The Breakdown - How the Macro Landscape Is Shaping Bitcoin Markets

Starting point is 00:00:00 While the Fed for a while kept insisting that this inflation was nothing but transitory, they're now starting to walk that back, saying that it's at least time to begin talking about talking about what it would look like to taper Fed support for the economy. The concern, of course, is that if they let inflation run too hot, it could get out of their control. So, as Fed support has looked less assured for markets, it has hit many of the things that did so well over the last year, particularly those risky-assie. like tech stocks and yes crypto. Welcome back to The Breakdown with me, NLW.

Starting point is 00:00:37 It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io and produced and distributed by CoinDes. What's going on, guys? It is Tuesday, June 22nd, and today we are talking about how the macro landscape is shaping Bitcoin markets. but first, let's start with something completely gross. The pseudonymous creator of Bitcoin.org, Cobra, has been ordered by the High Court in London to stop hosting the Bitcoin white paper. Basically, Craig Wright's latest delusions of grandeur involve running around trying to sue everyone who has the Bitcoin white paper on their website for copyright infringement.

Starting point is 00:01:21 Cobra lost the case basically by default, saying, quote, Unfortunately, the court rules allowed for me to be sued pseudonymously. however, I couldn't defend myself pseudonymously. So I was put in an impossible situation of losing my privacy or losing the case in a default judgment. It sucks, but there's nothing more I could have done, really. I think the whole thing is disgusting, but Cobra said it better than I could, so I'll just read his other statement about this. All your fiat-based assets are ultimately secured by the same legal system that today made it illegal for me to host the Bitcoin white paper because a notorious liar swore before a judge that he's Satoshi, a system where justice depends on who's got the bigger wallet.

Starting point is 00:01:59 I don't think you could get a better advertisement of why Bitcoin is necessary than what happened today. Rules enforced through cryptography are far more superior than rules based on whoever can spend hundreds of thousands of dollars in court. Let's move now, however, to a different topic. If you were concerned that the steady push of traditional finance into the cryptosphere was drying up, today's barrage of news should make you feel much, much better. We begin our journey. We begin our journey in Germany. The Deutsche Borse Group, a German exchange operator, has spent hundreds of millions of Swiss francs to take a two-thirds majority stake in Crypto Finance AG. Crypto Finance AG is a regulated Swiss platform for crypto trading, storage, and investment. And here's what they had to say

Starting point is 00:02:39 about the deal. Quote, digital assets will transform the financial industry. There is increasing demand from established financial institutions who are looking to become active in this new asset class and want a trusted partner. From Germany, now let's move on to the UK. The world world's biggest interdealer broker TPI cap is partnering with fidelity, standard chartered, and flow traders to launch a crypto trading platform for institutional investors. Their argument is that the existing infrastructure creates structural barriers for that type of trader. Simon Forster, who is their co-head of digital assets, pointed to execution venues requiring pre-funding and also acting as custodians as a challenge that ultimately leads to fragmented liquidity. Now, this company

Starting point is 00:03:20 might not be a household brand, but they have 5,000 employees and had revenues of about 1.8 billion pounds last year, so this is not a small player. From there, however, let's hop back across the pond. We know that Morgan Stanley has been making moves in Bitcoin. They've launched two funds with NIDIG and FS investments available for their wealth management clients to get exposure to Bitcoin. In April, they also updated policies to allow a group of their funds to invest indirectly in Bitcoin through cash-settled futures and through the grayscale Bitcoin trust. According to an SEC filing, they've now purchased 29,200,000. 189 shares of GBTC via their Europe Opportunity Fund.

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Starting point is 00:04:28 That's N-EXO.io to get started today. Finally, one more. If you thought that Kathy Wood, one of the first champions of Bitcoin on Wall Street, the absolute emperor of innovation ETFs, was going to sit back and allow all the rest of the Jokers to have all the fun with their Bitcoin ETF applications, you are absolutely nuts.

Starting point is 00:04:53 Arc has joined the great game for a Bitcoin ETF. They're partnering with 21 shares, to have built an array of exchange traded products for crypto primarily in Europe. Now, this partnership isn't surprising as Kathy Wood joined the board of Amun Holdings, the parent company of 21 shares in May. The founder of that company has also been on the breakdown previously if you want to go check it out. Of course, when it comes to a Bitcoin ETF, the SEC keeps delaying and delaying, and frankly, the betting on an ETF being approved this year has sort of gone down.

