The Breakdown - From Dinosaur Altcoins to the Kimchi Premium, 13 Numbers That Tell The Story of Markets Right Now

Episode Date: April 7, 2021

On today’s episode, NLW provides a whistle stop tour of some of the most interesting and illuminating numbers from crypto and traditional markets, including: The pop in Jurassic Park altcoins Archegos fallout US vaccine distribution Outflows from Turkey SPAC performance before and after mergers  Decline in price and volume of NFTs Coinbase valuation Stablecoin transaction volume  And more! -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content? SUBSCRIBE to the Podcast Apple: https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M= Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW The Breakdown is produced and distributed by CoinDesk.com

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 nexus.combexed. And produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, April 6th, and today we're doing a fun thing that I haven't done for a while. We're going to do one of my numbers or stats episodes where I basically cherry pick a set. of random numbers that I think have something enlightening to show about the market. Now, for this one,

I'm going to be talking Bitcoin. I'm going to be talking crypto. I'm going to be talking traditional markets. It's really just things that I think are reflective of the larger macro context across these different domains that we're living in right now. And I want to start with $1, which is the current price of XRP. Yes, you are actually hearing me talk about Ripple on the breakdown, but to be clear, it's not complimentary. So XRP is at a three-year high, and it's not alone among dinosaur coins. Chow Wang pointed out that Bitcoin gold is up 67% in 24 hours. XRP is up 42%, Tezos is up 26.5%, and the list goes on. Cryptobobobaldi called this Jurassic Park Crypto Edition. I wanted to point it out because I have seen a kind of extraordinary narrative

try to take form among ex-XRP army type people, where they're actually arguing that somehow this SEC lawsuit reflects the idea that the U.S. government is choosing XRP over Bitcoin as a future digital currency. I've seen this on TikTok and Instagram, yet another reminder of why those places may not be the right place to get your crypto and Bitcoin information, but either way, it's there. Now, holding aside the specific bagholder effect here, I think that part of what you might be seeing is just crypto traders cynically wondering how many of these old dog shit coins are going to pump for a cheap buck. And I'd be very surprised if it lasted more than a week or two. Next up, let's talk about the number 4.7 billion.

That is the final total of the hit to credit Suisse from the implosion of Archegos. I did a full show about the implosion of Archegos last week that I highly encourage you to check out. But in short, this is a fund from a previously convicted financial criminal who was simultaneously a very successful hedge fund trader, who was betting with extreme leverage aided and abetted by big prime brokers, including Credit Suisse, Nomura, Morgan Stanley, Goldman Sachs, and a handful of others. As I mentioned in that episode, I think the whole affair has at least something to tell us about the state of risk-taking in this extremely low interest rate environment that we've been living in. When everyone gets pushed systematically over the course of a decade farther and farther out

on the risk curve, what you get is things like what we've seen. A theoretically respectable set of prime brokers, allowing a person who is convicted of extremely egregious financial fraud in insider trading, take huge bets with collateral that was only 15 cents on the dollar. I don't think this was a necessarily unique situation and I wouldn't be surprised if we see more things like it. Next is the number 4 million. That is the number of vaccines that were given out in the U.S. on Saturday, a new record up from 3 million the week before. The Bloomberg piece of this stat says that it signals a sharp turnaround, and that's the point that I want to highlight. The larger meta-context for everything in the macro economy since around this time last year has obviously been COVID-19 and the response

to shut down the economy. Everything we've seen from the price of Bitcoin to the Davey Day Trader phenomenon, to inflated asset prices on the back of Fed intervention, to now the real market volatility around whether it believes the Fed can actually keep interest rates low and keep asset purchase programs going, all of these things have a context set by COVID. The radical and massive expansion of vaccines signals a shift in that in potentially a major way. What people are trying to understand now is how fast there will be a return to normalcy. And moreover, what sort of pent-up demand we're actually going to see? What sort of roaring 20s might ensue in the wake of a year shut down? There are lots of debates about what it will mean, what the government response will be.

There's a new Biden administration, which will also be integral in shaping how it plays out. But it is undeniable that just like last year at this time, the mass spread of the COVID virus itself set the tone for the economy for the year to follow. This year, the mass distribution of vaccines against that COVID virus will do the same tone setting a year later. From vaccines in the U.S. to outflows in Turkey, now let's talk about the number 1.9 billion. In the week ending March 26th, international funds sold about $1.9 billion worth of Turkish government bonds and stocks. This is the biggest outflow since May 2006 from Turkey. And it wasn't just stocks and bonds that felt the hit. There was an 11% decline in the value of the Turkish lira during that same period,

