The Breakdown - Here Comes the Most Bizarre Bull Market Yet

Episode Date: August 15, 2020

On this edition of The Breakdown’s Weekly Recap, NLW looks at the strange melange of realities interacting in the new emerging bull market.  On the one hand, bitcoin has found narrative relevance and technical importance in a world of social unrest and increased state involvement in economies and citizens’ lives. On the other, insane financial engineering experiments are seeing three-quarters of a billion dollars in value locked up within hours before a bug sees it all go away.  In the middle, agents of chaos like new bitcoiner (and LINK-holder) Dave Portnoy.  This is going to get weirder before it gets more normal.

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 crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinDes. What's going on, guys? It is Saturday, August 15th, and that means this is the Breakdown's weekly recap. Before we get into that, though, I just want to say a big, huge thank you to everyone who has taken the time to rate and review the show over the last few weeks, as I've been asking for it more. It's making a huge difference in terms of people discovering this thing. And so, thank you, thank you, thank you. And if you haven't yet, but you enjoy the show,

please go take just a second to go rate and review this on iTunes or Apple Podcasts or whatever they call it. It makes a big difference. With that, let's talk about what is shaping up to be just one of the absolute most bizarre bull markets we've ever seen. I talked to a lot of last weekend on the weekly recap about why there was so much new evidence of a bull market emerging, but today I want to talk about just how weird the shape and texture of this one is looking to be. So to do that, I want to point out this kind of two very different sides of what's going on. On the one hand, we have these incredibly significant social and political and economic forces reshaping the world around us.

In the wake of the COVID-19 pandemic and government-mandated shutdowns, we have had had the most incredible surge and normalization of money printing and state involvement in human activity that we've seen in a generation. As part of that, there is a growing conversation about what the implications of the unlimited printer running might be. Will we see inflation? Will we see a mass debasement of the U.S. dollar? Is the dollars placed as the world's reserve currency under threat? Will we see local emerging market economies crash, crater, their currencies burn and fire as this incredible attempt to inject liquidity into the system actually has the unintended consequence of creating inflation and fiatta basement?

These are no longer conversations limited to the hallowed halls of Bitcoin, Twitter. They are happening everywhere. They are happening with normies. I hear from people every day who are listening to this podcast who have nothing to do with the normal macroeconomic junket or even nothing to do really with the insider click conversation about Bitcoin. They're just people who are wondering when the bill is going to come do and who's going to pay and wondering what it's going to mean. This conversation is also, however, happening in mainstream finance. You're seeing it with micro strategies move from cash to Bitcoin. You're seeing it in other places as well. So this is happening. This conversation is happening in a really big way. Paired with economic questions, you also

have global political and social upheaval. Lebanon, of course, is a situation we've been watching for months now and just gets diceier and diceier and diceier. The new factor is this explosion and the fallout from that, but the government has resigned. There's protests in the streets. The exchange rate of the Lebanese pound is around 7,000 to the dollar. Remember, from 1997 up until last fall, it had been fixed around 1,500 for that long. Since that peg broke, everyone in Lebanon has been affected and has had a harder go of it than they would have otherwise. That social upheaval is also not limited to Lebanon. Belarus is, I believe, the most important least paid attention to story in the world right now. Let me know on Twitter if you're interested in a full episode about this because I've

been toying with it, but here are the quick hits. A 26-year dictator, Alexander Lukashenko, who is someone that has been called the quote last dictator of Europe, a title which he relishes, also a title, by the way, which is complete BS because you have Russia right next door and I don't think we even need to get into that, but a 26-year dictator arrested a popular YouTuber a few months ago, who had planned to and had publicly said that he was going to run for president, and had called Lukashenko some very unflattering names. In the wake of that arrest, which, by the way, was captured on video and was not just your average arrest, it was a bunch of dudes pushing this guy into a van that was unmarked, because that's fun. After that arrest, that YouTuber's

wife ran herself. She filed to run. She had people lining up for hours to support her run, and her whole promise, her whole promise of her campaign was to hold real elections six month later. She got huge support. Some of the biggest demonstrations that Belarus has seen in decades came from this 37-year-old former teacher deciding to run to fight for the justice that her husband, who was now in jail, was going to fight for. Last weekend, the elections actually happened, and the dictator claimed to win with 80% of the vote. Field note, side note, whatever you want to call it for dictators. Don't claim to win with 80% of the vote.

