The Breakdown - Crypto Advocate Howard Lutnick to Head Trump Transition Team

Episode Date: August 20, 2024

Earlier this year, Cantor Fitzgerald CEO Howard Lutnick made news when he began discussing his company's relationship with Tether around their Treasury holdings. Now, he's back in the news as the co-chair of the Trump transition team. 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, August 19th, and today we are talking about the crypto connection on the Trump transition team. 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 are go to bit.ly slash breakdown pod. All right, friends, happy Monday.

Today we are back in the political sphere, where former President Donald Trump has appointed Cantor Fitzgerald's CEO Howard Lutnik as the co-chair of his transition team. In January, Lutnik made headlines in the crypto world when he revealed that Cantor Fitzgerald is managing a part of Tether's portfolio of Treasury bills. He did not reveal how much of Tether's reserves is being custodied with Cantor. However, he used the opportunity to vouch for the stable coin issuer,

stating, they have the money that they say they have. Letnik's appointment to the Trump transition team is being viewed through a few different lenses. First and foremost, it's being reported as an example of pay-to-play influence. The second co-chair and the person grabbing the most headlines is wrestling industry matriarch Linda McMahon. Lutnik and McMahon are both Trump donors who have held massive fundraisers. Before you jump out of your seats, remember, I am just trying to report how the meta-analysis of these things are going. I'm not making the argument myself. Second, the appointees are being reported as a way of keeping tight control over a potential

Trump administration. The transition team is responsible for vetting and hiring political appointees, such as the head of federal agencies. They also have the responsibility to craft policy proposals and executive orders that can be ready to go on day one. What's notable here is that neither let Nick Norman McMahon have ties to the Heritage Foundation and Project 2025. Project 2025 was an effort by the conservative think tank to create a large index of potential staffers and policy proposals ready to be adopted. It seemed like it was maybe envisioned as a turnkey conservative government to have on the shelf for the next Republican president. Early in the campaign, Project 2025 became a rallying cry for Democrats, who presented it as a

dystopian attempt to push through deeply unpopular policy. Since the controversy arose, Trump has sought to actively distance himself from Project 2025 and the Heritage Foundation. He went so far as to call some of its policy proposals absolutely ridiculous, and so perhaps these appointments can be viewed as the Trump political project actively turning their back on that particular association. McMahon in particular is on the board of a rival think tank the America First Policy Institute. Eric and Donald Trump Jr. have been appointed as honorary co-chairs of the transition team. During the Republican National Convention, Don Jr. said he wanted to act solely as a gatekeeper, stating, I want to block the liars, I want to block the guys who are pretending there with you.

I just want to block the bad actors. I just want to be a block. That's it. Now, bringing it back to our industry, where it gets interesting for crypto is that Lutnik has been actively pushing Bitcoin forward from within the financial services industry. At the Bitcoin conference last month, he announced that Cantor Fitzgerald would launch a Bitcoin financing business that lends against Bitcoin holdings. The service would begin with $2 billion in financing available. He said, We are going to welcome Bitcoin into the financing family of the global financial market,

and Canther Fitzgerald's going to be your sponsor. Alexander Greve, the VP of Government Affairs at Paradigm said, inclusion of Howard Lutnik is huge for crypto. He personally briefed the House Republican Conference last year on Stablecoins and is a big crypto bull. Zahir of Split Capital wrote, The transition team's goal is to find the best people for cabinet roles, and having someone like Lutnik at the helm bodes incredibly well for crypto,

should Trump win. Now, obviously, there is a lot more discussion about these appointments that have nothing to do with crypto, but that is not the role for this show. Instead, we won't move on. Well, sort of. New financial disclosures have revealed Donald Trump has pretty substantial personal crypto holdings. The documents show that Trump earned over $7 million in licensing fees from his three-series NFT collection. He also declared holdings of between $1 million and $5 million worth of crypto assets on the Ethereum network, but token holdings were not itemized in any detail. This is a pretty substantial jump from the last disclosure that was publicly made. As of August 2023, Trump's crypto wealth was disclosed at $2.8 million, with around $4.8 million worth of income from NFT royalties.

Zeroing in on a precise number, Arkham Intelligence believes they have identified Trump's Ethereum wallet. It currently holds around $3.5 million worth of tokens. 2.2 million in Eith and the remainder in an extremely long tale of various meme coins, most of which are presumed to have been donated to the former president. This could go a long way to explaining why Trump has been eager to keep issuing crypto collectibles. Back in July, Trump hinted at a fourth NFT series telling Bloomberg, quote, The People Want Me to Do Another One. Hello, friends, before we get back to the rest of the show, I want to implore you to join me at Permissionless. Permissionless is the conference for crypto-natives by Crypto-Natives, 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, I will be there. The location is Salt Lake City, the dates are October 9th to the 11th, and tickets are just $499. 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.