which pushed it to close to a record low. This came in the wake of the president of Turkey's decision to unexpectedly replace the country's central bank governor with an insight. who was against high interest rates. The central bank governor who had been replaced was trying to right-side the economy by keeping interest rates high and indeed increasing them, and the unexpected replacement brought not only questions of monetary policy, but also independence of the central bank itself. I wanted to mention this story because I think it's important that we keep our eye on these international currency situations. We have a tendency to view everything, at least in the U.S. through the U.S. lens. When we discuss currency failures and currency successes, it's largely

through the example of the dollar, but the dollar has exorbitant privilege. The dollar is different than other currencies. When we think about something like Bitcoin and why it might be valuable to people around the world, we have to consider their local monetary context. In Turkey, that local monetary context in March was a president who intervened in the central bank for the third time in a handful of years and a rapid 10% decline in the purchasing power of regular people's money. Looking for the best way to unlock your crypto's liquidity, nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR, earn passive income with yields of up to 12%, and swap between more than 75 market pairs with the instant nexo exchange.

Try the nexo wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io. Hey guys, I'm excited to share that this week we have a special product launch. sponsor. Exodus is simplifying how we interact with crypto applications so that we can all reap the benefits of decentralized finance and take ownership of our financial future. With the Exodus digital wallet, there's no need to download separate apps or visit multiple websites. Through beautifully designed desktop and mobile applications, Exodus users can secure, manage, and exchange their cryptocurrency in one easy-to-use wallet. With Exodus's non-custodial nature, nothing stands

between you and your assets. Take control of your crypto and download Exodus today. Visit the app store or Google Play to download or visit exodus.com for more information. Next up, let's look at the numbers 23% versus 15%. This comes from a Ben Hunt tweet that says, year-to-date, Spacks with announced deals are down 23% and those without announced deals are up 15%. Lull. What is a narrative-driven market? This. So let's break this down. Spacks are obviously special purpose acquisition companies, also known as blank check companies. When a promoter, like Chimoth, for example, creates a SPAC, it's with the intention to go

do a deal in a particular category, a particular space. But it's a blank check company. It could turn into anything. People buy shares with the knowledge that at some point the promoter will merge with a private company effectively bringing that company public, and the value of the stock will be then valued on the basis of that deal. What Ben is pointing out is something that on Twitter I called the Peter Griffin Mystery Box effect. There's a great family guy, where Lois and Peter go see a timeshare presentation and they have two choices for their payment. They can either take a guaranteed boat or they can take what's in the mystery box. Lois says, of course, we'll take the boat and Peter says, well, wait a minute, Lois.

A boat's a boat, but the mystery box could be anything. It could even be a boat. You know how much we've wandered one of them. So when I see that SPACs without announced deals are up 15%, and those with announced deals are 23%, what it seems like to me is that people like the idea of SPACs more than the actual execution. I think that's also what Ben means by narrative-driven market, the idea that SPACs are somehow a good in and of themselves, rather than just a mechanism to go public more easily. The subtext, of course, is that things get dangerous when we start to just look at the category

of something and assume that it has value exclusively by being in that category. Which is perhaps a perfect segue into our next number, 1,256. That was the average price of an NFT on April 5th. It's down 70% from the average price of about 4,000 in late February. Weekly trading volume is also down. The peak week ending February 21st saw 196.4 million in trading volume. Last week, it was 34.32 million. Of this NBA Topshot makes up an extraordinarily large percentage,

64% in that peak week, 50% in the current week. And this has obviously gotten many people to wonder whether the NFT bubble has already burst. As I've said before, I think that the bubble nature of NFTs are going to play out a little bit more weirdly than before. I think there is undeniably crazy price appreciation right now and frankly kind of indiscriminate price appreciation, especially when you have something that's a digital collectible or a digital art that has indiscriminate price appreciation, you have to see it in somewhat bubbly terms. At the same time, the fact that so much of the demand is not in the random crypto community things, but in fact

in an IP that is widely popular, i.e. the NBA, and in which nobody who's interacting with NBA top shot even really realizes that they're an NFT or they didn't before this whole boom, makes me think that there's more of a there there than your average bubble. Still, if you're interested in this space, you have to take note of these big dips in relative value and volume. Speaking of value, the Kim Chi premium is back. Our next number is 20%. So what is the Kimchi premium? it's this idea of the price of Bitcoin being higher in South Korea than it is in other parts of the world. Now, this is a historic fact. Between 2016 and 2018, the price averaged 4.8% higher for Bitcoin in South Korea. That peaked in January 2018 when Bitcoin was trading for 55% higher

in South Korea than it was around the world. The problem is basically a combination of extremely concentrated demand, tons of demand in Korea for Bitcoin, but local, currency restrictions around the Korean-Wan that make it very difficult to arbitrage that opportunity. So, for example, at that point where there's a 55% spread, you could use Bitcoin to turn $10 in the U.S. into 15 bucks of Korean-Wan, but there's no real way to get it out after that point. So the arbitrage opportunity has persisted. Now, in terms of why this premium is happening now, it's hard to say. There are a few different theories. Dovi-Wan points to upcoming crypto policies that take effect last year. Others point out that stocks in real estate are also expensive in that country. And either way,