Starting point is 00:05:22 But at some point, if only out of a sheer desire to stop having to consider applications, you have to think one will land. Finally, however, let's get to our title topic, how the macro landscape is shaping Bitcoin markets. If you're a regular listener, you know that I've made the argument a few different times that the biggest thing putting downward pressure on the markets has been broader macro insecurity versus specific fud. This isn't to say that fud doesn't matter. I think that the environmental fud has been particularly resonant in the context of ESG investing taking such a bigger seat at the table, and that's a trend that seems likely to continue under the Biden administration. I also think that it's impossible to look at how markets have reacted to China

Starting point is 00:06:07 news and not see that as a major driver. What's more, as I've had to bring up a number of times, TetherFud will not go away, and in fact, issues around stablecoins seem likely to be a key focus as regulators get deeper and deeper into their own central bank digital currency development processes. Still, my argument has been and is that effectively the wind in crypto sales over the past year was the abundance of cheap money flooding into markets that propelled everything up, and in so doing, propelled traditional investors farther out on the risk curve in an endless hunt for yield that was backstopped by Fed support. Things are now changing. We're coming out of COVID lockdowns into the vaccine era. The economy is heating up. We're seeing 5% inflation prints, and while the

Starting point is 00:06:53 Fed for a while kept insisting that this inflation was nothing but transitory, they're now starting to walk that back, saying that it's at least time to begin talking about talking about what it would look like to taper Fed support for the economy. The concern, of course, is that if they let inflation run too hot, it could get out of their control. So as Fed support has looked less assured for markets, it has hit many of the things that did so well over the last year, particularly those risky assets like tech stocks and yes, crypto. Despite the fact that many of these Wall Street investors do have conviction around Bitcoin's long-term inflation hedge properties, simply by virtue of its mathematical, pre-programmed, unchangeable monetary policy and fixed supply, short-term, that doesn't

Starting point is 00:07:40 mean they're not going to trade it like a risk asset. We see this overlap clearly over the last couple months. If you look at, for example, an ARC innovation ETF chart versus a Bitcoin chart. There's clearly some correlations in that risky things, technology things, have done less well, as the market has had a lack of clarity about what was coming next from the Fed. Well, that started to shift over the last couple weeks. On Monday, both the S&P 500 and NASDAQ closed at all-time highs. For the S&P 500, it was the third straight close. Tech stocks were doing particularly well in this context. Apple and Salesforce were up 1% and Facebook was up 4% after a federal court dismissed the FTC's antitrust case against them.

Starting point is 00:08:21 That sea of green has flowed into crypto today as well. Bitcoin is up 5% in the last 24 hours, ETH is up 10%, etc. Now, I think it would be way overstating the case to say that crypto markets are now totally correlated to the stock market. Relative to many other assets out there, they still move much more independently. What I'm arguing is actually just really simple. It's that as Wall Street and traditional finance more deeply intermingle with crypto, there's going to be more correlation, particularly when it comes to how investors feel about the overarching macro state of the markets. Right now, for better or worse, the biggest factor in that overarching macro state at the markets is what central bank support looks like. Speaking of which, there's another X factor that's worth

Starting point is 00:09:05 noting in those markets. There's a rising discussion of the COVID-19 delta variant. A Bloomberg headline today reads, deadly delta variant starts to ripple through emerging markets. Victor Shevitz, an analyst at Macari Capital in Hong Kong, said, we might justifiably ask whether investors should question the consensus of a return to anything that resembles pre-COVID normality, or, at the very least, whether we might need to endure rolling and haphazard restrictions that will last for years. The probability of a Black Swan event is rising. What might that look like?

Starting point is 00:09:36 Well, the thing that people are really worried about is returns to lockdowns. Australia is now currently basically half in lockdown. about 12 million people are under restrictions because of the spread of this variant. However, there are some big caveats. The places that are really being hit by this don't have nearly the proliferation of vaccines that places like the U.S. do. Second, I'm definitely not saying to not trust the media, not at all. However, this sort of headline, like I just read from Bloomberg, is a perfect next part

Starting point is 00:10:03 of the COVID story arc. In other words, without a return to something bad, the storyline of COVID gets kind of boring. So there may be some tendency to overstate things because it feels like the next narrative development. Third, and this is the weirdest one, but because we live in such a central bank-propped-up market context, concerns around delta variants and things like them could actually lead to more sustained support for Dovish monetary policy that has been fueling the markets. So those are the grains of salt, but I do think it's worth watching this narrative as well, because it's something that could shift our understanding of that overall macro context. Either way, guys, I'm sure that many of you are just happy to see green again in your portfolios,

Starting point is 00:10:43 and I don't want to take any of that from you. So thank you for listening. I appreciate it. Until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - How the Macro Landscape Is Shaping Bitcoin Markets

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