The Breakdown - How Strong Is Bitcoin’s Push Above $12,000?

Episode Date: October 21, 2020

Today on the Brief: DOJ files biggest antitrust case in two decades against Google  Goldman Sachs’ 1MDB settlement  LINE’s new CBDC platform  Our main discussion: bulls vs. bears as bitcoin passes $12K Someone recently tweeted, “Bitcoin price has never been this high with such bearish sentiment.”  On this episode, NLW looks at the bullish case (growth in open interest on CME backed by strong macro narrative around stimulus) and bearish case ($12K sell wall and bleeding from alts and DeFi).   

One of the things that we could be seeing right now is profits from alts and especially the D5 madness from over the summer cycling back into the big cahuna, into the reserve asset of the entire crypto space. All it takes is a little bit of a technical adjustment plus a heaping dose of narrative to make big things happen in an industry that's still relatively small. 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, nexo.io, and elliptic, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, October 20th, and today we are talking about how strong this Bitcoin push to 12K really is and why some are bearish even as it happens.

First up, however, let's do the brief. First on the brief today, major news in antitrust as the Justice Department announces a suit against Google. The lawsuit alleges that Google has engaged in anti-competitive conduct to preserve monopolies in both search and search advertising. Google, of course, controls 80% of searches in the U.S. according to this lawsuit. The Wall Street Journal is calling this the most aggressive. aggressive U.S. legal challenge to accompany's dominance in the tech sector in more than two decades. The lawsuit focuses specifically on things like Google's search app being preloaded and not being able to be deleted on Android phones, as well as rev share agreements that they have that stop

other search apps from being preloaded. The Justice Department is accusing basically Google of having such a high network effect that other companies can't innovate. Competition can't push innovation forward. One issue they might face, however, is that traditionally antitrust has argued that anti-competitiveness has an actual price harm to consumers, that it impacts prices in a way that's really negative in otherwise free market forces. The problem with that argument, obviously, is that Google's things are mostly free, so that might make this a slightly different type of case. The Justice Department has not recommended specific changes, but says they're open to lots of different types of resolutions. Ultimately, this will be a landmark battle with huge implications for other antitrust suits.

And as a final note, you might assume that this is a Democrat issue, given that Elizabeth Warren was certainly the loudest candidate when it came to antitrust in tech, but the 11 state attorneys general who have joined this lawsuit are, in fact, all Republicans. So something different maybe than you would have expected. I'm recording later today with Matt Stoller, the author of Goliath, which is a lot of, is all about the history of antitrust in America, so the timing will be perfect to get his take on this and where it fits in the historic precedent. Next up on the brief today, a big settlement for Goldman Sachs around 1MDB.

The 1MDB scandal is worthy of documentaries, entire seasons of podcasts, but long story short, put this one in your little file for when they tell you that it's Bitcoin that is for criminals. Goldman Sachs will pay the U.S. $2.8 billion and admit wrongdoing around working with a corrupt government investment fund in Malaysia. In July, Goldman agreed to pay Malaysia $2.5 billion, so all totaled they're in for over $5 billion and admitted wrongdoing. The former prime minister of Malaysia was days after that settlement was announced, found guilty of abuse of power. Now, fascinatingly in the U.S., this doesn't require them to hire and sort of compliance monitor, so it's really just a big fine and nothing else. For now, there's not

really much more to say about this, but it's exactly the type of thing that makes people so cynical about the traditional financial system and so hungry for something different. Last up on the brief today, Line has a new CBDC platform. Line is a popular messaging app, particularly in China, and they are launching a new platform designed to help central banks develop customized digital currencies. Line says that they are already in discussion with, quote, major Asian nations, whatever that means. And really for me, I want to point this out because I expect this to be a huge new area of competition. The more that the CBDC narrative rises, the more that governments are going to feel like they have to supercharge their efforts, the more that it creates an opportunity for third-party platforms and consultants to just make

absolute bank as it happens. And if you need evidence of how big an opportunity this is, just look at MasterC's recent announcement of a platform allowing central banks to test CBDC features in real life. I expect every consulting firm, every bank infrastructure player right now, and certainly a huge number of big crypto players to try to compete for this sort of will-habilis. help you develop your own CBDC space, just like Lyne is now doing. With that, however, let's shift to our main discussion. First, let's talk about what is going on. Bitcoin is creeping up on 12,000, and there's a certain weird energy in the air. For some, it's a breakout question mark type of energy. So, Bully Esquire, who, by the way, just launched a new podcast. Congrats to Bully. I'm excited to

check it out. I think the first episode is out tomorrow. He tweeted, okay, I can't let Maximilus have all the fun. Back in Bitcoin, let's party. And there's a lot of that sentiment. You're seeing other people say this feels like 2016 right before a big breakout, so on and so forth. But there's also a certain hesitance. Charles Edwards tweeted, Bitcoin price has never been this high with such bearish sentiment. Scott Melker echoed this, judging by every metric I can find, both on platforms and anecdotal, interest and excitement for crypto have diminished drastically the past few months. So let's go through and try to suss this out, try to figure out the bulls versus bears as we creep towards 12K. Let's look first at the bullish sentiment part of the equation.

Like it has been for most of the year, it's a macro narrative thing. Let's jump over to Keith McCullough, who a week or two ago moved out on a short-term basis from Bitcoin, basically actually right at the low around October 8th. After a few weeks of fighting, he tweeted out the other day, nibbling on some Bitcoin, which shows that if nothing else, Keith has learned the power of Bitcoin Twitter engagement, right? This morning he tweeted, Bitcoin ramps as it should,

on dollar down and print stimulus expectations. He also tweeted about the dollar, which he's called the strongest key correlation or anti-correlation with Bitcoin, saying USD breaks bad back to bearish as probability for quad four in quarter four falls to 48.1% in the USA. The key thing here is that the methodology that Keith uses is a quad system with two axes. One is about growth expectations and one is about inflation expectations. Quad three is declining growth and increasing inflation. that is a quad that is made for Bitcoin in his estimation.

