The Breakdown - Crypto Sprint in DC Signals Big Shifts Ahead

Episode Date: August 6, 2025

Washington is buzzing with crypto action. From the CFTC's new crypto sprint to Hester Peirce's bold stand for privacy, this episode dives into the shifting regulatory winds—and what they mean for the future of Bitcoin, markets, and crypto infrastructure. NLW covers ETF outflows, macro pressures, and why the AI economy might be holding up GDP while the labor market struggles. Plus, Project Crypto at the SEC might be the biggest institutional shift yet. It's a packed episode on the changing rules, power struggles, and financial transformations playing out right now. Brought to you by: Grayscale offers more than 20 different crypto investment products. Explore the full suite at grayscale.com. Invest in your share of the future. Investing involves risk and possible loss of principal. To learn more, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Grayscale.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ -- ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.grayscale.com//?utm_source=blockworks&utm_medium=paid-other&utm_campaign=brand&utm_id=&utm_term=&utm_content=audio-thebreakdown)⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

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, August 5th, and today we are talking about the crypto sprint in Washington, D.C. 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. All right, friends, a bit of a grab bag of stories today. We have Hester Purse on privacy, Brian Quintens being grilled in Senate confirmation, the CFTC beginning their crypto sprint. But let's actually start on the market side of the house. Last week, Bitcoin saw its first major test in several months as investors pulled their money. The Bitcoin ETFs had been on a 15-week-long hot streak that came to an end last week with a $400 million outflow. The streak of positive flows takes us all the way back to late April when the Trump administration issued their tariff reprieve. Since then, there was one rough patch during the Iran bombing, but Bitcoin rose to 80,000 to a new all-time high at 120,000. The question is whether this is investors taking some chips off the table

or the Bitcoin cycle rolling over. James Butterfield, the head of research at coin shares, believes that this was a very rational week to lock in some profits, writing, while the weak payrolls data at the end of the week had dovish connotations for the Fed, general risk-off sentiment led to further outflows with over a billion dollars on Friday. given that we've seen 12.2 billion net inflows over the last 30 days representing 50% of inflows for the year so far, it is perhaps understandable to see what we believe to be minor profit-taking. Now, Bitcoin is firmly now within the realm of mainstream investable assets, which means we should expect some Tradfi behavior to start to show up, especially in the ETF flows.

For Bitcoiners that are never selling, a 50% gain in Fiat terms over three months is just some numbers on a screen. For Tradify traders with very little fundamental conviction, it's a home run that can make their entire year. They're taking profits on the trade in the same way they would a hard-running tech stock. Now, the question will be whether the Bitcoin trade is over or if these profit takers will rush back in for the next leg. To a certain extent, that's going to depend on the broader market. Despite Trump's focus on BLS jobs data, last week's macro data was very mixed. It's clear the labor force has taken a big hit, but data points like GDP and some regional manufacturing data are looking

strong. One explanation offered by many, and which was the subject of my other podcast on Monday, is that AI infrastructure spending is putting the entire economy on its back. Neil Dutta of Renaissance macro research, in fact, believes that the AI buildout has contributed more to GDP growth this year than consumer spending. Now, the challenge of that is that we could be seeing an economy where capital spending and stock markets stay strong while the consumer and labor markets get rinsed. For Bitcoin, that all leads to a couple of paths forward based on the macro tradeoffs. Either the Fed lowers rates to help the labor market, or they hold back in order to constrain

inflation risking an even larger problem for workers down the road. The bond market is now pricing in a 90% chance that the Fed is going to cut in September, so that's probably the path forward. That would mean lower borrowing costs for the AI buildout, which needs no encouragement right now. And while it's questionable that it would flow through to higher inflation, the potential is there. All of that makes for a macro setup that benefits Bitcoin.

It can tag onto a gold rally if inflation and stalling growth of the story, or it's well positioned as the fastest horse in the race if markets go risk on to end the year. August is typically a cool month for Bitcoin, so it's probably no surprise to see the price action take a breather here. That sets the stage for a strong September and October, repeating previous bull runs. QCP Capital wrote, Bitcoin's July monthly close marked its highest in history, and the recent drawdown appears more corrective than capitulatory. Historically, such post-rally shakeouts, particularly those that flush out excess leverage, have laid the groundwork for renewed

accumulation. Importantly, this comes at a time when macro and structural tailwinds remain supportive. And indeed Monday's price action was caused for some cautious optimism. Bitcoin reclaimed 115,000 before stumbling a little into the evening. It's only a small rebound, but it looks like the bottom was in on Saturday when Bitcoin traded to 112,000. While that's the lowest that Bitcoin has dipped since early July, it still feels like a strong valuation. This is just a 9% drawdown from the highs, which is of course categorically different to the brutal 30% drawdowns during previous bull runs. The relative lack of downside volatility changes the math for many investors. Jeff Mai, the CEO of BTSE Exchange said, whenever there's a dip, it doesn't last very long, as buyers come in very

quickly to take advantage of the opportunity. It's clear that long-term investors and institutions are the ones doing this. With the recent flurry of crypto treasury companies buying assets and tradfai institutions rolling out crypto services and partnerships, we expect Bitcoin's monthly closes to get higher and higher going forward. Today's episode of The Breakdown is brought to you exclusively by Grayscale. Grayscale is almost certainly a name you know. They've been offering exposure to crypto for over a decade now and offer over $12,000. 20 different crypto investment products, ranging from single asset to diversify to thematic exposure to crypto and the broader crypto industry. They have long been innovators at the intersection of

tradfi and crypto. And one of the benefits for a lot of us is that Grayscale products are available right through your existing brokerage or IRA. Now, of course, investing involves risk, including possible loss of principle. For more information and important disclosures, visitgrayscale.com. Go to grayscale.com to explore their full suite of crypto investment products and invest in your share of the future. Then again, Monday's ETF flows were still deeply negative. $323 million was redeemed from the funds extending the outflow streak to three days in a row. And yet, even on Wall Street, some are looking farther out.