From here, we move away from the political side of this and maybe towards the financial side, where last week we saw large financial firms disclose their holdings of the Bitcoin ETFs. The headline grabbing newcomers were Goldman Sachs and Morgan Stanley, with both firms buying enough to become top five holders of BlackRock's ETF. analysts have now had a few days to dig through the 13F filings, and it looks like the last quarter was extremely positive for institutional adoption. Coinbase research wrote,

We think that the continued spot Bitcoin ETF inflows during Bitcoin's underperformance may be a promising indicator of sustained interest in crypto from the new pools of capital that the ETFs give access to. 13F disclosures are only filed by firms with more than $100 million in assets under management. This group of large institutions increased their ownership of Bitcoin ETFs over the last quarter. They now own 24% of the shares issued up from 21.4% in quarter one. Coinbase's report also highlighted that adoption is shifting towards investment advisory firms and away from hedge funds. Investment advisors now make up 36.6% of positions disclosed in 13F

filings up from 29.8% in Q1. Hedge funds fell from 37.7 to 30.5%. Coinbase analysts suggest this was due to hedge funds taking market-neutral basis trades, which have become much less profitable over the past quarter. For Q1, the largest buyer of Bitcoin ETFs was Millennium Management, who took on a position worth almost $2 billion. They've now trimmed that position to around $1.1.1 billion. Citadel, Point 72, and Apollo all bought relatively modest positions in the tens of millions. Overall, there was a 30% increase in the number of firms disclosing a Bitcoin ETF position. 44% increased their position, 22% held steady, 21% decreased their position, and 13% sold off entirely.

From where I'm sitting, that's pretty diamond-handed in terms of what you might expect from this group. Smaller firms and individual investors still represent the vast management. majority of holders, with 76% of shares held by entities that don't file 13F disclosures. The gradual adoption from investment advisors is exactly what Bitwise CIO Matt Hogan predicted way back in January when the ETFs were still new. He broke down his big takeaways from this round of disclosures, tweeting, institutional investors continue to adopt Bitcoin ETFs in Q2. The trend is intact. If you thought institutional investors would panic at the first sight of volatility, the data suggests otherwise. They're pretty steady. ETFs are a big tent that attract a wide

variety of investors. It's kind of great to see Millennium nestled up against the state of Wisconsin in these ETF filings. Over time, I'd like to see wealth managers and pensions account for a growing share. Speaking of the ETFs, after seven months in the game, BlackRock has surpassed Grayscale to become the world's largest digital asset manager. According to data from Arkham Intelligence, BlackRock now has 21.6 billion in digital assets under management split across their Bitcoin and Ethereum products. A big part of the story has been a strong preference for the BlackRock ETF among large financial institutions. Both Goldman Sachs and Morgan Stanley chose to allocate almost exclusively to the BlackRock fund. This could be a preference for the highest liquidity product or simply an expression of trust in the

brand. Nate Garassi of the ETF store commented on how consistent BlackRock has been since launched, tweeting, Ishare's Bitcoin ETF has had one day of outflows since launching in January. One day. 20.5 billion in inflows. Top launch of 2024. This is exactly what no demand looks like. Overall, last week's Bitcoin ETF flows turned slightly positive after a fairly rough patch. The previous two weeks had seen net outflows of 167 million and 80 million respectively. Last week recorded 11 million in positive flow. It seems as though we're back to the dynamic of the product struggling to make up ground against the backdrop of major outflows from GBT.

Grayscale's product lost $195 million last week and has recorded only one day of net inflows over the past month. Running through the other products, BlackRock gathered, $71 million in fresh capital for the week, with Fidelity, BitWise, and Arc all recording healthy inflows relative to their size. Franklin Templeton, meanwhile, has filed for a crypto index ETF, which will hold both Bitcoin and Ethereum. The fund will track the CF institutional digital asset index, which includes the two largest cryptocurrencies weighted according to their relative market

caps. The eventual plan will be to include other large-cap crypto tokens should the SEC approve them to be offered in ETF wrappers. At the moment, it seems as though diversification between Bitcoin and Ethereum captures the vast majority of the crypto market, at least for this new class of institutional investors. The only non-stable coin tokens with more than a 1% share of the market are B&B, Solana, and XRP. Still, the move to indexation seems inevitable. Catalan Tatashir, the head of investment research at Cignam Bank, wrote, the next logical step is index ETFs because indices are efficient for investors, just like how people buy the S&P 500 in an ETF. This will be the same in crypto. While Grayscale has been rushing

