The Breakdown - Fed cuts & repo / Binance.US's BNB surprise / Bitcoin ETF withdrawn

Episode Date: September 18, 2019

The FED has pumped the equivalent of half of Bitcoin's market cap into the markets over the last couple days in what some are likening to a TAF 2.0. We discuss why this, plus today's anticipated rate cuts, matter for Bitcoin. Binance US launched today with surprise support for BNB. Finally, one of the leading Bitcoin ETF contenders withdrew its proposal yesterday.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another crypto Daily 3 at 3. What's going on, guys? It is Wednesday, September 18th, and we got a good one today. First, we're going to talk about Fed rate cuts and repo action to get the market stimulated, what it means for Bitcoin, what people are talking about. Number two, we're going to talk about Binance U.S.'s launch with a big surprise. And number three, we're going to talk about a Bitcoin ETF proposal withdrawal. But let's start on the big topic for today, the rate cuts. So last month, the Fed cut rates for the first time in Bitcoin's 10-year life. And now they're prepared to engage in a second rate cut, right? So they're going to lower the recommended rate from 2 to 2.5%, which is where it is now, to 1.75 to 2% target. And so this has kind of been anticipated, right? There's been a lot of pressure.

as we've discussed before on the Fed to lower rates to be more aggressive with its monetary policy. Trump has been tweeting about it and really exerting all the pressure that he can. Basically, he's worried about the strength of the dollar compared to the rest of the world and what it means. And so the rate cut has been anticipated. And in fact, in a lot of ways, we function in an economy now where it's not just about the rate cuts, but it's about the projections and the Fed signaling what it's likely to do in the future, not just right now, that drives markets. So that's going on.

But that was not the only Fed action this week that we need to talk about. So Pomp captures the essence of it right here. He says, wow, the Federal Reserve has injected over $100 billion into the financial system in the last 48 hours. That's more than 50% of the total market cap of Bitcoin. Rather than fix the structural issues, they just keep trying to print their way out of this mess. Bitcoin rocket fuel. So that's the standard Bitcoin take, which is totally fine.

But let's figure out what's actually going on. So this is from Bloomberg Fed Prep's second $75 billion blast with repo markets still on the edge. Well, what's a repo market? This op-ed from the Financial Times, I think, did a really good job of explaining it. So the op-ed is titled, Why is the Federal Reserve pouring money into the financial system? system. And it starts, one of the most important sources of financial market lubrication came under severe strain this week, raising concerns that the Federal Reserve's attempt to unwind post-financial crisis intervention may have gone too far. Repurchase agreements,

that's what you hear when you hear someone say repo, are the grease that keeps the financial system wheels spinning, allowing different market participants to borrow and lend to each other to cover short-term cash needs. On Tuesday, the wheel stopped turning, the so-called repo rate, which is a different interest rate from the kind of the interest rate that you hear people talking about when they're talking about the Fed target interest rate. Soared to a high of 10% when it typically trades in line with the Federal Reserve's target interest rate of between 2% and 2.25%. The New York branch of the Fed had to step into restore order. So there's a lot to get into in terms of, or potentially that you could get into in terms of how this works. And basically the Fed injects money by buying back or borrowing effectively the treasury bills from private lenders or private market actors at an interest rate.

And so in that way, it gets cash into the market and can move those bills back when it needs to. And so the interesting thing about this is that this is a significant amount of money, right? This is a meaningful percentage of the $800 billion that were spent during the 2008 crisis in terms of kind of financial lubrication. And this is a non-crisis moment theoretically. So obviously this has a lot of people saying what the hell is going on. Now, for some, that comparison to 2008 is exactly what makes this so interesting. So this is analysis from Alambra investments.

