The Breakdown - Crisis Averted: Fed Vice Chair for Supervision Steps Down

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, January 7th. And as Bitcoin climbs back above 100K, Michael Barr has stepped down as vice-fed chair for supervision. Before we get into what that means and why it's important, 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, Bitcoin likes that we are back in business, surging above 100K as traders

Starting point is 00:00:47 returned to their desks for the new year. With a fresh new quarter starting in earnest on Monday, traders pushed Bitcoin back above 100K for the first time in almost three weeks. Of course, not a lot can be drawn from a single trading day, but a 4% gain was one of the strongest daily movement since November. It suggests one of the first thoughts for professional money managers was to ensure they made their Bitcoin allocation for the quarter. The solid price action raised a lot of eyebrows. Jonah Van Borg, Commodities trader and host of 1000x wrote, I think it's significant that BTC is performing to start the year.

Starting point is 00:01:15 Large inflows heralded astounding price appreciation in early 2024 and early 2023. The January allocation pattern is continuing in 2025, and so too should the price action. Trading analyst Yelle was getting impatient, tweeting, same thing, different cycle, break 100K and we can get this show on the road. Speaking of cycles, Coin desk analyst James Van Stratton pointed out that Bitcoin now has better post-having performance than it did in 2016. However, at the same point during that cycle, Bitcoin had barely moved above 1,000, and we'd go on to pull a further 20x before the top. I think it's fairly safe to say that that's probably not how this cycle will play out, but we do have a clear example of the

Starting point is 00:01:50 cycle accelerating from this point. Aside from Bitcoin horoscopes, though, the solid data is looking remarkable for this cycle. A recently published Bitwise annual survey found that 96% of investment advisors answered questions about Bitcoin from their clients last year. That's by far the largest number in the seven-year history of the survey and suggests there is a wall of money still looking to get exposure. So far, this move looks like a spot-driven rally centered on the U.S. The Coinbase premium broke out of a month-long downtrend and is almost back up to zero. Perpetual futures funding remained extremely mild, still below 12%. Pitjet Research Chief analyst Ryan Lee said, these levels suggest a stable environment with

Starting point is 00:02:25 potential for continued market growth. However, the options market has been flooded with new bullish positions. Traders crammed into calls at the 110K and 120K levels. A lot of lot of the activity was for longer-term plays, with large bets being placed in the quarterly options expiring in March. However, analysts are keyed into short-dated options set to expire in the coming weeks. Options trader Gordon Grant likened positioning to early 20-23, subdued volatility quickly repriced higher, carrying Bitcoin off the bottom to the mid-20,000-dollar level in the blink of an eye. Grant said, many market makers still remember the blistering velocity of that move. Regarding future catalysts, the big event is inauguration day on January 20th. What people are looking at is the

Starting point is 00:03:03 flurry of potential Bitcoin-related executive orders that could be following. It's not out of the question that we see some version of a Bitcoin's strategic reserve established on day one. Not very many people have that as their base case right now, but it's still in the realm of possible. Overall, sentiment is a little mixed on whether inauguration day will be a sell-the-news news event. Bitcoin Jack is calling his shot tweeting, long into inauguration. Trader Flux is pretty happy with the setup overall, writing, Bitcoin at 100K again, only this time no crazy funding rates, no sailor bids, and no headline risk. Up, and to the right. Speaking of up and to the right, analysts at Investment Bank Bernstein are about as

Starting point is 00:03:37 bullish as it gets. They publish 10 crypto predictions for the year ahead, which they expect to be the first of the infinity age for the asset class. Analysts described the so-called infinity age as, quote, a long period marked by relentless evolution and widespread acceptance, leading to a point where crypto is no longer controversial, just part of the financial system built for the new intelligent age. Expect less of boom and bus patterns. Crypto is now firmly on the radar of corporations, banks, and institutions, weaving itself into the very fabric of our financial system. The analysts reiterated their call for 200,000 by the end of the year as their primary prediction. They were careful to note that this price target does not consider