One of the biggest stories from last week was the SEC's Project Crypto, a roadmap for regulatory changes to allow crypto infrastructure to merge with traditional capital markets. investment firm Bernstein focused on this initiative in their Monday research note, calling it the, quote, boldest and most transformative crypto vision ever laid out by a sitting SEC chair. Now, there were two striking parts from Cherak and speech on Thursday. First, that crypto security should no longer be a dirty word. The SEC intends to create a new framework that fits crypto assets that want to do security like things. That opens the door to profit distributions and other interesting features that have been under explored over the past

few years. The other big point was that crypto infrastructure should be tested for traditional financial markets. Atkins wasn't just talking about carving out room for crypto markets. He discussed the need to test things like Dexes and Defi as the underpinnings of the next generation of U.S. markets. Bernstein analysts wrote, as Atkins put it, the winds of change are blowing. In our view, Project Crypto upends the concept of a regulatory moat in capital markets, allowing equal opportunity to new players to participate and innovate in security markets. It's time to upgrade the financial system from online to on chain. Now, on Monday, Commissioner Hester Perse filled in one of the gaps, presenting a speech on the need for financial privacy in crypto. Purs highlighted the benefits of

crypto infrastructure that go way beyond financial markets, stating, cryptography, zero-knowledge proof, smart contracts, and public blockchains facilitate the disintermediated transmission of value and information and the disintermediated coordination of human behavior. Actions that once could not be performed without centralized intermediaries can now be accomplished permissionlessly without them. Now, she noted that disintermediation is terrifying for incumbents, but also that, quote, agencies like the SEC might fear that a disintermediated world is not regulatable because so many rules assume the presence of intermediaries whose conduct can be directed and held to account. Basically, the speech is about the fact that this technological revolution in the financial

system is a moment to re-examine how the current financial surveillance system operates. She said, we need to ask questions that go beyond the cost of financial institutions of preparing the reports and the cost of government agencies of sifting. through them. We should consider with fresh eyes whether these measures are proportionate to the threats we face and whether they diminish the liberties that make the United States a beacon for the rest of the world. Now, the speech was hugely resonant across crypto-twinter. Alex Thorne of Galaxy Digital called it the speech version of CoinCenter comms director Neraj Agrawal's best ever tweet. I'm sorry that your warrantless surveillance regime was built on the assumption that people would always need intermediaries

to transact. The folks from CoinCenter simply urged everyone in the industry to read the speech, and I will fully endorse that suggestion. Mark Baylon of Juan Venture. discussed how much gumption it takes to stand up and make this argument as a representative of the state. He said, I don't think cypherpunks appreciate the kind of force it takes to be Hester Perth standing up against financial surveillance in a time when data privacy seems lost. Her talk today gave me a lot of hope, worth watching the whole thing. Now, whether Perth can actually drive momentum towards BSA reform remains to be seen,

but at least the need is getting louder. On the other side of the regulatory fence, the CFTC has begun their crypto sprint. Acting Chairman Caroline Fam said, The CFTC is wasting no time and fulfilling President Trump's vision to make America the crypto capital of the world. Providing regulatory clarity now and fostering innovation in digital asset markets will deliver on the administration's promise to usher in a golden age of crypto. Now one clear working item for the CFTC is preparing to regulate crypto-spot markets.

The crypto Working Group report endorsed this policy, and every variant of the market structure bill has the policy as one of the core places to provide clarity. The issue is that the CFTC has no jurisdiction over commodity spot. about markets in general, only derivatives. That's a bit of a quirk of history with most commodities only touching financial markets via derivatives. Although they have no jurisdiction for now, preparation can begin with draft rulemaking and resourcing the necessary staff to tackle the new assignment. Besides that, the working group had 18 other recommendations for the CFTC. These include amending rules to allow for blockchain-based derivatives, providing guidance on which crypto tokens

are commodities, and clarifying how existing regulated firms can deal with crypto. One area of particular note is the introduction of clear rulemaking around perpetual futures. Coinbase has already introduced perps in the U.S. and the CFTC has concluded their consultation period on the instruments. FAMM's announcement of the CryptoSprint didn't specify which suggestions the CFTC would be working on, but it did highlight that the agency would be working closely with the SEC to ensure that all crypto market participants would have the clarity they needed. No one wrinkle in the CFTC's plans is that the commission is emptying out this year. Every single member has resigned with the final resignations effective once the new CFTC chair is installed.

That gives the administration a fresh slate to install a new CFTC, but it also means the agency will be a little impotent in the interim. Rulemaking requires the votes of at least three commissioners, and so far zero seats have been filled. Former A16Z head of crypto policy, Brian Quintends, is the nominee for chairman, but his path to confirmation is looking increasingly rocky. His Senate confirmation hearing was delayed twice over the past month, the latest reportedly at the request of the White House. It also appears that crypto industry is now not so sure about Quintens nomination. Nancy Skola of Politico commented, in most administrations, Quintends, the head of crypto policy at Andres-in Horowitz and CFTC vet, would be seen as a pro-crypto

regulator. But per reporting, the Winkleboss brothers now view him as insufficiently disruptive. The latest from the White House is still that they support Quintan's nomination and are calling for his swift confirmation, but this is certainly one that we will keep watching in the weeks to come. For now, that's 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.