The Breakdown - Crypto Daily 3@3 - 8.9 | Travis Kling on how BTC moves from risk asset to safe haven / Binance US listing framework / Crypto reality TV?

Episode Date: August 9, 2019

Travis Kling joins for today's 3@3 to explore how bitcoin might move from a risk asset to a safe haven. This isn't just about narrative, it's about how bets from one group trigger another group, which confirms models, and so on, creating a self fulfilling prophecy. You don't want to miss this. Also today, we look at Binance US's new asset listing framework and 30 prospects. And we ask that all important question: does crypto need a reality TV show?  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another Crypto Daily 3 at 3. How's it going, everyone? Happy Friday. So today we're going to talk about first how Bitcoin moves from a risk asset to a safe haven, featuring a really great little segment from Travis Kling. Second, we're going to talk about Binance U.S. The new U.S.-based or forthcoming, I should say, U.S.-based finance exchange disclosed which assets it's considering and how it's thinking about it.

And third, and finally, we're going to ask the all-important question, does crypto need a reality TV show? So let's start in with number one, how Bitcoin moves from a risk asset to a safe haven. So this is a section that actually starts the beginning of the week, right? So over the weekend and the beginning of the week started with news that Trump and the Trump administration were going to impose more sanctions, or more tariffs, rather, on Chinese goods. China responded by devaluing the yuan to its lowest level and more than 11. years. The Trump administration responded again by labeling China currency manipulators formally in a way that hadn't been for a quarter century. And the stock markets did not like this. The markets were down hugely on Monday. Meanwhile, Bitcoin was surging. Bitcoin got up to 12 and has

been hanging around 12 a little bit under all week. And so this brought up a huge amount of attention around this question of whether Bitcoin was becoming a new safe haven asset, right? So you saw it on Yahoo Finance where they were asking this. The Financial Times was asking this. You see things like this article from the New York Post, Trump-China trade war, a boon for Bitcoin. It was all over, right? This idea was that there's this new narrative.

And then meanwhile, this continued throughout the week. So Rao Paul, who we talked about a lot last week, he was on a number of different podcasts talking up Bitcoin, really got into what he was seeing in terms of a currency crisis. So this tweet, which went viral, I'll read it for those who are listening. He says, a currency crisis, even when long-term charts, I'll start pointing to a single event risk, I pay attention. And when those charts are at the key level, I focus.

And when they break, it's time for action. Something really big is going on. We are at the most important juncture in FX markets in my entire 30-year career. The dollar appears at risk of an uncontrollable rise. Let me show you. So then he goes through a number of different charts, just talking about kind of what he's seeing, what the implications are all around currencies, and he ends with this kind of statement. That would be the end game for the pension system and a huge loss of wealth for baby boomer retirees

and the start of the doom loop of BBB downgrades and a potential freezing of the corporate credit markets. You get the picture. Sadly, we are one of the biggest junctures for markets in history. You may disagree with my assessment of the odds. Doesn't matter. You simply cannot ignore the risk, bonds, dollars, Bitcoin, and gold. Thanks for paying attention. So again, you're seeing this narrative take hold in a different way. Ari Paul also wrote about this week, and I'll quote that or I'll add that to the link board. Of course, you had some response from the other side as well.

Bitcoin and gold are monuments to a rationality. Investors are turning to both assets around market uncertainty, but digital currency is a strange idea of a haven, and the metals track record is patchy. So again, not everyone agrees with this idea. What I wanted to share today is commentary from someone who lives and breathes this stuff, who's lived in traditional markets before they moved over to crypto, and who basically is going to share almost the kind of self-fulfilling prophecy market mechanism of how a move from a risk asset to a safe haven might actually happen beyond just kind of a narrative shift.

So I'm going to turn it over to Travis Kling. Travis is one of the investors at Ikega out of L.A. who are focused on crypto, obviously. And he has some really interesting thoughts on exactly this topic. So I'm going to kick it over to him. I'm going to mute myself for a minute and we will check it out. What's up, everybody? A lot of conversation as of late about BTC becoming increasingly more of a global asset and getting wrapped up in the really dynamic landscape that's going on with kind of global macro right now. So I just wanted to touch on a couple of my views on how BTC shifts from being a kind of risk-on asset to being more of a safe haven. So during big macro event days, I've been watching BTC versus gold on the 15-minute

chart and I'm pretty much positive it's being traded by global macro quant risk parity CTA types of strategies and I've heard anecdotal evidence of the same from multiple sources. So with a risk parity type of model you have dozens or hundreds of assets with thousands, sometimes number of factors for each asset and you're looking for assets that are cheap or expensive relative to the rest of the landscape based on your proprietary model. You decide that you want to add BTC to your tool chest. It's largely been uncorrelated for its entire life, so its relationship to other assets is unclear, but you have to make some assumptions in your model as kind of a starting place.

