The Breakdown - How Real Is This Relief Rally?

Starting point is 00:00:04 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.io, near NFTX, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, June 21st, and today we're discussing how real is the relief rally? Before we dive in, a couple housekeeping notes, there are two. ways to listen to the breakdown podcast. You can find it on the Coin Desk podcast network feed, which comes out every afternoon and features the breakdown and other great Coin desk shows, or if you want to listen to the breakdown only feed, you can get that in the evenings of the same day.

Starting point is 00:00:52 Of course, wherever you listen, if you're enjoying the show, I would love if you would take the time to give a rating or a review. It makes a huge difference with new people finding the show, and I appreciate each and every one of you who takes the time to do that. Lastly, a disclosure as always, in addition to them being a sponsor of the show, I also work with FTX. So this relief rally, huh? It has been a weird few days in markets. Yesterday, we discussed the total washout over the weekend, where Bitcoin slunk down to 17,600 or so on Saturday, breaking many hearts and more spirits. There was in this period a ton of apparent capitulation. Bitcoin saw more than $7 billion worth of realized losses, which was the most in a three-day stretch ever. Realized losses in this case

Starting point is 00:01:40 means people selling for less than they had purchased for. There was also a capitulation of long-term holders as defined by coins that had been held for 155 days, which is GlassNodes measure. Google searches for Bitcoin is dead and Crypto is dead reached new all-time highs. Then on Sunday, though, things bounced back with Bitcoin jumping up 16%. Still, people were skeptical. On June 18th, Alex Kruger wrote, After a very large move, big walls at support tend to hold on the first attack and cause a mini short squeeze, then get retested and break. However, over the last couple days, things have gotten a little bit more real to the positive side.

Starting point is 00:02:21 Kruger again on Sunday tweeted, Think prices should run up a lot now, pushing panic sellers and four sellers. Recovering at least half of the drop from two days ago, CPI Day, I want to see a fast reaction up here for next couple of days. The best rallies are those that don't give laggards an entry. What Alex was asking for appears to have sort of happened. Bitcoin and Eth have both rallied an additional 5% over the last 24 hours. At the time of prepping the show, Bitcoin is around 21,600, and Eth is around 1182.

Starting point is 00:02:52 In total on Monday, 9.7% was added to the crypto market cap. Among the top 10, Solana led the rally with a 9% gain and several other popular alts like Avax at 14%, Polygon at 12%, and Apecoin at 16% show the broad move back up. The question, of course, is how real is this? There is a spectrum of takes. The jerk take, as always, comes from Peter Schiff, who writes, don't get excited about Bitcoin being back above 20K. 20 is the new 30.

Starting point is 00:03:23 This is just another bull trap. Nothing drops in a straight line. In fact, this slow motion crash has been extremely orderly. No sign yet of any capitulation that typically forms a bare market bottom. In terms of actual market participants, though, the range of perspectives is, on the one side, Fox Mulder, with their poster declaring, I want to believe. If you get that reference, you are awesome and also old. On the other side are the folks who feel a little bit more like, fool me once, shame on you,

Starting point is 00:03:51 fool me twice, shame on me. So let's get to a few more specific takes. The BitFinex Trading Desk basically said that this likely isn't a bottom or a real sustained rally, but at least it shows that these assets can rally quickly. Quote, while the trend of market turbulence is unlikely to recede as central banks call the shots amid an increasingly uncertain geopolitical environment,

Starting point is 00:04:14 today's relief rally demonstrates a latent potential for the price of digital tokens to rebound quickly. End quote. Now, a lot of other commentators, however, reinforced a notion, one which I've shared on this podcast, that it's going to be hard to see a path to a real shift out of a bare market mode without a change in the larger macro environment.

Starting point is 00:04:34 Antoine Gulen, the regional director at AAX, said the market is highly dependent on the Federal Reserve interest rate, and inflation is breaking records with the macroeconomic factor remaining heavy. Uncertainty prevails in the market, and relief rallies do not significantly change this picture. Such market moves are a decent opportunity for day traders, but not for investors aiming to cut risks. We shall watch out for how the macro rhetoric changes by autumn to see the midterm direction of the markets. Vasa Zupan, the president of Matrix, said, I don't see Bitcoin quickly returning to all-time high levels. We should probably brace ourselves for a long period of uncertainty

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Starting point is 00:05:36 Receive a welcome bonus of up to $150 in Bitcoin until June 30th at nexo.io. That's nexo.io. This episode is brought to you by Mir, a climate neutral, high speed, and low transaction fee, layer one blockchain platform. NIR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NIR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future.

