their next big score. We have dozens of stock trading influencers posting Micro Strategy charts without referencing Bitcoin at all. It's starting to be reminiscent of other crowded retail trades like Tesla. There's even people who are focusing their content on micro strategy. A Twitter user going by the handle Matt UTXO, the host of the MSTR Daily podcast tweeted, the crypto traders are realizing that Master is the best beta plate of Bitcoin this cycle.

Starting point is 00:11:50 Money will rotate out the risk curve in traditional markets, not on Binance. Obviously, some alt-will outperform 100x, but good luck picking them. Same thing with the Bitcoin miners. Master is the best risk-adjusted trade investment I've seen in my short adult life. BitPain was fired up by that post, adding, if Master really does take over from crypto as the Bitcoin beta play this cycle, it will create a super cycle. Unlike Altcoin's alt-degenerate trader cash that finds its way into Master, just give Saylor more room to dilute and buy Bitcoin. Master is like a ratchet that only goes up. Speculative fervor can drive it to an overvaluation relative to its Bitcoin treasury only temporarily. As long as Sailor can dilute equity and buy Bitcoin,

Starting point is 00:12:24 the quote-unquote overvaluation becomes rational within a short interval. So then do we have a little bit of a GameStop Bitcoin crossover event brewing? Micro Strategy is definitely pricing in something in addition to the Bitcoin it holds, and that could simply be the early stages of a retail mania. The stage would be set. Micro Strategy is a pair of leveraged ETFs, liquid options, markets, and a ton of hedge funds taking positions. For most of this year, we've been looking for a signal that retail is coming back to Bitcoin. Could that signal be that they are going straight into micro strategy? Certainly something interesting to watch.

Starting point is 00:12:55 Lastly today, speaking of micro strategy, Japanese investment company Metaplanet, a little micro strategy, basically, has bought a further 7 million worth of Bitcoin, bringing their total holdings to $40.5 million. The firm is following the micro-strategy playbook, raising capital in public markets to acquire as much Bitcoin as possible. Metaplanet are really stepping it up a gear with their second buy over the past week. They have now added 215 Bitcoin to their balance sheet since last Monday, more than a 50% increase. Japanese investors are rewarding the strategy, with the stock lifting by 11% on Monday following the announcement. Metaplanet's stock has more than tripled since they began buying Bitcoin in May. Their other big play last week was the

Starting point is 00:13:30 sale of 223 Bitcoin put options, committing them to buy Bitcoin at a strike price. of $62,000 at the end of the year. Metaplanet planned to buy the Bitcoin either way, so we're comfortable taking some income by selling the options. There is still a long way to go for Metaplanet to catch up with micro strategy, but they certainly seem to be committing with a sense of urgency. Anyways, friends, that is going to do it for today's breakdown. Appreciate you listening as always, and until next time, be safe and take care of each other. Peace.

The Breakdown - Could a Robinhood Exec End up SEC Chair?

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