They said Taff makes a comeback. So this is kind of the comparison that you're hearing a lot is that it's basically TAF 2.0, which is obviously a famous program that was put into the system in the advance of the 2008 crisis. So you've got public market participants who are reading these tea leaves and are not liking what they're seeing. And also, you know, at least for some, it suggests that this is, you know, too small, too, it's not drastic enough. So you've got all of these things going on. And obviously, Bitcoiners are thinking about this as well. And the reason that I want to talk about this is that there's kind of two dimensions to what Bitcoin or looking at what happens to Bitcoin in this context. One is the very specific and it has to do with what will happen from a financial perspective to the price of Bitcoin. The second is more just about how is Bitcoin discussed? What's the narrative of Bitcoin? And so let's talk about that second one first. Over the last six months in particular, the Bitcoin narrative has shifted pretty dramatically

into the realm of the macro, right? People are speaking about Bitcoin not just as a kind of technology in comparison to something like Ethereum, but its function or its perceived function or potential function in the larger markets is as a hedge or as a potential hedge for people who are kind of watching. all of these indicators happen, right? And watch the kind of unfettered quantitative easing that continues to characterize monetary policy and basically just the drip, whether slow or fast, of money from central banks, right? So that's been the narrative shift a little bit, right?

It's kind of not just we're talking about a store of value, but we're talking about a significant alternative store of value in the context of larger market instability. At least that's the promise that's the question is. people are interested in Bitcoin's potential for that role. So you saw Marty Bent focused on the repo action yesterday. He wrote about this idea of a coming liquidity crunch. You had a Hans over at Aikai, who's basically putting it in Bitcoin or terms, right? So he says he's kind of doing his satirical take on the news.

US budget deficits. The solution, according to longtime observers, would be for the Fed to continue to inject cash on a regular basis. And he says, yes, the Fed is forced to finance. our budget deficit because Wall Street doesn't have enough cash. And the solution is to inject cash. That way, we never have to worry about balancing the budget because we can simply inflate away our problems at the expense of anyone who owns our debt. The only problem the whole world owns our debt, including us. Pay it back in monopoly money, I say. By the way, if you heard about this thing called Bitcoin, there's a hard cap of 20 million and nobody can print more. So again, Hans,

clearly in a satirical way, really pointing out that the Bitcoin hard cap is an answer to the this sort of unfettered money printing that continues to characterize policy. Like I said, there's another dimension to this, which is what will happen to Bitcoin's price. So CoinDesk has someone who kind of follows price action who wrote about this. Delphi Digital, actually in a much longer threat about the larger market context, also made mention of what they've seen previously. So they said, while the relationship is far from perfect, Bitcoin tends to perform well during periods characterized by lower equity market volatility. For example, the parabolic BTC runup in 2017 coincided with one of the least volatile years on record for U.S. stocks. So the point here is that

it's not clear to me, and I don't think it's clear to a lot of people exactly how short-term Bitcoin's price will be affected by this. And I think this is an important thing to kind of break apart is the idea of Bitcoin as a macro asset. that responds to these macro factors in a clear and predictable way based on what happens, versus this idea of Bitcoin as a larger systemic and generational hedge against macro markets on a medium and longer time frame, right? Those are two very different things. And I think it doesn't behoove us to connect them or to bundle them up together when they're actually two separate phenomenon.

So I guess the one other important thing to mention in the context of all of this kind of repo news and the idea of a, you know, another Fed rate cut is just how much the mediums through which we're receiving this news prioritize extreme takes on it, right? So Alex Kruger writes, he had a great kind of like another satirical tweet about this. But this time, his satire is about the way that we're responding to this news, right? And he's talking about financial Twitter, FinTwit, not so much crypto-twitters. So he says, FinTwit, the Fed is a disaster, always manipulating prices. Also FinTwit. Repro rate spiking as the Fed watches idly as evidence of the Fed losing control. Also FinTwit.