Starting point is 00:06:11 Reimagined your world today at neer.org. The breakdown is sponsored by FTXUS. FtXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCS, you pay no gas fees. Download the FTCX app today and use referral code breakdown to support the show. Interestingly, Alex Kruger again adds some context around why, even if we are settling in for winter, we still might have reached a bottom for crypto itself. He writes, Bottom or not, impossible to know, but the number of major bottom signals is very large.

Starting point is 00:07:10 How could crypto bottom while the Fed is hiking and there is a recession ahead? Mean reversion. Crypto decorrelated, driven by the Luna collapse and has since dropped 40% more than the NASDAQ. So basically, Kruger's argument goes back to what we were discussing yesterday on how much of this crash has been driven by macro factors versus crypto industry specifics. Where we landed, of course, was both. The larger context has definitely been macro, but crypto-institutional failure and the unwinding of excessive leverage held in opaque areas of the market was exacerbating the impact in the crypto space.

Starting point is 00:07:45 The argument Kruger is making is that we've outperformed equities to the downside and may not actually be forming a bottom, whereas equities still have more room to fall. Some other commentators seem to agree. CNBC tweeted that Giles Keating, the director of Bitcoin-Swiss, shared that, quote, some of the real excess leverage has now been driven out of the cryptocurrency market, and a bottom can begin to be formed. Others aren't so sure. And specifically, I've seen a couple folks point to further institutional capitulation as likely. Sam Rule from Bitcoin magazine tweets, market pressures on miners are underway. Can look at hash rate decline, hash price, ribbons,

Starting point is 00:08:23 rising selling pressures, many more. Not sure capitulation is finished here, waiting for more. Now in period where revenues will be magnitudes lower than last 365-day average. Purpose Bitcoin ETF holdings cut in half in just one day last Friday. One proxy for institutional demand and flows in current environment. BTC Jack Sparrow zooms out even farther, writing a couple of expectations. One, BTC will bottom and start reversal structure before equities, maybe as much as six to nine months earlier, more likely three to six months. 2. Legacy capitulation will be two or threefold, as in multiple corners in trouble at different times.

Starting point is 00:09:01 3. Major crypto capitulation happens in September, October. Could mark final, but another major drawn down to happen in Q2-Q3, 2023. 4. Some sovereigns will become highly dysfunctional between now and end of 2023, high-chance marking major bottom on legacy. Post-2020, likely marked by opportunity in 2023, earlier for crypto-possibly, should see solid appreciation of investments into 2025. Given that we are now talking years out, I will take a quick pause to remind folks that I am fully in the realm of speculation here. I'm not presenting any of these takes because I think they come from some Oracle with radically

Starting point is 00:09:39 prescient information about the future. I'm trying to present enough of them so that you all get a sense of the range of perspectives so you can sort of make out what you think for yourself. Also, in terms of why focus so closely right now on these market dynamics versus fundamental, In other words, why not discuss how at 20K or 40K Bitcoin's capacity to help people flee terrible monetary and political regimes remains the same? I can promise we will definitely do a lot of that, this bare market. But right now, we are in the volatile transition of expectations, a liminal period where

Starting point is 00:10:12 people are white-knuckling it, looking at their portfolios and deciding what to do, how to hedge, how to reposition, and moreover, just how to feel. Even for many with high conviction, these can be trying times, and so I think it's worth taking a little extra time on some of the market dynamics. A broader base of knowledge and perspective is the best antidote I know to fear and fear-based decision-making. Now, going back to this question of what we would expect to see in legacy markets before a Bitcoin bottom is actually formed, ASIS writes, Bitcoin has never made a macro bottom without

Starting point is 00:10:46 a massive spike in stock market volatility that breaks out of the range. They are definitely right about how this bare market in equities has gone down. One of the strangest aspects of it is that it has been just a steady and fairly relentless but orderly path down, so much so that people don't even realize that entire categories like tech are down 65%. It's also worth noting that valuations are still fairly close to recent historic norms, and on the high side at that. In other words, even with major amounts of market cap wiped out,