Starting point is 00:04:11 the establishment of a Bitcoin strategic reserve in the U.S. If that occurs, analysts said it would trigger a, quote, global sovereign race to acquire Bitcoin, sending the price much higher. Supporting the price target was a prediction that ETF flows would double this year to 70 billion. Analysts also expect the SEC to drop or settle all pending cases, paving the way for multiple crypto IPOs. They also predicted that firms like Robin Hood were pushed to tokenize the stock market, allowing for genuine 24-7 trading and equities, while banks and asset managers would launch crypto products as fast as possible. They had a handful of other predictions about stable coins, Ethereum, and AI, but suffice it to say the expectation is massive growth

Starting point is 00:04:45 for the crypto industry along multiple vectors. Meanwhile, in another research note, JPMorgan analysts attracted a lot of attention by declaring that the debasement trade is here to stay. The premise was that Bitcoin and gold now demand a structural place in investment portfolios as a hedge against debasement. Analysts wrote, appreciation over the past year has gone well beyond the moves implied by dollar and real bond yield shifts and likely reflects the reemergence of this debasement trade. They added that the record inflow into crypto markets last year suggests that Bitcoin is becoming, quote, a more important component of investors' portfolio structurally. The explanation was fairly simple, with analysts

Starting point is 00:05:19 pointing to factors including structural higher geopolitical uncertainty since 2022, persistent high uncertainty about longer-term inflation backdrop, and concerns about debt debasement due to persistently high government deficits across major economies. The note, estimated a total of $78 billion worth of inflows in crypto markets during 2024. We've seen various credible figures on Wall Street co-signed this idea of Bitcoin as a debasement hedge over the past few years, but the idea of adding it as a structural part of a balanced portfolio is relatively new. Most notably, BlackRock said late last year that they were recommending an allocation between 1 and 3%. The firm noted that they were pretty much forced

Starting point is 00:05:53 to give a number due to client demand. While J.P. Morgan isn't saying Bitcoin should be part of a portfolio, their note may still be even more telling. Analysts are saying that based on the data they're seeing, Bitcoin is already being added as more than just a short-term trade. Billy Bits remarked on how quickly the tune has changed at JPM, commenting, No Big Deal, just the largest bank saying that Bitcoin is here to stay, and a debasement trade only a few short years after Jamie Diamond was calling everyone who invested in an idiot who deserved to lose all their money. If you've been around Bitcoin for long enough, you've heard the term Hoddle and the name Leden. Lennon has been the go-to leader in Bitcoin lending for over six years.

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Starting point is 00:07:07 Product availability varies by jurisdiction. Now though, to our main story, big news out of Washington, as Michael Barr announced he would step down from his role as vice chair for supervision at the Federal Reserve. There had been speculation that Barr would attempt to hold onto his position and defiance of the Trump White House, triggering an unprecedented dispute. It was not at all clear that the president has the authority to fire the vice chair for supervision, so this issue likely would have gone to the Supreme Court. There was also the risk that Trump would pursue firing bar for cause, igniting an extremely damaging political crisis at the Fed. On Monday, however, Barr said, the position of vice chair for supervision was created after the global financial crisis to create greater

Starting point is 00:07:44 responsibility, transparency, and accountability for the Federal Reserve supervision and regulation of the financial system. The risk of a dispute over the position could be a distraction from our mission. In the current environment, I've determined that I would be more effective in serving the American people from my role as governor. Barr's term on the board of governors runs until 2032. The crypto industry has a somewhat mixed view on Barr. He has some level of bona fides, previously serving as an advisor to ripple and pushing for stablecoin regulations. However, most can't overlook Barr's role in Operation Chokepoint 2.0, at least being complicit if not a major ringleader. In an op-ed calling for Barr to be fired last month, the Wall Street Journal