In 2017 and 18, where there was very little of this type of money trading BTC, but there was a little bit, you probably treated it like a super high beta stock, the tail end of the risk spectrum, The furthest thing out there in terms of the wacky shift that quantitative easing created. But year to date, that's been shifting. It's trading with CNH. It's trading with gold. It's trading with the inverse of yields. Many discretionary global macro investors have been buying BTC for global monetary and fiscal policy reasons for insurance against terror force.

I've heard of many examples of this. That community often refers to. to Bitcoin as high beta gold. So that group has been buying year to date for those reasons. So you're running your big risk parity model and you're constantly tweaking your assumptions on all your assets, but you're paying especially close attention to calibrating Bitcoin because you're not really sure what it's supposed to act like. And you see it starting to trade with C&H and starting to trade with gold and inverse yields and aggregate negative yielding sovereign debt. And so you start to recalibrate your model to reflect those relationships,

which strengthens, strengthens those relationships. Then the discretionary global macro guys, they start to feel this systematic bid that's been in place from those types of market participants on BTC. And then they up their conviction on BTC starting to act like that. And then crypto traders get wind of all of this, which we've all been kind of experiencing that as of late. And they start piling into that trade, all of which further reinvesting, forces the risk parity guys model. So the relationships get tighter and tighter. And what's that mean for price action?

Well, these strategies have hundreds of billions of dollars of AUM that are being deployed into them. And in my opinion, the best lens to look at this through is how much of the total AUM of these strategies, this kind of global macro quant risk parity CTA, is being pointed at BTC, and then compare that to Hoddlewaves-based type of analyses. So 11% of BTC has moved in the last 30 days.

11% times a $200 billion market cap. That's $22 billion of circulating supply available to kind of satisfy daily kind of speculative demand. And from a global fund flows perspective, $22 billion is a rounding error. If a handful of these strategies decide to start playing BTC, number got to go up. And that folks is how VTC morphs from being a risk asset into a safe haven.

So super interesting stuff. Obviously, again, those of you know me know, I love in living in narratives. But narratives become real through exactly the type of action that Travis was just describing. So I'll share a link to this as well so you guys can see it and study it on your own. But pretty interesting stuff. I don't think this narrative around whether Bitcoin is a, is a, is, a new safe haven asset is something that is likely to go away anytime soon. But with that, let's move on to number two for the day. Binance U.S. So Binance U.S. is an interesting force right now,

because on the one hand, for the first time, we're getting an actual regulated, compliant finance exchange for U.S. customers, which is an exciting thing. On the other hand, a lot of why people have been using Binance or have historically used Binance has to do with the long tail of assets, and that's simply not going to be available with a compliant U.S. offering. So when they announced Binance U.S., it was also when they announced just previous to that, that U.S. users would be geoblocked from using Binance.com. They're also, by the way, geoblocked from using the Binance decks. And so today we got Catherine Cooley, who's running the U.S. efforts for Binance,

posted what we've been working on over here, with this blog post from Binance on what exactly they're exploring. So effectively what this post is is about they're showing how they're thinking about which assets they're going to list. So they've said that they've adopted something called a digital asset risk assessment framework to help select bona fide blockchain projects with a real chance of making the world more efficient to provide transparency in their listing standards and to ensure finance US's compliance with legal requirements. So they list five factors, right? So first, whether

trading the candidate asset will affect finance US's ability to comply with legal requirements. So basically they're saying first and foremost, they're going to be compliant. And if an asset looks like it's not, or if it's a security or whatever, they're not going to list it. Second, whether a candidate's asset's core team has a clear strategy to solve a real problem and make the world a more efficient place. It's interesting that they keep using the word efficient. I'm not exactly sure what's behind that. Maybe that's just kind of how they're loosely describing what these cryptocurrencies and crypto assets do.

But I think that the key part here is probably core team, clear strategy, and real problem. So there's people who are actually working on this. It's not just kind of, it doesn't exist just to kind of pump it up. Third, whether a candidate assets community has a record of reaching compromises and consensus to move the project forward and how well the assets core team is. interacts with the assets community members. You know, this is an interesting one to try to parse through. On the one hand, it sounds like they're worried about,

they're worried about the issue of forks potentially and contentious hard forks in particular. On the flip side, it could just be that they're wanting to assess the extent to which there's an actual community who's gonna provide some sort of base level demand for an asset. Number four, whether a candidate assets market supply and demand are reasonably fair

and likely to meet Binance US's quantitative standards. And then five, I'll just wrap this up, whether the candidate asset is technologically secure to transact and or realistic to build. So basically they're saying these are real things. They have to reach a certain threshold. They listed, I guess, one, two, three, four, five, six, like 30 assets that they're considering.

Probably should have known that before I looked at this. But for those of you who are listening, we're looking at a graphic of some of them. There's a lot that you'll recognize. So there's Cardano, Cosmos, Brave, BNB, Bitcoin, Dash, EOS, and a huge number of others. A lot that you'd expect probably, yeah, it looks pretty similar to what I think you might expect.