Quad 4, meanwhile, is declining growth and declining expectations around inflation. It's that lack of expectations around inflation, which often correlates to a stronger dollar, that he thinks is bearish for Bitcoin. A couple weeks ago, he was basically saying we were headed to Quad 4. This is as stimulus talks were breaking down. Now with stimulus talks back on the menu, and especially the blue wave Democrat narrative, which people expect will be really, really strong for fiscal policy,

and by strong, I mean, likely to lead to a lot more spending, that suggests higher inflation, which suggests good for Bitcoin. This episode is brought to you by Crypto.com, the crypto super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the Crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the Crypto.com metal card, which pays you up to 8% cashback instantly on all purchases.

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Coin desk yesterday published Blue Wave in U.S. Senate could mean flood of stimulus for Bitcoin. Quote, the scenario most likely to occur under a Democratic blue wave is one of overly easy fiscal policy, eventually eliciting a response from the Fed, Deutsche Bank chief international strategist Alan Ruskin wrote last week in a report. A weaker U.S. dollar could result, Ruskin wrote, which could be good for Bitcoin prices. Quote, the scale of government money committed is extraordinary, Deutsche Bank strategist Jim Reid wrote in a separate note last week. With COVID-19 spreading and restrictions mounting, this won't be the end of such fiscal support and will maybe herald a new era of fiscal largesse. To many, of course, this was confirmed by the IMF speech we focused on yesterday

that seemed to say that we needed to spend, the governments of the world needed to spend even more. So again, when it comes to the bull narrative, it's largely about these big macro drivers, which seem like a perfect setup for a huge boon for Bitcoin. A last note that's not just narrative has to do with futures. Open interest on Bitcoin futures from the CME, which is often considered semi-sanonymous with institutional interest, jumped by over 20% on Monday. They are sitting at a new seven-week high of $624 million. This is according to data from SCUE. And to get a sense of why this sort of growth in open interest is often considered good, look at what happened in August.

From CoinDesk, open interest rose sharply from $364 million to $948 million in the four weeks to August 17th. During that period, Bitcoin rose from 9,100 to levels above 12,400. So you've got some growing institutional interest, you've got a really strong narrative setup. Why then is there also bearish sentiment? First, it's been calm and Bitcoin, at least the enfranchised Bitcoin Twitter crowd, hates calm and hates a lack of volatility. Another Coin-esque headline yesterday was, Boring Bitcoin Market sends miners fee earnings to three-month low.

Basically, Bitcoin processed around 231,000 transactions a couple days ago, which was the lowest since May 24th, and this is according to GlassNode. That means the daily transaction count is down about 40% from its 382,000 peak observed at the beginning of July. Fewer transactions means the percentage of miners' revenue derived from fees is down as well, dropping to a three-month low of 3.49% over the weekend. This is simultaneously while hash rate has been hitting new all-time highs. I think that boring word is really key. It's so funny to see we're in the longest period of Bitcoin over 10,000 ever.

However, this sideways movement is just not what the energy in this space wants, at least among the trader set. But I don't think that this calmness explains the bearish sentiment that's sitting alongside the bullish macro sentiment. So what else might it be? Well, there is a wall of sell orders around 12,000, so that has some people concerned as well. Patrick Hesser at Crypto Broker AG said that there's about a thousand Bitcoin

sitting on sell orders on Coinbase up to 12K, and there's about 4,000 in that range between BitFinex, finance, and Coinbase combined. Of course, if we can break through that cell wall, it could be even more sort of gangbusters up. So again, I don't think that alone explains it. I think where some of this bearish sentiment comes from is where the money for this Bitcoin move is draining out of, and that's the alts. There's a sense that this move up in Bitcoin is coming at the expense of other assets in crypto.

Coin Telegraphs Joseph Young published a piece today called Bitcoin Trading Dominance hits 20, 17 levels not seen since 20,000 Bitcoin. Basically, he argues that the speed of Bitcoin's assent matters. When it rises gradually, it can be a rise-all-tide sort of phenomenon, while when it rises rapidly, it can suck liquidity away from everything else. Go back to Bulley's tweet. I can't let Maximilus have all the fun back into Bitcoin. Sue from Three Arrow's Capital put it really bluntly. He said, Bitcoin going up swiftly is not only not bullish for Alts, but it's not. It's bearish. Reasons for this are myriad, but boil down to the fact that money is a coordination game, and Bitcoin is the shelling point. This is independent of how you feel about it, community

is literally irrelevant. One of the things that we could be seeing right now is profits from alts, and especially the D5 madness from over the summer, cycling back into the big cahuna, into the reserve asset of the entire crypto space. This would make sense as DFI really, goes into a much cooler period after an absolutely red-hot August and a calmer but still very, very overheated September. Maybe it's finally chilling out and as that happens, there's some amount of adjustment. All it takes is a little bit of a technical adjustment plus a heaping dose of narrative to make big things happen in an industry that's still relatively small. But what do you guys think? Is this a big macro move? Is this profits being recycled from

alt. Is this just the natural cycle where Bitcoin goes up? And then when it hits a new local peak, it'll recycle right back into a resurgent defy. Let me know what you think. Hit me on Twitter at NLW. I appreciate you listening. By the way, I also appreciate the ratings and reviews. They're being hugely valuable in helping new people discover the show. So keep it coming. And thanks again. And until tomorrow, guys, be safe and take care of each other. Peace.