How do you not get that this looks absurd to everyone? Why not claim to win with 55% of the vote or even 57% of the vote? Something that's plausible. It's just a joke, but I digress. So anyways, as you might imagine, massive demonstrations begin, not just in the capital of Minsk, but in 20 plus cities around the country. This is not limited to the kind of urban elite or anything like that. This is people who are fed up with the situation that they are in.

The police response is incredibly brutal. In the three or four nights of protesting since the election results, 6,000 or more have been arrested, and there have been widespread reports of torture. And unfortunately and terrifyingly, a huge amount of just horrifying audio evidence popping up on Twitter and other spots on the internet that seem to give credence to those.

reports of torture. You've also seen in the positive light, some police have been shown renouncing the dictator, throwing their uniforms off, saying they're not willing to do this to their fellow citizens. And then, of course, there's the internet dimension. The internet was shut off for three days or four days. The only app that was even a little usable was Telegram, which had said it activated its, quote, anti-censorship tools. The specific strategy that they had used to turn off the internet left just a little bandwidth. Basically, it was a strategy that meant that internet was too slow to use, not that it was impossible at all. And because there was that little bit of bandwidth left and telegram was still kind of workable, a telegram channel started to coordinate the efforts of

more than two million Belarusians. And this site, this telegram channel was managed by four staff with no website that had been started five years ago as a music channel. So this is a remarkable story that shows the upheaval in the world, that shows the importance of the internet as a tool both for dissent and for shutting down descent. And it's a really important thing for us to be paying attention to. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is Crypto.com. Crypto.com offers one of the most cost-efficient ways to purchase crypto out there, as they've just waived the 3.5% credit card fee for all crypto purchases. What's more? With crypto.com's MCO Visa card, you can get up to 10% back on things like food and grocery shopping. When you buy

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the yield on their cash. Nexo allows you to achieve exactly these two goals. The company offers instant crypto credit lines against all major cryptocurrencies, with interest rates starting from only 5.9% APR. NXO also lets you earn up to 10% annually on your fiat and digital assets. What's more, interest is paid out daily, and you can add or withdraw funds at any time. Get started at nexo.io. So we have global economic and social and political turmoil, and even where there's not turmoil, major questions, and in this context, Bitcoin has a key narrative stake. It has a key narrative stake as a hedge against inflation. It is a key narrative stake as a censorship-resistant money.

There are many bitcoins who are even trying to address this question of how to work around internet shutdowns to make it even more censorship-resistant. Stablecoins are even relevant in this context. As we saw earlier this year, people used USD-denominated stablecoins to escape their local fiat regimes as chaos ensued in the wake of the coronavirus. The point is, one part, one force in this bull market are these incredibly seismic shifts that make us feel like the world is changing. And maybe we want something we can understand and point to in the predictability and boringness and lack of controllability of Bitcoin. On the other hand, is this alternate universe of decentralized finance, or as Ryan from Masari put it this week, and I think others did too, degen finance.

So the latest was that yam farming trend. They called it an experiment in governance, and basically this new defy protocol released a kind of unodited, unfinal version, and quickly saw it. I'm talking within 48 hours, $750 million of total value locked, flooded into the protocol. Yam tokens underlying the whole thing got to $160 before a fatal bug was discovered, and the whole thing went to zero. Now, the fallout was relatively limited. Of that 750 million, it seems like only around 750,000 remain locked indefinitely.

But still, 750,000 is nothing to shake a stick at. And importantly, there is big controversy around what the reaction to this should be. On the one hand, a lot of folks were really supportive when the founder of Yam came to Twitter and said, I feel like a failure. I'm really sorry. People were very supportive of him. That was, except the team lead at Ethereum who said this. He tweeted, Okay, I'm going to assume the asshole position now.