Starting point is 00:08:19 referred to him as a quote favorite of Elizabeth Warren. Custodia Bank CEO Caitlin Long wrote a long thread detailing all of Barr's actions against the crypto industry over the past few years. It can be pretty much summed up, though, by her opening exclamation, the Fed's debanker-in-chief is out. Oman Malicon, an adjunct professor at Columbia Business School, wrote, I'm going to miss Barr as a top bank regulator. He oversaw the most predictable banking crises in modern history, and, along with other top regulators like Marty and Mickey, helped start it by debanking crypto. It's hard to be that incompetent. Outside of the crypto bubble, political analysts are expressing some concern. Jared Seberg, T.D. Cowan wrote, agency chiefs used to stay when the White House changed parties. That's no longer the

Starting point is 00:08:58 case, which means banks should expect bigger policy swings each time the White House changes control. He noted then that the resignation is, quote, less of a victory for the big banks than it may appear. He added, Democrats will retain their majority of the Federal Reserve Board until early 2006, and it's hard for us to see much getting done on the deregulatory side this year, given the need to confirm new regulators. The Federal Reserve has said it does not plan to take on significant rulemaking until Barr's successor is confirmed. Katelyn Long, commented on Barr remaining on the board, tweeting, Speculation I've already heard about why Michael Barr didn't also step down as Fed governor.

Starting point is 00:09:30 He wants to keep the Fed's board majority dem to hurt Trump. He knows debanking will be investigated and knows he'll be a target. Seaberg's concern about the politicization of financial regulation rippled through the policy space. Rob Blackwell, a former editor-in-chief for American banker, wrote, with Barr's resignation, this is officially the end of independent bank regulation. From here on out, new administrations will have control immediately of FTIC, CFPB, OCC, and Fed Vice Chair of Bank Regulation, though not the full-fed board. That gives them the ability to immediately set a new course for bank regulation.

Starting point is 00:09:59 That is a massive change. The other big resignation yesterday happened north of the border, with Canadian Prime Minister Justin Trudeau stepping down after nearly a decade. Complaints about Trudeau have been many and varied over the past few years as the Canadian economy descended into stagflation. Many Bitcoiners know Trudeau primarily from his role in suppressing the Canadian trucker protests in 2022. Trudeau's government froze the bank accounts of protesters as well as distant supporters.

Starting point is 00:10:22 For many people, this was a revelation that Western governments were willing to take people's money away if the political climate boiled over. Trudeau used the Emergencies Act to enable this action, a measure that had previously only been used in wartime and during the 1970 Montreal terrorist incident. For our purposes, the more interesting part of the story is the man who will likely succeed Trudeau as the next Canadian Prime Minister. Canada is due to hold elections by October, but they could arrive much earlier. The current frontrunner is opposition leader Pierre Paulevere, currently trading at 88% odds on Polly Market. In 2022, Pallivera revealed that he has personal Bitcoin holdings and has advocated strongly for individuals to have the option to invest in Bitcoin.

Starting point is 00:10:57 He has appeared on a podcast with the owner of Tihini-Sewarma, an Ontario restaurant that adopted the Bitcoin standard in 2020. He gave an extremely coherent explanation of how Bitcoin was being used to protect the purchasing power of the business. He is also against the Bank of Canada issuing a digital currency and has made the dangers of inflationary money printing a core part of his political message. In one widely circulated clip, he said, printing money seems like a painless way to pay for things, but it's a tax on the working people, because it chews up the purchasing power of your paycheck. Inflation is the worst and most immoral tax.

Starting point is 00:11:26 It always results from the government creating cash. Summing up the vibe in the Bitcoin space, Alex Thorne of Galaxy Digital tweeted, Bitcoin is on the ballot up north. It continues to feel like we are just in the setup phase for 2025. We know a lot about the changes that are coming, but we don't have all the details yet, and the reality is always much more unpredictable than our guesses. Still, we're starting from a position of strength, and I continue to be very excited about the year ahead. For now, that is going to do it for today's breakdown.

Starting point is 00:11:54 Appreciate you listening, as always. Until next time, be safe and take care of each other. Peace.

The Breakdown - Crisis Averted: Fed Vice Chair for Supervision Steps Down

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