The Breakdown - Did This Bitcoin Cycle’s FUD Phase Just Begin?

Starting point is 00:00:00 HSBC will no longer process crypto payments and payouts. And this is exactly what it sounds like. If you have a digital wallet, HSBC will not allow you to cash out. I think it's a good reminder of how inconvenient major financial institutions could make interacting with this ecosystem. It's also yet another reminder for the importance of payment rails that aren't politicized. 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. The breakdown is sponsored by nexor.io and stacks2.com and produced and distributed by CoinDesk. What's going on, guys? It is Monday, January 11th, and today we are asking the all-important question,

Starting point is 00:00:50 did this cycle's Bitcoin fud phase just begin? First up, however, let's do the brief. First on the brief today is the forceful removal of Trump from social media. To be clear, before I even get into this at all, this deserves an entire show of its own, if not multiple, and I will likely do one. I just didn't really have the time to give it what it deserves in my estimation. If you are on Twitter, this was all anyone was discussing this weekend. So just briefly, at the end of last week, President Trump was ejected from both Twitter and Facebook, Stripe, stop processing payments, many corporations stopped donations to Republicans who were supporting the rejection of voting results. All of this happened very quickly.

Starting point is 00:01:33 Now, some obviously were like, let's move over to Parlor, one of these alternatives to Twitter. In fact, Parlor was theoretically where much of the capital stuff was coordinated, but Parlor effectively was just wiped off the map. Google removed it from the app store and Amazon stopped hosting it entirely, so Parlor basically is no more. Of course, the internet being what it is was full of too easy take. So here are a couple of them on opposite ends of the extreme. The first free speech, First Amendment. This is too easy because these people and companies aren't being told they can't speak. Specific places, specific other companies are saying you can't speak here or we don't want to do business with you because of what you're

Starting point is 00:02:13 speaking about. There is a difference between the denial of the ability to say something or have an opinion and where you get to say it and what sort of amplification you get. Then again, let's go to the other end of the extremes. Another too easy take is private companies can do what they want, stop crying. This is obviously too easy because we're dealing with what are effectively new public commons, and I think there are strong arguments that we need a different way of looking at them that isn't just private company they can do what they want. They're too significant socially for that to be the case, at least not without a lot of actual tangible debate about it. And despite what you'll see from Twitter comments, there are in fact plenty of people who are glad at the specifics

Starting point is 00:02:54 of this case, but uncomfortable about the precedent and have this larger set of questions. So like I said, this deserves a whole lot more. I'm going to try to do a show soon on it, but for now, it's important that we at least know what happened. Next up, we have confirmation on the backed SPAC. So formal announcement of the news from last week that backed will go public via a merger with VPC impact acquisition holdings from Victory Park Capital. The expected valuation is around $2.1 billion and BACT plans to raise an additional $532 million. The former head of tech at City's Global Consumer Bank is joining as CEO. ICE, the Intercontinental Exchange and parent of BACT is adding an additional $50 million, and they're planning to launch their backed cash app this spring. They're saying that

Starting point is 00:03:40 400,000 consumers have signed up for early access. Now, if that valuation seems pretty high to you, you're not the only one. Barry Silbert tweeted this morning, the backed valuation is an interesting, read insane data point for the Coinbase IPO. Finally on the brief today, let's talk a little crypto M&A. This is a major theme I'm watching this year. First, there are going to be tons of companies that are consolidating and taking advantage of bolstered balance sheets to go shopping, as well as on the other side of the coin, big traditional finance firms buying talent, infrastructure, and access to get into this market as it becomes more mature and more real. Today's deal in crypto MNA was Nidig, the firm behind that mass mutual buy that we discussed so

Starting point is 00:04:25 much last year, buying crypto data firm Digital Assets Data. Terms weren't disclosed, but digital assets data had raised over $9 million from Morgan Creek, DCG, and a number of others. The twin co-founders of Digital Assets Data, Mike and Ryan Alfred, are joining Nidig as head of M&A and head of product respectively. And on that M&A front, NIDIG plans apparently to, quote, significantly increase the volume of strategic acquisitions in 2021. But with that, let's talk about whether the FUD phase of this cycle is starting. First up, what's happening? Well, you probably don't need me to tell you, but the price of Bitcoin is cratering. From a new all-time high, just under $42,000 over the weekend, the carnage started on Sunday and,

Starting point is 00:05:11 is gone right through the recording of this episode. It's down more than 20%. Swinging pretty violently. Who knows what it'll be when you listen? It could be lower. It could be higher. Right now, I'm looking at Blockfolio and it's 30,000, 515. Who knows what it'll be next? But we're going to talk about the interpretations of causes in this fud cycle rather than the specific number. So let's go first to interpretations of causes. Theme one was, of course, the market was too hot. As Alex Kruger put it, Hefty spot selling against an over-levered market caused the price to drop. Sort of a part of that, but maybe its own theme or at least a question was whether minor selling had something to do with this.