You knew perfectly well it's going to blow up. You went ahead with it anyways. You were reckless beyond comprehension and deserve everything that gets thrown at you. This was not a mistake or an error. This was blind hubris. When people said, no, it could have worked. A lot of risk needs to be taken for advancement. This same lead at Ethereum wrote,

bullshit. You could have tested on a test net. You could have asked for a public audit. You could have launched without hyping. You could have added limits and safety mechanisms. This was set up to fail. And when that same commenter again claimed the initial hype was necessary to make it work, the Ethereum team lead wrote,

well, fuck me, you think launching a financial instrument in 10 days is normal? That's not even a single scrum sprint. The point being that whatever you make of this, this was a nearly three quarters of a billion dollar, 72-hour experiment from start to finish. This is wild stuff. Then, there was Curve, where an anonymous account spent about 20th deploying a smart contract before the actual Curve finance team was able to, and basically market forced them to go with it.

As Arjun Bilagi put it, traditional startup. If you're not embarrassed by the first version of your product, you waited too long to launch. Crypto. If you wait too long to launch, an anonymous account could deploy your contract, gain community approval, get listed, and force you to adopt it in hours. Now, keep in mind, I'm not knocking this wild D-DD gen finance experiment a priori. I'm saying that it's the most insane financial engineering game that humans maybe have ever created limited only by the scale of the capital involved right now. This gets to be in this realm of quote unquote experiment simply because there is such a very high barrier to entry and so a certain type of sophistication of who's involved and an expectation

premeditated by the technology involved that they understand what's going on. This is the best accredited investor rules you can imagine because it has nothing to do with your actual finances and what you have to lose. It has to do with an incredibly difficult ability to even get in there and do anything in the first place. The point that I'm making relative to that other side of things is that these are parallel universes that have almost nothing to do with one another. This, by the way, is exactly the point that I was making a couple days ago when we were talking about interpretations of supply gate. These are separate phenomenon connected sort of by technology. And so it's bizarre. It creates a schizophrenia around what the

point of this bull market is. And meanwhile, in the middle, you have these absolute agents of chaos like Dave Portnoy. I don't think at this point any of you haven't seen this, but a week ago or so, Dave Portnoy, obviously the head of Barstool Sports, who's also the head of Davy Day Trader Global, he's totally reshaped retail trading in his image over the last three months. He said basically that if the Winklevoss twins came and explained Bitcoin to him, he'd pay attention. Well, that meeting happened. They released the video yesterday, and on the one hand, it was exciting. Portnoy's now in Bitcoin.

On the other, I'm not totally sure that they understand the force for chaos that Portnoy represents. Cryptobabi put it perfectly. He tweeted, Bitcoiners, it's going to be so awesome when Dave Portnoy buys BTC. Five minutes after Portnoy is introduced to Bitcoin. Marka buys Link, buys Eith, and wants to launch Davecoin on Ethereum. And that just perfectly sums it up. Basically, I think that the only way to look at it is that Portnoy represents a type of third agent that isn't really interested in Bitcoin's narrative hedge against the chaotic world or DeFi's crazy financial engineering

sandbox. They just want to come in, stomp around, make as much money as they can and go out whatever the implications are, whatever the consequences are. So what's the advice? What do we do with all this? Well, there's three things. One is you have to figure out what matters to you about all this. Personally and entirely on your own financial objectives, your own social objectives, whatever your motivation are, know what matters to you. And second, don't get distracted. Don't get distracted by the numbers. Don't get distracted by other people who are telling you you're stupid. Figure out what matters to you and don't get distracted. And then third, tell the story of the things that matter to you.

Wessel for this narrative. This is a narrative battle. What matters about this is really important. That's why I like talking about things like Belarus. That's why I like talking about things like Lebanon. I want to see this technology as a tool to wrench the world more towards freedom and independence, and I think we're going into a period of much increased state control. And I want this to be countervailing forces to that.

So that's the point. Figure out what matters to you. don't get distracted and tell the story of the things that do actually matter to you. And lastly, don't pitch asteroid mining. But more on that tomorrow. Until then, be safe and take care of each other. Peace.