Starting point is 00:11:18 most equities are still not historically undervalued. Everything we've seen from the Federal Reserve suggests that they're not even thinking about peeling back their hawkish policies because of current stock prices. Instead, it would take real market disorder, and that just hasn't occurred. Callum Thomas, the head of research at top-down charts, writes, still seeing no de-leveraging, no rotation out of equities, no capitulation in equity flows, but sentiment is about as bad as it gets. Powell inverted writes, big problem with the everyone-is-bearish argument is that retail hasn't sold yet,

Starting point is 00:11:55 so they are depressed but long. In aggregate, of course, for every seller there is a buyer, so who will buy the bagholder's shares if they choose to try to sell? Might only be at much lower prices. The other big difference between this correction and others is fed behavior. They're going to keep tightening rates even if markets fall much further. This should change the buy-the-dip strategy and mentality a lot. Basically, the idea here is that everything that we've seen from Powell and the Fed signals that they are maybe now watching the stock market, but that it is not their primary concern in any meaningful way. They are desperately trying to convince the market of their

Starting point is 00:12:33 whatever it takes stance on inflation, and until we start to see inflation roll even a little bit, not only are they not taking their foot off the gas when it comes to tightening, they're actually actively trying to increase the speed with which they raise rates. That was the story of the last FOMC meeting where we got a 75 basis point hike instead of a 50 basis point hike that had been expected for weeks up to that point. Now, when it comes to the relationship between equities and crypto, there was one more interesting note. Investment product provider ProShares is set to list the first ETF allowing investors to bet against Bitcoin coming up. The ETF commences trading on the New York Stock Exchange today. It will take Bitcoin futures positions and seek to replicate the

Starting point is 00:13:19 inverse of Bitcoin price action on a daily basis. It's being sold under the ticker BITI and will allow investors to hedge Bitcoin exposure without managing an options or short futures position. Eric Balcunis, who's the senior ETF analyst at Bloomberg said, the first ever short Bitcoin ETF in the U.S. begins trading on Tuesday. Pro shares wins the race again. They whiffed on the ticker, though. It's BITI-Z. Should be NGMI or FUD or something. Now, when some folks responded to Eric's tweet pointing out that the BITO, the ProShare ZTF futures launch was the top, maybe this marks the bottom. Bakuna says this is a good point. Pretty sure the BITO launch, along with Matt Damon, was the top. Perhaps BITI will mark the bottom. Time will tell. Others from the crypto space pointed out continuing

Starting point is 00:14:09 questions around the SEC's approach. Kaborg or Box, who has worked with Van Eck for a long time and now runs Pointsville, says approving a derivatives-based short Bitcoin futures ETF before approving a long-spot Bitcoin ETF can't possibly be consumer protection focused. Regulation needs to be fair, logical, and consumer protection focused. Else investors in the financial industry will move elsewhere. Will Clemente writes, so there's now a short Bitcoin ETF, a futures ETF, a closed-end fund trading at a 30% plus discount, a 401k option for Bitcoin, but no spot ETF. It is clear that Gary Gensler and the SEC have an agenda against Bitcoin. Whether that's true or not, it continues to be notable that there is no spot ATF, and that continues to be one of the things that people point to as a

Starting point is 00:14:57 possible catalyst for a return out of this market gloom. For my part, I just don't know. Again, to reiterate, this sort of market speculation is entirely for your own mental processes and considerations. In no universe am I qualified to know when we'll bottom out and what number that will be. I've said before that I don't believe that we can get a real durable shift in the overall crypto market cycle without a change in the macro. I don't see how right now with inflation continuing at 8.6%, we don't have a lot more in front of us when it comes to that macro situation. However, coming back to this question of whether 176 was the bottom and whether we're in the range of the bottom now, I will only very subjectively add this to the conversation. In my experience,

Starting point is 00:15:47 bottoms are not a number you hit. They're a place you live. It is cliche and probably not helpful to try to say that because of X or Y factor or optimism or valuations or not, the bottom must not be in. For myself, though, I would be shocked if whenever we find the bottom, we don't spend a lot longer there than any of us would like. And on that optimistic note, I want to say thanks again one more time to my sponsors, nexo.io, near NFTX, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - How Real Is This Relief Rally?

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