single token funds out the door over the past month, they also appear to be looking at launching an index fund. Dave LaValle, Grayscale's global head of ETF said, we're going to see a number of more single index products, and then also certainly some index-based and diversified products. For investors, the benefits seem fairly obvious. There are many who have no particular interest in the ideological battle between Bitcoin and Ethereum. They simply want easy exposure to crypto that they can set and forget. For those folks, having a single index fund that automatically rebalances between Bitcoin and Ethereum is a much simpler proposal than manual rebalancing. Franklin is leading into this idea of simple one-click crypto exposure, assigning the ETF the ticker, easy, peasy. In terms of

holders, the South Korean National Pension Service is getting a little spicy with their crypto investments, adding exposure to micro-strategy. The NPS began investing in crypto companies last year, purchasing Coinbase shares worth around 20 million at the time. That position is almost tripled since then. According to Q2 disclosures, the NPS is now purchased around 34 million worth of Microstrategy stock. That investment is down slightly since it was made. While the investments in crypto stocks are notable, they make up a tiny sliver, of course, of overall assets held by the NPS, which is the third largest public pension system in the world with over 800 billion in assets. Meanwhile, over in Norway, the Norwegian sovereign wealth funding,

has been buying Bitcoin, but they might not realize it. According to K33 research, the world's largest sovereign wealth fund has indirect exposure to around 143 million worth of Bitcoin via investments in public companies like Microstrategia and Square. The exposure grew by around 60% in Bitcoin terms since the end of last year, and now totals 2,446 BTC. That's around $27 worth of Bitcoin owned on behalf of each Norwegian citizen. Velté Lundi, a senior analyst at K33, wrote, the growth likely originates from predetermined algal-based sector weighting and risk diversification. It's unlikely to stem from an intentional choice to amass exposure. If increased Bitcoin exposure was the target, we'd see more evidence of direct exposure initiatives and significantly

larger exposure. Regardless, it perfectly illustrates how Bitcoin is maturing as an asset and getting woven into any well-diversified portfolio. As one of the largest investment pools in the world, the Norwegian sovereign wealth fund takes diversification extremely seriously. They own stocks, bonds, real estate, and infrastructure spread all over the globe. The Norwegian government has been hostile to Bitcoin mining for years, often suggesting bans due to environmental concerns. For that reason, it's highly unlikely that the sovereign wealth fund has a mandate to invest in Bitcoin-related companies. More likely is the idea that Bitcoin's use as a balance sheet asset means large passive funds will end up with a small, indirect exposure in their attempt

to own a tiny sliver of every financial asset in the world. We saw a similar phenomenon with BlackRock's global allocation fund, which added a Bitcoin position in Q1 of this year. That allocation was far more deliberate, but it also served to demonstrate that an investment in global assets is incomplete without Bitcoin. Lastly today, after a few major drawdowns over the past month, Bitcoin has been leading the recovery. This has led to Bitcoin dominance reaching a multi-year high of 57%. We're nowhere near the 73% that was reached in December 2020, shortly before Bitcoin rapidly tripled in price. And crypto analyst Ben Cowen thinks were just about maxed out on Bitcoin Dominance, stating, I don't think it's going back up to 70%. My target for Bitcoin dominance has

been 60%. He believes the final push higher will come by the end of the year before Bitcoin hands off for a period of Altcoin outperformance. The sense is that this cycle has multiple contenders with room to grow. The last time Bitcoin dominance topped Ethereum was really the only major alternative and was still priced below $500 per token. This seems to be the prevailing take, with Kaleo tweeting, I feel fairly confident this is the cycle top for Bitcoin dominance. Didn't quite hit the 60% I was expecting, which is a good thing because that would have been painful. From here, alt start to gain background, starting with the king, ETH. Real alt season begins when Bitcoin dominance breaks beneath 50%. Then again, this cycle has multiple features that could drive

continued Bitcoin outperformance. While both Bitcoin and Ethereum are easily accessible via the ETFs, Ethereum hasn't quite managed to stake out a coherent narrative. To the extent there is a story for ETH investments, it's akin to a high-growth tech stock. Bitcoin, on the other hand, seems to have been broadly accepted as a debasement hedge and safe haven asset. It hasn't quite performed that way this year, largely because 24-7 markets allow Bitcoin to be sold off during weekend geopolitical and financial scares, still the narrative for Bitcoin is clear and distinct to the rest of the crypto market. One thing which is maybe beyond the scope of today's show, but that is very notable to me about this particular cycle, is that there is no theme, no narrative

that has emerged yet this time, that has any potential to bring new people into the industry for the first time. There is no ICO boom, there is no NFT excitement. The question is, does a cycle require something like that, a big push of new blood that's not just these institutional investors who are getting in on the ETF game. That is one of the big remaining questions, and one we will just have to continue to wait and see. For now, though, that is going to do it for today's breakdown. Until next time, be safe and take care of each other. Peace.