Starting point is 00:05:51 CryptoQuant tracks something they call the Miner's Position Index, which is the ratio of total miners' outflows in USD terms, divided by the 365-day moving average of the outflow. Readings above 2 indicate that miners are selling, and this weekend the indicator hit 2.2, which is the highest since July 2019. So now let's go to the discussion of how people were interpreting it and guessing at what it suggests for what happens next. Position 1 is something like, this was inevitable. We've had four weeks in a row of double-digit weekly gains, which is absolutely insane. Last week saw 15% gains.

Starting point is 00:06:27 Tons of voices were worried about the speed and the velocity with which things were spinning up. The relative strength index suggested that we were in overbought conditions all last week. So, like I said, position 1, this was inevitable. position two, a lot of folks are talking about this as a chance to accumulate for institutions. Guggenheim's CIO Scott Minard tweeted, Bitcoin's parabolic rise is unsustainable in the near term, vulnerable to a setback. The target technical upside of 35,000 has been exceeded. Time to take some money off the table.

Starting point is 00:07:00 Two things that made this a little more suspect. First was the timing. When he tweeted it, the price was already back at 35,000. So it certainly wasn't some big prognostication. The second was the fact that this is the same person in group who made a $400,000 Bitcoin price target just about a month ago on December 16th, which of course led many to point out that there may be a bit of a strategy here in this big public pronouncement, i.e. get the price to go down and accumulate more. Again, Alex Kruger points out, Guggenheim's SEC filing to invest in Bitcoin via GBT proposed filing would become effective

Starting point is 00:07:36 of January 31st. Seems Minard wants to buy 500 million in Bitcoin, and as price runs higher, he's now telling people to take profits. I think over the next few days we'll get a much better picture of how different institutions this new set of actors are looking at this move. Is it just a necessary correction? Is it something that makes them nervous? Is it a reinforcement of the volatility fear? Who knows? But we're going to get more information about that for sure over the next few days. Looking for the best way to stay on top of your investment game? Nexto.io has you covered in three easy steps with their high-yield savings account for digital assets. Step one, create an account at nexo.io.

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Starting point is 00:09:30 Larry Sermak pointed out last week that people were searching Bitcoin about 70% as much as the 2017 peak and searching Ethereum 25%. more. And the question is, was there panic selling then? Anecdotally, people have reported some messages from friends freaking out. TikTok has a bunch of meme videos about people watching the price go down. And there was at least one big sell order on Coinbase for 180 Bitcoin that brought the price down about $1,200 all on its own. Still, at the same time, Coinbase is showing about 60% of people buying and 40% of people selling, which is lower than usual, but still many more people buying than selling.

Starting point is 00:10:06 As for the traders specifically pour one out, Jacob Canfield pointed out that 278,000 traders totaling nearly $3 billion worth of trades got liquidated over the last 24 hours. One last little interesting point of interpretation, there is some potential macro alignment. CoinDesk published an article called Bitcoin's Big Drop again coincides with dollar bounce in 4x markets. And effectively what they're saying is that since the March crash, Bitcoin and the dollar index, the Dixie, have tended to go in opposite directions. The dollar has bounced up a bit in the last few days, potentially related to a little bit of this political volatility that the markets don't really like. Now, to me, it seems like this might be a minor factor, and it feels like it's

Starting point is 00:10:48 not really a big factor in the major crash we're seeing, but certainly interesting in the context of this larger correlation or anti-correlation trend. Still, I have to say that at least right now, there's not a ton of stress out there. Bitcoin is still up 50% on the year. As Joe Weizanthal tweeted, Bitcoin just had its worst crash since March, but it's already rebounded quite a bit and it's only fallen to where it was a couple days ago. There were even some who were relieved. Ryan Selkis tweeted, I can't tell you how relieved I am to see this chart. Seriously, it's okay to cool off for a second. However, as folks like Raoul Paul and Erie David Paul have pointed out, each new bull market climbs some specific wall of worry. And that's what I want to focus