The Fed acting to address the rate spike is evidence of the Fed losing control. So his point obviously is this. someone says, I'm not really sure what point you're trying to make. And he says, I've been reading for months about this impending disaster. The Fed can address these liquidity issues. It hasn't lost control, but has rather chosen to wait before acting. Restarting repos is not a big issue, and neither would be restarting QE. Important? Yes, disastrous, no. So Alex is a pretty rare voice of calm and, you know, like basically just chill outness in the context of a media landscape that prioritizes extreme takes. However, I still think at the end of the day, the reason that the

Bitcoin community is so interested and now regularly watches Fed moves and macro market cuts and all these sort of things like it's baseball statistics or something is really well summed up in this tweet from Travis Kling from May where he says, central bankers have no plant and the largest monetary policy experiment in human history. Bullish and non-sovereign hard cap supply, global immutable decentralized digital store of value. So this, I think, is the real nut of it for people, is that whatever you think, whether you think the Fed's in control or not, there is no doubt that we are sailing in uncharted waters and that this monetary policy and the extension of quantitative easing from a short-term emergency scenario to just the name of the game and all of the implications

that have come with that is uncharted territory, uncharted waters. We don't know how it's going to play out. However, from a narrative perspective and potentially from a real perspective, the fact that this asset offers so much that is basically opposite of the way that money functions in the context of today's central banks is worth noting. And that's why Bitcoiners are paying attention to this. That's why crypto markets care what happens in the larger markets, but don't necessarily expect that to show up in price right away. That's kind of just not how these markets function yet. With that, let's move on to number two for the day. So last week, we talked about Binance U.S., Binance America coming to the U.S. The larger context for those of you who

are out of the loop on it is that a few months ago, Binance announced that it would be geo-blocking U.S. users of Binance.com. This came after an announcement that they would be geo-blocking users of the Binance decks. And there was obviously outcry, Finance has been a huge driver of activity. It's one of the most popular exchanges in the world, popular in the U.S., because that's where a lot of the liquidity for altcoins in particular comes from. And so they came back quickly and said, you know, but Binance U.S. is launching. Binance U.S. being a fully regulated, compliant offering.

And when they first, or sort of, I guess, a couple months into the announcement, they listed a set of about 30 assets that they were considering for Binance U.S. but they didn't commit to any of those. And then last week, when they announced that it would be going live this week, they also shared which particular assets were going to be listed. And it was basically exactly what you would have expected. It was Bitcoin, Bitcoin Cash, Ethereum, light coin, tether, and ripple. And so a lot of folks, you know, I had a lot of different conversations on Twitter and based on the three on three about this.

And one of the biggest questions, probably the biggest question, was why would people, in the US switch. If they're using CoinBrasse Pro or they're using Krakken or whatever they're using, right, already, why would they switch to this? Now, some people's answer was just that there would be likely to be lower rates, right? And sure enough, Binance announced that there's lower fees, excuse me. And sure enough, finance, when they went live or they opened registrations today, there's no fees, I think, through November.

And even after that, I think that the fees are lower than anyone else or comparatively low to anyone else, right? So they're competing on the on the fees standpoint. But one of the big questions for people was, and really I think the biggest one is, is what is going to be different about what I have access to through this platform versus other exchanges with the biggest elephant in the room beyond a shadow of a doubt being BNB, Binance token itself, right? Binance coin itself. And they had made no mention of BNB last week at all. But today, when they announced this, so this is a tweet from Catherine Coley, who's running Binance U.S., boom, they're in the picture. It's all six of those assets that we talked about before, plus BNB, just sitting there brightly shining as the reason

for people to come in and experiment with Binance U.S. CZ reinforced this. He said 10 minutes ago, Binance America went live with B&B support. Interestingly, oh yeah, so here's the zero trading fees. I'm going through tweets for those of you were listening. Apologies. So yeah, zero trading fees on Binance U.S. Standing by our values of reducing the barriers to digital adoption, digital asset adoption, we are lifting all fees for trading at launch,

zero fees until November 1st. This was only available in most of the U.S. There's still 13 states that are excluded based on regulation. So there's a lot going on here. I mean, for me, the interesting question is what went into the consideration of BNB being listed on this, right? Theoretically, this is Binance's regulated offering that plays by the U.S. rules. And there aren't a lot of folks, I don't think, in kind of the crypto legal core, who would be making an argument or who make an argument that BNB is not a security, right? It seems to fit a lot of the qualifications of a security. And certainly

