The Breakdown - Is the Bull Market Back?

Starting point is 00:00:00 I think that because this is an election year in the U.S., things like the CPI report and the jobs report can't be viewed in political isolation. These are political events that have significance beyond just their immediate market impact. What's more, there are, of course, many other geopolitical events such as the troop buildup on the border of Ukraine and Russia, that could have dramatic impacts on global politics and global markets. 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 nexo.i.o, arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Monday, February 7th, and today we are discussing whether the bull market is back. First, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review,

Starting point is 00:00:56 or if you want to dig deeper into the conversation, join the breakers Discord. You can find the link in the show notes or you can go to bit.ly slash breakdown pod. A disclosure as always, in addition to them being a sponsor of the show, I also work with FTX. And one more thing before we get into today's show. This week, I am thrilled to have a special sponsor in Meld. Now, if you've ever wondered how the rich are able to spend their money and still say rich, it's because they borrow against their assets. Meld is creating a protocol that can be used by anyone and which offers this exact service, but in a decentralized way. Users of Meld's protocol

Starting point is 00:01:36 will be able to borrow dollars, euros, and other fiat currencies against their cryptocurrencies. If you want to learn more about the first defy non-custodial banking protocol today, go check out Meld.com. That is MELD.com. All right. And with that, it has been a good weekend. I'm sure you've been checking your portfolio apps, no doubt in my mind. As I'm recording this, Bitcoin is up around 43,500, ETH is comfortably over 3,000. And so what we want to do today is discuss whether the bull market is back. Now, some caveats before we get into the show. First, is that any time I talk about short-term price movements, I want to be clear that I am explicitly not talking about the long-term. One could deny the premise of this show entirely and say that nothing has changed in terms of the

Starting point is 00:02:23 fundamental thesis, and that's true. However, number two, short-term market action does impact who is in this space, how they engage, and what's likely to come next. In other words, you might think it's dumb that someone who holds Bitcoin also watches the Fed, but if they are an institution that has a specific type of investment mandate, well, they are part of the holder base now, and it's important and relevant to understand their psychology and how other things going on in the world impact that. Three, I think in this case specifically, there is a particularly interesting around how correlated Bitcoin and crypto are with the rest of traditional equities markets, and so we're going to get into that in just a little bit. But first, let's talk about what's

Starting point is 00:03:03 been happening. So going back to Friday, there was a 7% move up at the New York market open to reach around 40,000. And obviously that's a big, nice psychological number because we've been under it for a little while. A couple hours later, there was another 2.5% up in the hours leading up to the Asian markets opening to reach 41,500. markets then traded in a pretty tight band all weekend around that 4,500 number before finally breaking through 42,000 on Sunday night. Now, some had wondered if part of this was a market structure question. There were $730 million in options that expired on Friday.

Starting point is 00:03:40 The price had expiry was around $38,000, and there was a fight over that $38K level. Above $37,000 was a key level for Bulls because if the contracts closed above $37K, it would reduce losses by about half. Another indicator that we could look at is the Fear and Greed Index. The Fear and Greed Index came out of the extreme fear zone and back into the just regular fear zone for the first time since December. The low in extreme fear was an 8 out of 100 in January and moved up over the weekend to 37 out of 100, indicating a bullish shift in the sentiment. At the time of recording, it is around 45, which is actually pretty neutral. The commentary sort of followed this bullish change. Kevin Svensson wrote, Bitcoin is currently challenging a very key price level.

Starting point is 00:04:27 42.3K was the support wick low on the nasty December 3rd dump. Getting above this would be a major signal of strength for the Bulls. Crypto Burb writes, after months of deep correction, Bitcoin breakout to the upside is now confirmed. As the market is heading towards the end of the week, Bitcoin has already shown a steep momentum boost. The Bulls have regained the upper hand. Is 50K possible? William Clemente wrote last Friday, diagonal lines are pretty much a meme, Key resistance is still 41K. Close above that, and we can start eyeing confluence of yearly open and

Starting point is 00:04:57 short-term high realized price around 47K, one step at a time. So obviously those numbers, you already know them, you don't need to be told them, but the question I imagine that's much more relevant is, how real is this? Is this just a bullish correction, or does this mark a more fundamental shift? At the end of the week on Friday, Macroscope tweeted, as last week progressed, Bitcoin went from a top sell candidate for portfolio managers when they needed to raise cash, to the asset at the the bottom or off their sell sheets. Settle under the tape shift that started happening even before Friday's surge. Let's see if this continues. One indicator that some have pointed to is long-term hoddle waves. Lin-Alden shared a chart that showed the percentage of Bitcoin that had been held for