Starting point is 00:11:31 on for the rest of the show. This time around, it feels very apparent that the wall of worry is about regulation. And this is what I mean by this cycle's Bitcoin fud phase beginning. In the US, we've seen the Stable Act, which would basically create huge regulatory burden on anyone who wanted to interact with crypto or blockchain or fintech in any way. A classic example, I think, of where regulation aimed at a set of big tech players would actually make them the main beneficiaries as they're the only people with deep enough pockets for regulatory compliance. This is precisely what we've seen with the GDPR in Europe, which, however well-intentioned, you see it, only increased the share of the ad revenue that came to Facebook and Google

Starting point is 00:12:14 because they're the only ones who can pay to comply. The Stable Act, meanwhile, came from Dems who weren't happy with how aggressive the OCC and OCC acting direct. Brian Brooks specifically were being about opening federally regulated financial institutions to the world of stable coins and crypto infrastructure. Those Dems, however, weren't the only ones who have piled in to anti-crypto regulation recently. A last-minute Treasury Secretary Mnuchin announcement is looking at new FinCEN guidelines around self-hosted wallets. Now, we talked about a little bit how there was a very short 15-day window for people and companies to comment, which is less than half of the normal time and it was over Christmas in the New Year,

Starting point is 00:12:55 but this community responded in huge order. John Paul Coning pointed out, going back to 2008, FinCEN has received 11,183 submissions from the public in response to various rule proposals and notices. It has received 7,477 of those comments, or 67% of all public responses in just the last three weeks. Basically, there have been two times the number of comments in the last three weeks than in the previous 13 years. As I mentioned, in the U.S., the one regulatory bright spot has come from the Office of the Comptroller of the Currency, but that's likely to change. Although

Starting point is 00:13:35 acting director Brian Brooks has been formally nominated to a full five-year term, it's unlikely to come to vote before the Biden administration is sworn in, and then it's anyone's bet about what happens next. This weekend, however, the new FUD wasn't about the U.S. regulatory environment, but about the U.K. First of all, last week on January 6th, the UK's Financial Conduct Authority started their ban on the sale of crypto derivatives and exchange traded notes. You're forgiven, by the way, if you were a little distracted on January 6th. The FCA says these products are not suited for retail customers, and of course anyone in crypto would have lots of immediate critiques on this. First, the sovereignty of individuals to make their own decisions.

Starting point is 00:14:16 Just a little one right there. But second is the idea that it's going to just drive people to unregulated exchanges, so potentially be counterintuitive or counter-effectual for what the FCA actually wants if it's consumer protection. Now today, the FCA doubled down with its sentiment, putting out a warning saying that investors should be prepared to literally lose all their money if they invest in crypto. But to me, all that's sort of whatever. I think the bigger story is that HSBC will no longer process crypto payments and payouts. The Times wrote a piece called Bitcoin holders barred from depositing profits in UK banks. And this is exactly what it sounds like.

Starting point is 00:14:53 If you have a digital wallet, HSBC will not allow you to cash out. So on the one hand, who cares, right? It's just one bank. That said, it's the world's sixth largest bank, so potentially an influential one. At the moment, I think it's more likely that other banks would use this as a way to attract new customers than to somehow line up and follow suit for HSBC's decision. That said, I think it's a good reminder of how inconvenient major financial institutions could make interacting with this ecosystem. It's also yet another reminder for the importance of payment rails that aren't politicized, which of course circles us back to where we started. This has been a huge point of discussion over the weekend, given that Stripe Stop processing payments for the Trump campaign and Citigroup and J.P. Morgan

Starting point is 00:15:42 have halted PAC donations. Nick Carter tweeted and put it really well, he said, I will never again take seriously the question, but why build an alternative currency and monetary system? What's wrong with the current one? That question is obsolete. I don't know if from here Bitcoin bounces right back up. I don't know if it retraces all the way back down to 20,000. I don't know who's going to be in to buy next. And I don't know how much this fud is going to stick. But it is clear to me that if we do have to climb a wall of worry in this cycle, it seems likely to be about big governments, paying attention to the comparatively larger size of this industry and the fact that it just keeps coming back every time people say it's dead. That could lead to bigger, hotter, more intense

Starting point is 00:16:27 fights than we've seen on the regulatory front. So strap in, get ready, and we'll see what happens next. But for now, guys, I appreciate you listening. And until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Did This Bitcoin Cycle’s FUD Phase Just Begin?

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