Suu thinks that we're underestimating what it could actually mean for the market. He tweeted a couple of days ago, I think folks are underestimating the reawakening of Korean demand for crypto assets. Premiums are over 10% now, but can easily go to 100% given that it's even harder to arbitrage than last time. This in turn creates a large feedback loop for overall prices. It's worth noting as well that it's not just Bitcoin right now. It's also ETH that's trading out of premium. ETH is trading around 2350 compared to 2020 elsewhere. Speaking of trading, our next number is $100 billion. That is the anticipated coin-based valuation.

And I can feel, even as I'm sitting and watching this, this number become a mean, become a sticking point, becoming something visceral. Now, some have thought that this number is crazy. However, Ellie Frost did an interesting write-up about this. She tweeted, admittedly, the $100 billion valuation, implies 77x multiple on Coinbase's 2020 revenue of $1.3 billion. But this is also a large reason why Coinbase was so incentivized to delay their IPO so they could release quarter one results

that set the playing field for growth coming in 2021. According to Crypto-compared data, Coinbase had $3.9.3 billion volume in quarter one. Volume for all of 2020 was $193 billion. This implies $1.8 billion in revenue just for Q1. Transactional revenue was $1 billion for the entire 2020 year. If we annualize quarter one's 1.8 billion revenue with no growth, that is 7 billion 2021 revenue and 540% growth from 2020 to 2021. If we then take a 14x multiple, we get to a $100 billion valuation on transaction revenue alone. When Coinbase releases their Q1 2021 numbers tomorrow, a lot of jaws are going to drop. They will surpass analyst expectations. Nick Carter made a very similar point saying Coinbase earnings day, the CFAs are going to have their minds blown.

Coinbase is the gateway drug. It will be the first Bitcoin-related investment for so many firms that have stayed away thus far. Career risk of buying Coinbase is nil. Sexy Silicon Valley Company, blue chip backed by top VC's abundant cash flows. First true public proxy. Speaking of big tech companies getting into crypto, we'll do this one fast because we've covered it a lot, but 29 million. That's the number of global PayPal merchants who over the the next couple months, will be able to accept crypto natively just from within the PayPal experience without having to approve or authorize anything else. PayPal will take care of all of the conversion on the back end, so for the person paying with crypto, it will be seamless,

and for the merchant accepting crypto, it'll be just like they were paid in fiat all along. As I've said before, this is going to radically undermine the argument that crypto is just not useful for anything other than speculation. But then again, maybe who needs PayPal? Jeremy Allaire from Circle tweeted that USC transaction volume in the last year has hit 500 billion. That's 50% of total payment volume for PayPal. A huge, huge number. I think it reflects the growth in stable coins

and shows how much demand there is for a truly digitally native money. Now, of course, a lot of that transaction volume was around crypto investing. Crypto exchange volume has been above $1 trillion for two months in a row. It was at $1.17 trillion in March and $1.23 trillion in February. Bitcoin futures volume was even higher, hitting $2.13 trillion in March. This was higher than the previous high month of 1.9% in January.

Bitcoin Options also rose 16.19% from February to March to reach $28.63 billion last month. In other words, the crypto markets are extremely robust across both spot and derivatives, and seemingly poise for more growth. All right, just two more to wrap up this numbers episode. The first is 10%. That's the amount that yuan in circulation, aka Chinese cash, grew in 2020. This came from a Wall Street Journal article

about the forthcoming digital yuan. And the point that it was making is that there seems to be a backlash against Chinese government surveillance of the financial system. One of the most important themes for this year is the ascent of central bank digital currencies, and China is going to be the first major economy to bring theirs to market. Already 100,000 of their citizens have tested it, and it seems we're

within months, if not sooner, of having a full-scale rollout. As that happens, many are waking up to the concern of unfettered financial surveillance, and to me it will be interesting to watch whether there are more indicators of Chinese citizens themselves getting uneasy with that ascendant surveillance power. Finally, just to end on a fun one, this is from the documenting Bitcoin account, a great account that's only a few months old that has community submissions, and that number is 10,000. They pointed out that in 2010, the cost of a large pizza was about 10,000 Bitcoin. In 2021, the cost of a large pizza is around 10,000 sats. It's a great way to visualize how much has changed over the last decade. But from all the other numbers I shared, too, it's hard not to feel

like these numbers are just going to keep getting wilder and wilder. For now, I hope you enjoyed this show. I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace.