The Breakdown - Global Bitcoin Game Theory

Episode Date: December 11, 2024

A look at Bitcoin game theory around the world with the latest between El Salvador and the IMF, CZ on China, and more. 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 Tuesday, December 10th, and today we are doing a little bit of a global crypto roundup. 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. Well, like I said, we were going to go around the world today from El Salvador to Russia to Iran to China. But before that, we have to do our customary price check. Briefly, after touching 100K during the morning session, Bitcoin slid in the afternoon yesterday.

A pair of heavy liquidations each drove the price below 95K. Into the evening, price recovered somewhat with Bitcoin trading back to 98K before taking another leg lower. All told, Bitcoin ended the day down 3.7%. Its largest drawdown in two weeks. The most interesting part of the price action, though, was the continued divergence between Bitcoin and the broader all-coin market. Weakness in Bitcoin led to a market-wide sell-off. Ethereum was down over 6% while Solana sold off by almost 9%. Where things got really ugly was the dino coins favored over the past week. Ripple saw a 15% collapse while even more obscure ancient coins plunged by over 20%. It was truly a welcome back to the crypto markets for retail. The contrarian desk wrote, Crypto being crypto today, the boomers may not be used to these 20% daily drawdowns. Overall, Bitcoin was the best performance,

forming coin in the top 50 and the only one that saw a strong dip buying. Crypto's total market cap was down 6.4% on the day and continued to bleed lower into the evening. Bitcoin dominance rose by 2.8% the largest single day increase in over 18 months. Roman trading wrote, Alt-season callers from the last week feeling pain today. I've said it several times it's not alt-season yet. Bitcoin still has a leg or two left before liquidity starts to shift. Bitcoin's clear out performance on a drawdown sends a signal that Michael Saylor might be right, there is no second best. Speaking of Micro Strategy, that company announced another 2.1 billion of Bitcoin purchases for the last week. That brings their total over the last six weeks to

$15.7 billion worth of Bitcoin bought. With weekly buys now the clear pattern, Micro Strategy is providing a huge price agnostic bid that just isn't present for all coins. The other element of the story that we're tracking is dollar strength. Both Michael Howard of Crossborder Capital and Rao Paul of Real Vision believe dollar strength is driving liquidity lower, representing a headwin for Bitcoin. Yesterday saw the dollar index trade essentially flat. After a slight downtick over the past two weeks, the dollar seems to be stuck at an extremely high level. A breakdown in the dollar should support another leg higher for Bitcoin, but the signs just aren't there so far this week. It's pretty hard to find anyone turning bearish over this price action over the longer term.

Bitcoin Jack tweeted, higher low on larger liquidation volume is your turbo green go light. Checkmate wrote, fun facts, people do sell Bitcoin especially in Bulls. Another fact that doesn't mean they are right. Doesn't mean they're wrong either. Markets are one big game of chicken, embrace the chaos. Now with that out of the way, let's do our global tour and we're going to start in El Salvador where there has been some capitulation on the Bitcoin law with regard to the IMF. According to reporting from the Financial Times, El Salvador will scale back their Bitcoin laws as a compromise to be able to access IMF loans. The major change is removing Bitcoin as legal tender. Practically, this means Salvador and merchants will no longer be forced to accept

Bitcoin as a payment method, though they would retain the option to do so. No other major changes to the Bitcoin policy were reported, implying the country could continue accumulating for their national reserve. El Salvador currently holds around $600 million worth of Bitcoin. Earlier this week, President Buckeli flashed the portfolio on social media, showing 33 million in unrealized profit up around 123%. While the FT framed this as El Salvador scaling back their Bitcoin dreams, it's hard not to view this as also capitulation from the IMF. In October, IMF staff said one of their points of concern was limiting public sector exposure to Bitcoin. In other words, limits the scope of the Bitcoin Reserve. That issue appears to have been dropped in negotiation based on

the reporting. Bitcoin's legal tender was always a minor part of the overall policy. He grabbed the headlines in 2021, but saw very little adoption as a payments mechanism in the real economy. El Salvador hasn't been enforcing this part of the Bitcoin law, and it was widely viewed as bad policy in industry circles. It's probably still a narrative win for the IMF, allowing them to position themselves against Bitcoin adoption, but it won't change much about the Bitcoin story in El Salvador itself. Aside from the Bitcoin changes, El Salvador will reportedly agree to a package of structural economic adjustments. According to FT sources, the budget will be reduced by 3.5 percentage points of GDP, with a mix of spending cuts and tax hikes. The nation will also pass

an anti-corruption law and increase foreign currency reserves from $11 billion to $15 billion. This seems achievable, although the numbers don't make a ton of sense. El Salvador has already decreased budget deficits to 2% after seeing them blow out to 9% during the pandemic years. It's unclear whether the IMF will insist on the nation running a surplus or if they will credit deficit reduction that has already taken place. In exchange, El Salvador will be able to tap $1.3 billion worth of IMF loans. The World Bank and the Inter-American Development Bank will each contribute an additional billion dollars in loans.

The deal will reportedly be finalized by early next year. Pierre Rochard, the VP of Research at Riot Platforms tweeted, Buckel-A's deal. El Salvador drops the requirement for businesses to accept Bitcoin payments. In return, the IMF helps finance El Salvador's strategic Bitcoin Reserve. Seems like a great deal for El Salvador. The people on the ground seem to agree. With Tabernac Dan writing, people crying about this IMF deal have a 99.9% chance of never having been to El Salvador.

Pro tip from someone who lived there for 15 months. He's getting free money to repeal a law he couldn't even enforce. To the extent that there are negative comments about the deal, it's mostly about the symbolism. I Adam Symec of Man of Bitcoin wrote, Can we please get an explanation for the people who have been cheering on El Salvador's liberation from the IMF? What kind of message is this sending? It seems like El Salvador spent the last four years showing the world that IMF liberation is finally possible with Bitcoin, and now it looks like they just gave up.

Other news, though, out of El Salvador suggests the little American micronation has a new homegrown resource to help their development. President Buckele announced a massive gold fine potentially worth $3 trillion. The announcement comes as the president seeks to revoke a mining ban, which was put in place in 2017 due to environmental impacts. Notably, the word potentially is doing a lot of heavy lifting in this announcement. mining investor parallel Mike noted, the quote-unquote studies not publicly released, claimed that 4% of the potential area had reserves of U.S. 131 billion.

So they gather from this they have $3 trillion. I look forward to seeing the exploration results in costing in 15 years. Another sci-op. Still, siop or not, Bokele is treating the return of gold mining as a way to further boost the nation's prospects. He said, if we can make responsible use of our natural resources, we can change the economy of El Salvador overnight. He presented Norway as an example of responsible exploitation of natural resources.

The nation is famously one of the wealthiest on earth after oil production was used to grow the largest sovereign wealth fund. Bitcoiners realized that there's one logical conclusion. Investor Travis Kling tweeted, So El Salvador found 50 million ounces of gold worth 131 billion at current prices. Puekele is absolutely going to rush to mine all that gold and sell it as fast as possible to buy Bitcoin. Can someone for real do a wellness check on Peter Schiff? Next up, we head over to Russia, where notably, while the debate over the U.S. Bitcoin Reserve plays out in the op-ed pages, other countries are moving forward with their own.

plans. A member of the Russian parliament has proposed their own national Bitcoin reserve, positioning it as a tool to counter-sanctions. Anton Kachaf, a member of the Minority New People Party, appeared to the Minister of Finance to, quote, assess the feasibility of creating a strategic reserve of Bitcoin in Russia by analogy with state reserves in traditional currencies. He added, in conditions of limited access to traditional international payment systems for countries under sanctions, cryptocurrencies are becoming virtually the only instrument for international trade. The central bank of Russia is already preparing to launch an experiment and cross-border settlements and cryptocurrency. For context, the New People Party is a relatively new

but growing force in Russian politics. They were the first to gain more than 5% representation in parliament since 2007, becoming the fifth major party in Russia. Their support of a Bitcoin reserve from opposition suggests the policy could gain traction swiftly if the government chooses to move in that direction. You might remember that President Vladimir Putin recently noted that no one can ban Bitcoin while discussing it as a useful alternative payments technology. All of this is very preliminary, but it does demonstrate that Bitcoin is front of mind on the global state. Dennis Porter of the Satoshi Action Fund wrote,

The USA and Russia have just entered an arms race to see who can secure a strategic Bitcoin reserve first. I can promise you we will win that race. Bitcoin magazine CEO David Bailey suggested the wheels are turning much faster than previously believed. He tweeted, after Putin's comments a few days ago, the word was given to open up all energy resources to Russian miners and scale up Bitcoin mining activity as much as possible. It is critically important President Trump signs an executive order to establish the Strategic

Bitcoin Reserve on day one. obviously take all of these comments with a big grain of salt, but there's certainly a lot more of this discourse and discussion than there was, call it six months ago. Speaking of that, speaking at the Bitcoin Mina conference in Dubai, former Binance, CEO, CZ, said that China's adoption of Bitcoin as a reserve asset is inevitable. He said, Trump has not gotten into office yet, and the strategic Bitcoin Reserve has not been activated yet, so I think as soon as it actually happens, we'll see what other countries do. After growing up in China, CZ noted that the country could, quote, move really, really fast

on policies when it wanted to. While he hadn't seen any evidence that China is stockpiling Bitcoin, he said it was, quote, inevitable for them to establish a reserve. CZ noted that it would be extremely hard to predict China's position on Bitcoin, given the relative lack of transparency from its government. He added, I'd be shocked if the Chinese government announced something and then do it. I'd be much less surprised if they accumulate and then announce. They have to do it at some point because it's the only hard asset. Now, the question is, with serious discussions potentially underway in places as far flung as Moscow and Beijing, the question is really where this discussion sits in Washington. For some, it's just a matter of sequencing. Luke Brolls of the Bitcoin

advisor tweeted, if America adopts a national strategic Bitcoin reserve, the odds of Russia doing the same 10x. If Russia adopts a national strategic Bitcoin reserve, the odds of America doing the same 10x. If America or Russia adopt a national strategic Bitcoin reserve, the odds of China doing the same 10x. If America, Russia, or China adopt a national strategic Bitcoin reserve, the odds of 10 other countries doing the same 10x. Do you understand? We can debate which we'll do it first, but it doesn't matter. If any one of them does it, all of this squabble is irrelevant. Certainly one of the more interesting stories to keep an eye on for now, though, that is 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.