The Breakdown - ETF Excitement Drives Bitcoin Past $36,000

Episode Date: November 10, 2023

NLW continues the bull recovery post SBF trial with an exploration of ETF excitement. Today's Sponsor: Kraken Kraken: See what crypto can be - https://kraken.com/TheBreakdown 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 Thursday, November 9th, and today we are talking about Bitcoin's breakout and all of the bullish sentiment shift. But before we get into that, 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. Hello friends. Well, yesterday, as you know, we pivoted to bullishness, put the SBF trial behind us, and faced firmly forward, and boy, has today extended the excitement. So much so that I'm actually not even

really covering the biggest bull thing from today, which is BlackRock registering an Ethereum Spot ETF that happened just as I was finishing, so I am sure that that will be front and center tomorrow. For now, let's kick off today with a tweet from Stephen Lubka, who's the managing director and head of private clients and family offices at Swan. He tweets, I love how Bitcoin itself determines how busy my day is going to be. Today is going to be crazy, thanks for almost cracking 37K overnight. So let's start this report with the ETF speculation. Grayscale has opened talks with the SEC and an attempt to finally move forward with the conversion of the Grayscale Bitcoin Trust into an ETF. Grayscale sources said the company is now, and

in active discussions with the SEC's Division of Trading and Markets and the Division of Corporate Finance. Both divisions play a key role in deciding ETF applications. Now, Grayscale, of course, won its lawsuit against the SEC in August, with the court ruling that the SEC must reconsider the firm's application to convert GBT. If the SEC wanted to deny the application, it would need to come up with some new reasons after their existing rationale was found to be arbitrary and capricious. Craig Somm, Grayscale's chief legal officer, said, right now we're just laser focused on constructively re-engaging with trading in markets.

There are still things that have to be worked through. He added that, overall, it's been good engagement, and it's a matter of when, not a matter of if anymore. Grayscale CEO Michael Sonnonshine also confirmed that discussions with the SEC have commenced. He told Bloomberg that his team have been busy filing the required documents, which, quote, allow us to have a constructive dialogue with the SEC. When pressed for a timeline for approval, Sonnonshine chuckled, noting that, quote, Timelines are certainly not something that has been discussed, but what I can tell you is that the

SEC is constructively engaging at the moment. We remain optimistic that we will get through any final hurdles that need to be there, and our investors will finally get what they've been waiting for. Now, the market, for its part, clearly thinks the conversion is likely to be approved. The GPTC discount has now closed to 12% from over 40% back in June. It's the smallest discount since November of 2021. Now, widening to the rest of the pool of potential ETFs, Bloomberg analysts reported that the SEC has a brief eight-day window to approve all 12-spot Bitcoin ETFs at the same time, which begins today. ETS are generally not approved while they are still open for public comment following an SEC

decision. That comment period concluded today for seven of the ETFs, which were delayed as a group in late September. James Safar, one of the Bloomberg ETF analysts, followed up in a Twitter thread explaining that if the agency wants to allow all 12 flyers to launch, as we believe, this is the first available window since Grayskills' court victory was affirmed. Now on November 17th, comment periods will reopen for three of the applications from GlobalX, Hashtex, and Franklin Templeton when they hit their next SEC deadline for approval or delay. That would leave the SEC able to approve only

nine of the 12 applications until January. Safe Art, with some assistance from finance lawyer Scott Johnson, added some extra detail to the situation. They explain that there are two approvals required before the ETFs can begin trading. The SEC would need to approve the proposed rule changes, and then a separate division of the regulator would need to sign off on product disclosure forms known as an S-1. Johnson tweeted, If there's a hypothetical approval this week, there's probably minimum a month and probably a couple before any ETF actually launches. S-1's still under review and no real hard deadline for that process, though I consider it more a formality at that stage, would be a wild period. Safe Art agreed stating that, possible and even likely that there could be weeks or even months between approval and launch.

This is in line with comments made by Valkyrie, CIO, Stephen McClure, last week, who said, a late November approval likely means a February launch. Now, his view was that the SEC would likely wait until the new year to ask firms to put finishing touches on their S-1 filings before they were given the green light. Adding a little more intrigue to the process, SEC Chair Gary Gensler released another one of his little videos. This one was an explanation of the division of corporation finance, the group which has recently been giving feedback on ETF applicants on their S-1s. Gensler emphasized that the SEC is a, quote, merit-neutral regulator. He explained that the basic bargain of U.S. capital markets is that, quote, investors get to decide what risk they take

so long as public companies make complete and truthful disclosure. Now, of course, the timing of this could be nothing, but some viewed it as a meaningful indication of what has been going on behind closed doors at the SEC. Senior Bloomberg ETF analyst Eric Balcunas tweeted, could be a coincidence, but probably not. They did pre-approval educational stuff ahead of BITO approval as well. Also, I feel like this is his way of saying, look, we aren't endorsing these ETFs. We're just trying to disclose all the possible risks so you can decide. Hands washed. Investor Adam Cochran reiterated the point, tweeting, usually this kind of stuff is posted by the SEC as like a disclaimer before they approve things they don't like. For example, last time was four days before they approved the BITO