And so these aren't guaranteed to be listed. It's just which of those assets they're trying to run and apply that framework to. So one of the interesting questions around this is how it's going to make them or where it puts them vis-a-vis Coinbase, right? In a lot of ways, Binance U.S. is a Coinbase competitor or is effectively a Coinbase competitor. So Dutus from the block tweeted, the Binance America story has been updated to highlight the competition with Coinbase. Binance will almost certainly undercut on fees,

and this is going to be a battle for the ages. So if you look at where the volume is, traded volume of exchanges, Binance is in the lead by a lot. It's 54% in July. Coinbase, on the other hand, captured only about 14% of volume. But on the other hand, the block points out that compared to all of their exchanges, Coinbase gained the most market share throughout the year since July 2018. Coinbase has gained 8.8% market share versus Binance has gone down by 2.4%. So anyways, it's going to be really interesting to see. I think that it provides another bellwether in the U.S. for a major company making kind of subjective decision or assessments of where the regulatory regimes are. So important no matter what you think about these particular assets or which

asset you're hoping shows up there. And with that, let's wrap it up with a fun one. Does crypto need a reality TV show? Not necessarily a question I would have thought that we were going to be asking a couple days ago. But in the spirit of it being Friday, I thought this is a fun thing to end the week on. So Jeremy Gardner, who is an investor with awesome ventures, an independent angel investor, has produced, basically, you could almost call it the YouTube version of a pilot for a reality TV show called Crypto Castle Chronicles. Crypto Castle being the name of kind of the house and space and co-working slash incubation type lab, which he founded first in San Francisco and then moved it to Miami.

So they just dropped the trailer for this show. And it's interesting. I think it starts in crypto, but it's actually a lot about it. sounds like Jeremy's attempt to go get funding for a new startup of his called Maid Man, which is basically a lifestyle company for men starting with skincare products. And it sounds like it's a lot about that. However, you know, there's still a ton of crypto background, pumps in it. There's a number of different interviews.

So, okay, so here's what I wanted to do, just because I think it's interesting and it's fun to debate things. So the, let's talk about the cons, the pros, and the reality of this. So why, why might this not be the best thing? What's the, what's the con to something like, like this Cryptocastal Chronicles? I think it's, they're, they're really obvious, right? Crypto has been plagued since the beginning, or at least since the beginning of people noticing as ICOs popped off with the idea of it being kind of just a glorified, get-rich-quick scheme. And, you know, Jeremy's show has a lot of kind of echoes to that. It acknowledges his, his kind of, you know, how he fell into this industry and what he did with it. And there's a lot of the kind of like, you know, crazy partying and, you know, extreme life type stuff that makes for good reality TV, but is not necessarily how some folks want the crypto industry represented. The, I guess the second piece of that is kind of to the extent that we are trying to get larger institutional adoption. which, to be fair, not everyone is, that image of it being kind of like party kids might not be

super helpful for that effort. Now, pros, what are the actual pros of this? I think it's actually, there are some potential good things too, right? So one is, we live in an entertainment world. There's just no getting around it, right? Like between the Kardashians and, you know, the U.S. president, it is just a reality TV entertainment-driven culture. And right now, there is none zero, literally none, no content, crypto content that's kind of like culturally oriented, reality TV oriented, entertainment oriented. So this does, basically, this potentially speaks to the larger culture on its own level. Now, again, it's totally reasonable to debate whether, whether you, the crypto industry should be trying to speak to culture on that level, but this

promises to do that in a way that other things don't. It's a new phenomenon. in the set of crypto content. So that's at least interesting. Second, it does seem to me, just with the trailer that we've seen so far, that really the show is more focused on the entrepreneurial journey that Jeremy's going through and kind of the next phases of his life, not just rehashing the same crypto stuff.

So I think that that makes it more plausible, more plausible that his argument that it's actually educational reality TV or that at least It has some of that value. Seems more realistic to me in the sense of there being that journey in that narrative arc of him going out and trying to raise money for, frankly, for a non-crypto startup. So here's the real thing, though. We are in the crypto industry. And the reality is that think what you want of it.

No one asks for permission in this space. There is no such thing as permission. People just do things in the market either embraces or rejects them. and Crypto Castle Chronicles will be no different. But I'm interested to see what you guys think. Is this unmitigated cringe? Is this something that you think is actually pretty cool and want to see? Is it both?

What's the story? What's your take on it? Let's debate in the comments on Twitter, wherever you want to. And for that, I'll wrap up here for Friday. I'm going to end the recording for the purposes of the podcast. but for those who are watching, I will show the trailer real quick before we get out of here. So thanks as always for watching, guys.

I will be back on, look out on Sunday for a Long Read Sunday, and then I'll be back on Monday for a new 3 at 3. All right, guys, cheers.