Starting point is 00:05:38 greater than a year, and what you can see is that a structural low point in terms of long-term hoddling has reversed and is started to go back up in 2022 after bottoming in Q1 of 2021 and then plateauing for the rest of last year. One year plus hoddlers now represent around 55% of total supply, and it's looking to test all-time highs. Now, Lynn had also made another interesting point about when to actually pin changes in the Bitcoin market all the way back in January, when she wrote, Bitcoin has been in a bare market in terms of demand since Q1 2021, back when arc peaked. However, the supply side has been unusually tight for this year, holding up price to a surprising degree, even touching slightly new highs at one point since then. Dry kindling, no spark. Onchained college goes a little bit

Starting point is 00:06:25 deeper on some of these same trends. They wrote, Bitcoin long-term holder supply has increased 11.2% in the last year. 76.4% of the circulating supply is held by long-term holders six months plus. This increase is driven by the six months to 12 months age band plus 8.8%. Bitcoiners who joined the movement last year are hoddling for the long haul. Nexo is a trusted and easy-to-use crypto platform where you can buy cryptocurrencies at the touch of a button and start earning up to 18% annual interest that is paid out daily. They support all of the major assets on the market and even allow you to swap one asset for another or borrow cash against your crypto without selling it.

Starting point is 00:07:09 Nearly 3 million people in over 200 countries trust Nexo with their digital assets. So whether you're just getting started or you're a season pro, get the most. of your crypto today with NXO at N-EXO.io. Meet Arculus, the next generation cold storage wallet. Arculus secures your crypto using three-factor authentication, providing a simpler, safer, and smarter way to store, buy, swap, send, and receive crypto. Arculus is offline cold storage. Your private keys are encrypted on the Arculus keycard and are never online.

Starting point is 00:07:46 Stay safe from hackers with no cords, no charging, no Bluetooth. Just crypto security made simple. Buy now at getarkulus.com. That's G-E-T-A-R-C-U-L-S dot com. The breakdown is sponsored by F-TX-U-S. F-T-X-U-S 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.

Starting point is 00:08:21 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 FTCS app today and use referral code breakdown to support the show. Now, this is all sort of on-chain data, but it's also worth checking out sentiment. I think broadly you're seeing a shift away from discussion of just this sort of short-term price action and the Fed to a return in some ways of more fundamentals and the arguments that get people excited about Bitcoin in the first place.

Starting point is 00:09:01 To take one example on Friday night, Jack Dorsey and congressional candidate Areka Rhodes hosted a Twitter space on the topic of Bitcoin in relation to universal basic income. The specifics of the discussion matter less than the fact it's what people chose to spend their Friday night discussing. Suu has also been writing about this exact phenomenon, saying,

Starting point is 00:09:21 My Bull Case for Crypto has nothing to do with money printing risk on or risk off. It has to do with the great awakening of the sovereign individual and the understanding of the potential of peer-to-peer distribution networks to reshape the nature of reality. He also tweeted a new framework. Generalized epics of crypto bidding. 2020 macro bid. 2021, tech bid. 2020, geopolitical bid. Another framing. 2020, uninflatable. 2021, programmable. 2022, censorship resistance. This is a something you'll see a lot if you go check out Bitcoin Twitter or crypto Twitter in general right now, this discussion of censorship and censorship resistance. There's definitely something in this

Starting point is 00:10:02 site, Geist, if you've been paying attention at all to trucker protests in Canada around vaccine rules. When GoFundMe shut down their fundraising platform, a number of Bitcoin-based fundraising alternatives popped up. One created by Hodelnaut has raised nearly 400,000 in Bitcoin from nearly 4,000 people. Then, of course, there's everything swirling around the debate around Joe Roe. and freedom of speech and what obligations he does or doesn't have to how he presents guests and what he discusses and what Spotify's rights are or aren't in terms of how they censor him or not and so on and so forth. And the point isn't that you have to be on any one side of these arguments or another, just that they're all bringing up a conversation about the power in media,

Starting point is 00:10:43 the power of voice and censorship resistance. Now what this creates in some ways is a tension between the bigger picture and the short term. Is everything happening in Bitcoin and Crypto being driven by this larger prerogative and this larger quest for censorship resistance in the human experience? Or is it all about what Jay Powell says next? Jeff Dorman tweeted this weekend, crypto-twitter, tokens are the future of democracy, wealth equality, technology, and escape from global untrustworthy elites that ruin this world with debt and inflation. Also, crypto-twitter, I'm short because Arthur and 13 ECB and Fed officials over 65 years old are jaw-boning. I trust them. Suu also added, one of the fastest ways to docks yourself as a crypto pleb is to ask,

Starting point is 00:11:22 what's the reason for the Bitcoin pump today? Its path to $1 million is preordained. On any given day, it needs no reasons. I agree with the emotion behind Sue's post, but I don't think it's quite that simple. One of the things that has happened, obviously, over the last two years, has been a natural increase in correlation. Let's remember and review the tapes of who has gotten involved in the Bitcoin community. It has, of course, been traditional investors, institutional investors, people who have obligations to things other than Bitcoin and who in many cases have institutional mandates or rules around their portfolio construction that is unfortunately dictated by things like what the Fed does. In that context, of course, there is more correlation than there was before with traditional markets.

Starting point is 00:12:05 We've been discussing for the past several months just how correlated Bitcoin has been with other risk assets, so the question becomes, where does that stand now? Will Clemente tweeted Bitcoin's one-day correlation to the NASDAQ is starting to fall from historically high levels. On Friday, Alex Kruger tweeted, today is the day both equity and crypto markets, more so the latter, decoupled from rates markets and fed fears. Risk assets mostly up while rates push sharply higher post-unemployment data. Jeff Ross from Vailshire Capital wrote a long thread, which I'll excerpt here. Hardcore bitcoiners like myself understand that Bitcoin is actually the ultimate anti-fragual risk-off asset. It should be the asset that everyone flees

Starting point is 00:12:43 into when they are uncertain and scared about the present and future. However, those of us who understand this fact are very much in the minority as of early 2022. I do slash did not anticipate the majority of the world's market participants to treat Bitcoin as anything other than a risk-on asset until 2024-25 at the earliest. Coming full circle, the price of Bitcoin has recently decoupled with other traditional risk-on assets. Explanations? An anomaly. One or more large buyers stepped in to trigger a temporary short-squeeze, random price action, or a true decoupling from risk-on assets in the minds of most market participants. Possible explanations continued.

Starting point is 00:13:20 The second quarter 2022 macro setup will be less bearish than data has suggested, and Bitcoin is sniffing out the improvement. As of today, I don't know what the answer is. And frankly, I really don't care. It is possible, though unlikely, that we've reached the great Bitcoin decoupling several years sooner than I anticipated. Back to NLW, and one thing that many seem to think is that to the extent that we are shifting out of the bleakness of the last month,

Starting point is 00:13:44 it's possible that the market has just fully groked and priced every negative bearish possibility in. A couple weeks ago, Jeff Dorman again tweeted, Is it possible the January 22 bottom is forming right now, within everything that could go wrong has go wrong, but prices just aren't reacting anymore set up? It definitely could be one data point we look back on if this is the beginning of the end of the sell-off. Regardless of when this ends, it will end, because as we wrote a few weeks ago,

Starting point is 00:14:08 no one's long-term thesis on digital assets has changed due to recent events. It's just the short-term thesis that, is in question, and market forces can change fast. Good luck. VJ. Boyapati said something similar. The market is priced in the risk of several Fed hikes this year. Now the market must price in the increasing possibility that none of those hikes happen. This is an obvious catalyst for Bitcoin. Miles J. Creative writes, reminder, Bitcoin ran 450% in 2017 after Fed tightening started. In Arizona and Hodel, writes, now that Bitcoin has hooked itself up to the hip of high growth equities, the Fed is screwed. Bitcoin is cunning and sneaky. The Fed tightens.

Starting point is 00:14:44 and a deflationary death spiral ensues. The Fed loosens to protect equities, and Bitcoin outperforms everything. So that's a bit of a picture of what's going on, but let's talk about what's coming up this week that could give us more clarity, and let's go to a thread from Alex Kruger to do that. He writes, only one major risk event next week, U.S. inflation data on Thursday. Markets may then take a break from major headlines until ECB March 11th meeting and Fed, March 16th meeting. Think odds favor risk assets trending higher next two to three weeks unless inflation data is dreadful. The bare market is not over, though. Easy markets would only make a comeback once the Fed ceases to be this hawkish and willing to crash markets. Things would get ugly if inflation

Starting point is 00:15:23 surprises to the upside on Thursday. Now, I will add one note of things coming up this week. There is also a new digital asset hearing in the Senate. The witness list has been released in its Rustin-Benem, the chairman of the CFTC, Sandra Rowe, the CEO at the Global Blockchain Business Council, Perry Ann Boring, the CEO at the Chamber of Digital Commerce, Kevin Warback, a professor at Wharton School and Sam Bankman-Free, the CEO of FTX. I think the thing to take away for me and the thing that I'm watching most closely is that idea that Sue presented of 2022 being a geopolitical bid. I think that because this is an election year in the U.S., things like the CPI report and

Starting point is 00:16:02 the jobs report can't be viewed in political isolation. These are political events that have significance beyond just their immediate market impact. What's more, there are, of course, many other geopolitical events. such as the troop buildup on the border of Ukraine and Russia, that could have dramatic impacts on global politics and global markets. Still, I would be lying if I said it wasn't nice to wake up to a bit of green after a gloomy start to 2022. I want to say thanks again to my sponsors, nexus.io, Arculus and FTX,

Starting point is 00:16:33 and for this week, Meld, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Is the Bull Market Back?

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.