futures ETF. We'd guess this puts Bitcoin ETF approvals at less than one week now. As one final little indication that things could be moving behind the scenes at the SEC, commissioners and staff attended a closed-door meeting this afternoon. The agenda included, quote, institution and settlement of administrative proceedings and resolution of litigation claims. These kinds of meetings are held as needed, and we don't have any further detail to confirm the commissioners are voting on ETF approvals, but holding a meeting is a much stronger indicator than not holding a meeting. To sum up, analysts' current expectations is that the entire cohort of ETFs are likely to be approved at the same time so as not to pick winners, and that this

could all happen as soon as this week. After that approval, disclosure statements will need to be finalized before the ETFs can be launched, which seems likely to take weeks, if not months. Notably, Bloomberg analysts have not adjusted their odds for full approvals in January up from 90%. They're also leaving their odds at an approval for this year at 70%. There's currently no real expectation that ETFs will begin trading until early next year. All commentary has carried a very prominent disclaimer that approvals are far from guaranteed, but between all of these little indications, market sentiment is clearly pointing towards a Bitcoin ETF approval. Cryptotrater Avocado Toast tweeted, ETF thesis is pretty simple. 90% odds of approval by

and 10th could happen any day, really. Announcement, immediate phone mo to speculate, scramble to search for ETF tokens on DexTools, Screener, and Twitter, find top choice ETF because first-mover, most liquid highest market cap, most trustworthy one, mash buy button, candle loads. We all know this is going to happen. Let's just skip the song and dance. Blockworks Jason Yanowitz said, this market still severely underestimates how insane it will be to have Bitcoin ETF approvals and Bitcoin halving within 60 days of each other will be obvious in hindsight. Now, all of this ETF speculation has, of course, been extremely positive for Bitcoin price action. The market tested the $36,000 level for the third time late on Wednesday evening and effortlessly

broke through. Bitcoin settled at a new level of around $36,700 overnight. Now, Matrixport said earlier on Wednesday that they expected the breakout above $36,000 to be imminent. Following on from that correct prediction, the firm said that they believed a sustained rally to follow. Their report stated, the Santa Claus rally could start at any moment, with a steady increase in buyers during U.S. trading hours and an ongoing attempt for Bitcoin to break out, we could see prices rallying into the end of the month and year. Matrixport included some macro commentary, recognizing that this Bitcoin run has been supported by Dovish Federal Reserve messaging, reducing long-term debt issuance from the Treasury, and a continued slowdown in inflation.

They noted that above 36,000, there's a lot of fresh air, considering how rapidly prices collapsed in early 2022. The report stated that, quote, a break above 36,000 could propel Bitcoin toward our next technical resistance level at 40,000, potentially reaching 45,000 by the end of 2023. Now, along these same lines, the Chicago Mercantile Exchange, or CME, which hosts the highest volume market for Bitcoin futures in the U.S., has continued to see a rush of trading. Open interest for Bitcoin futures has increased by 35% over the past four weeks, moving above 100,000 Bitcoin for the first time.

Indeed, the CME is snapping at the heels of Binance as the dominant market for Bitcoin Futures trading. Binance currently has a little over 24% of the market, while the CME is closing in with 22.7%. Now, according to K33 research, the two-week price consolidation around 35,000 has primed bullish sentiment. Over the last two weeks, dips have been bought and Bitcoin has remained in a $2,000 range. That range, of course, is now broken to the upside, but the analysis still seems relevant. K33 observed that with Bitcoin rangebound, all coins have had a chance to run. We've seen numerous tokens achieve gains above 10% in the past two weeks, which has brought

the total crypto market cap back up to $1.4 trillion for the first time since the Luna collapse. Bitcoin dominance softened slightly as a result of this altcoin run but remained above 50%. Now, maybe most interestingly, volumes during U.S. trading hours are dominating the market, vastly outstripping other regions. Premiums on front month options have exploded, with calls settled at the end of November showing a 16% annualized premium. ETF, ETF, ETIF, inflows continue to be strong, with the pro shares Bitcoin Futures ETF, BITO, just receiving its third highest weekly inflow since November 2020. Now, despite the rush of activity and derivatives markets, Bitcoin's implied volatility remains below

its three-year average. This indicates that markets are priced for slow grinding price action rather than sudden spikes. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents It asks the question, what if? It invites people in instead of leaving them out. It's on 24-7, 365, and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress

throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, BVI, DBA, Cracken. Now, taking a step back and sort of surveying the wreckage of the last year and who's left standing. According to GlassNode data, on-chain metrics are showing that hoddlers seem to have made it through the worst of crypto winter, in fact adding all the way through. Bitcoin long-term holder supply, which captures coins that haven't moved in the past year,

has reached an all-time high. Analysts observe, quote, impressive rates of accumulation taking place. Around 68% of overall circulating supply is now untouched in over a year, while almost 30% has been stored for over five years. Glass-node's report stated that, quote, the Bitcoin supply is quite tight with several measures of supply, such as illiquid supply, coins huddled, and long-term holder supply at historic highs. They added that, the ill-liquid supply metric, which measures the amount of supply held in

wallets with minimal history of spending, is also at an all-time high. of 15.4 million Bitcoin. What's more, a liquid supply is also continuing to accelerate. Around 1.7 million Bitcoin has been transferred to illiquid wallets with no history of spending since the metric bottomed in May 2021. Currently, Bitcoin is being stored away at a rate of 71,000 coins per month. Glass node wrote, A powerful divergence continues to form between long-term holder supply and short-term holder supply, which is at effectively all-time lows. They also noted a change in spending behavior for short-term holders after Bitcoin crossed the $30,000 mark. Their report stated that, quote, the recent rally suggests that a shift in market character has taken place now that the

market has rallied above the key $30,000 level. Analysis of investor cost bases for various cohorts suggests that this $30,000 level is an important zone of interest for the Bulls. Now, staying in the on-chain world for a moment, Bitcoin network fees have seen a resurgence alongside renewed interest in ordinal's inscriptions. Following the listing of an ordinal's-based BRC-20 meme coin on multiple offshore exchanges, Bitcoin fees have spiked above $7 for the first time since May. That's around a 10x increase from recent lows. A report from 21 shares noted that fees are now making up 8.5% of minor revenue, a welcome bump ahead of the halving. Miners for their part have continued to plug in new

equipment throughout the bare market. Bitcoin hash rate hit a new all-time high late last week, and hasn't seen a month-on-month decrease since December. There is now more than twice as much hash rate looking for blocks than there was in May of last year when crypto winter began. Now, more signs of energy returning to the markets. Kathy Woods' Ark Invest isn't simply content to wait for the launch of their spot Bitcoin ETF and is instead launching a suite of additional crypto-etif products. As a continuation of their partnership with 21 shares, ARC is getting ready to launch what they're calling, quote,

a robust set of options for introducing exposure to digital assets into a portfolio. A total of five products will begin trading next week on the CBOE. The actively traded funds will offer exposure to Bitcoin or Ethereum via futures contracts, with options to blend the two cryptocurrencies or add exposure to blockchain-related public equities. The ETFs will be actively traded with a handful of different strategies across the five products. Arc stressed that the funds won't track spot prices of crypto and said that, quote, investors seeking direct exposure to the price of Bitcoin should consider an investment other than the funds.

Now, meanwhile, a team of former Cantor Fitzgerald executives have launched a new crypto-lending platform that they're calling token net. They said that the platform, operated by Digital Prime Technologies, seeks to service an influx of institutional clients looking to participate in markets surrounding the anticipated spot Bitcoin ETFs. In a statement, the firm said it would allow financial institutions to borrow and lend digital assets while managing collateral positions. Now, why this is of note is it could fill a crucial gap in the industry after the collapse and bankruptcy of a huge number of large crypto lenders over the past two years. Cryptolending will be particularly important for financial

institutions looking to assist with market-making as ETFs come to market. ETFs require Bitcoin to be acquired by authorized participants in order to create new share. shares and arbitrage the market price. If the price spikes, the authorized participants can choose to borrow Bitcoin to create new shares and later buy it back at a lower price to repay their loans. By having Bitcoin lending available, these market makers can significantly reduce the capital intensity of this process, which would otherwise require them to purchase the Bitcoin outright. Now, finally, October Exchange data has confirmed that traders are flocking back. The Block Research said monthly spot trading volume increased by almost 60% after three

straight months of declines. CCData had an even rosier estimate putting the monthly increase at 87.2% compared to September volume. Analysts that CCData wrote in a report, this is the highest monthly spot trading volume recorded on centralized exchanges since March 2023, and the largest month-on-month increase since January 2021. They added that, quote, the rise in the spot trading volume combined with the positive price action last month, hints at a renewed interest in digital asset markets. Overall, I think Stack Hoddler summed up the feeling when they wrote, woke up to some great Bitcoin news this morning. Congrats to everyone who held through the first bare market to drop below a previous all-time high. They tried everything to get you to cough up

your coins. Only legends survived. And soon, friends and family will think you're smart again. So there we have it, friends, another exciting day in Bitcoin and Crypto World. One more big thanks to my sponsor for today's show, Cracken. Go to crackin.com slash the breakdown to see what crypto can be. And thanks to you guys, of course, for listening. Until next time, be safe and take care of each other. Peace.