based on the reactions, the responses, just the actions, I guess, to date, the sentiment to date from the SEC, it doesn't seem to me to be, they're not in a generous forgiving mood, let's say, It's still kind of one of the more up in the air, but certainly not super favorable regulatory regimes as it relates to a willingness to look around securities law. So one of two things is going on. Either one, in their conversations with regulators, Binance has become convinced that there's a strong, compelling argument that they're both willing to make and they think that regulators will respond to that BNB is not a security. that would be a big thing. The second is that they are willing to play, the second possibility is that they're willing to play some amount of regulatory arbitrage and make a go for it. And so that's pretty, pretty interesting on either, regardless of which of those two scenarios is closer to right. It could be a balance of both. It could be something else that I'm not anticipating, but it seems to me that those are the two possible explanations. But either way, significance for the market is, is that all of a sudden, Binance US does offer something that's pretty fundamentally different than any other exchange in the US, which is access to what was basically one of, if not the

best performing token during the downturn. So, finance, US, it is live, and BNB is there with it. With that, let's move on to our final topic for today, which is a Bitcoin ETF withdrawal. So Bitcoin ETFs have been, you know, a huge topic of conversation for the last 12 months, 18 months. You know, for those who are really excited about and looking toward an ETF, it represents the next level of institutional adoption of institutional acceptance. It could allow people to, you know, different types of companies, different types of institutions to get exposure to Bitcoin. It suggests or would suggest a maturity in the market, having the SEC approve a, an ETF has signals in terms of their beliefs about the maturity of Bitcoin as an asset. So there's all these sort of things.

Now, there are some people who don't think that ETFs are a good idea for other reasons. That's kind of beyond the scope of what I'm looking at today. But the point here and the story here is that yesterday, Vanek and Solid X withdrew their Bitcoin ETF proposal. This is widely seen as one of the most. likely successful ETF proposals. Van Eck was the company behind the first gold ETF so they have a long-term you know record in the space they have long-term relationships with these set of regulators and so you know the fact that they

withdrew this means that means that basically it's it's unlikely that their indications were that they were not going to get it through and they wanted to withdraw this rather than have that stamp of no. Now these guys are moving forward. So Gabor from Vanak, he tweeted after he said, we are committed to support Bitcoin and Bitcoin focused financial innovation, bringing to market a physical liquid and insured ETF remains a top priority. We continue to work closely with regulators and market participants to get one step closer every day. Speaking of one step closer, Vanek did create kind of they started offering shares of a trust, which is almost like an ETF light. Some people have said a couple weeks ago. So they're

clearly not giving up on this. They're not moving. But it does mean that right now, the signals around an ETF are looking worse than they did, you know, a few months ago potentially. Or maybe they're the same. You know, there's some people who were highly skeptical that an ETF was going to get past anytime soon. But it's certainly an indication of where the U.S. regulatory mind is right now. Jake sum this up, Jake Chavinsky, he said, Van Eck withdrew its Bitcoin ETF proposal today, presumably expecting that the SEC would reject it next month. Bitwise's proposal is still pending for now and due for a final decision on October 13th. My best guess, there will be no Bitcoin ETF in 2019. This is kind of Mike Dutus got a quote from Bitwise as well. So these guys are the one

remaining ETF proposal. And they said, getting approval for new and novel ETFs has been a multi-year process. So we're not surprised by the withdrawal. We continue to work on our filing and through our research to answer all of the substantial questions that the SEC has raised. So these guys are basically saying, like, look, this is a long process. It's not going to happen overnight. This is setbacks, not failures. Keep moving forward. For me, in terms of what it means for us and those of you guys who are listening or watching the three at three, I think that the most important thing is just it's one little piece of evidence, one indicator of where U.S. regulators are right now, and they are not ready for a Bitcoin ETF. So make of that

what you will. But with that, let's get back to the macro markets. What's going to happen next? How are the markets going to respond to these rate cuts? What is the narrative going to be around the repo action? Those are the questions that are kind of engaging me right now. And so let's go watch. Thanks guys for listening, for hanging out, for watching, and I will be back tomorrow. Peace.