The Breakdown - Is the US Preparing to Sell Silk Road BTC?

Episode Date: July 31, 2024

Just days after Former President Trump pledges not to sell seized Bitcoin, the US government has around $2B worth of BTC on the move. Is it just custodial reshuffling or the prelude to a sale? And most of all, is it politically motivated? Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

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. What's going on, guys? It is Tuesday, July 30th, and today we are talking about the U.S. government moving coin. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello, friends. Today is something of a part two, a very unfortunate part two to yesterday's episode. So let's talk about what's going on and the copious interpretations out there on Bitcoin

Twitter. U.S. government Bitcoin is on the move again, sending a shockwave through the markets. 28,000 Bitcoin valued at around $2 billion were transferred to an unidentified wallet on Monday. The coins were seized from the Silk Road in 2020, but a forfeiture order was only granted late last year. This means the Bitcoin are eligible to be sold, but the story doesn't seem to be that straightforward. After the first transfer was complete, the Bitcoin was split into two addresses with each holding exactly 10,000 BTC. Argo of Intelligence said, we believe this represents a 10,000 Bitcoin deposit to an institutional custody service. Note, spreading deposits across multiple wallets for a single customer is a typical risk management process for custodians. For example,

the Coinbase custody setup for the BlackRock ETF has their Bitcoin holding spread across hundreds of wallets each containing 600 Bitcoin. In July, the U.S. Marshall signed a deal with Coinbase to provide custody services for the government Bitcoin. Moving the Bitcoin into a fresh wallet controlled by Coinbase seems like the most logical explanation for this unusual flow of funds. It is worth noting, however, that the deal was to provide, quote, custody and advanced trading services, so the coins might still be sold. At this stage, we still have good on-chain visibility into how the Bitcoin is moving, but this could become more complicated if Coinbase tries to obscure the flow of funds. Put simply, we don't know for sure whether these coins are being

prepped for sale or just deposited into custody. Markets, though, weren't waiting around to find out and reacted strongly to the transactions. Bitcoin plunged by 5% from its early morning high of $70,000. The movement of government Bitcoin comes just days after Donald Trump's big speech, and that escaped the notice of basically no one. On Saturday, Trump pledged that his administration would follow what he called the cardinal rule for bitcoiners, never sell your Bitcoin. And that's and thus the immediate movement of Bitcoin by the U.S. government was viewed by many as a slap in the face. Senator Cynthia Lummis, who also spoke on Saturday, tweeted, this is the first action taken after the Harris quote reset with Bitcoin and crypto.

When someone shows you who they are, believe them. D.C. investor wrote, if they rushed to dump this right after Trump's speech where he said he'd stop selling confiscated assets to start a crypto reserve, then indeed there is no reason to take Kamala and the Dems seriously on crypto. Still time for Kamala to clarify a stance of her own, but there's not much and no clear signal it's a priority for her, though her campaign is around one week old. The whole party may not hate crypto, but if the people in charge do, then that's all that matters. It would be smart of them to issue a statement on their intent, plain custody versus selling, but I doubt they will. Most commentators jumped at the conclusion that this had to be

deliberately timed. Podcast host Walker America wrote, The U.S. government decided to sell Bitcoin now just to spite Trump and RFK Jr. would be a disservice to the American people and a dereliction of their duty as public servants. cross of the Bitcoin Policy Institute urged everyone to take a deep breath, tweeting, To be clear, while I love a good conspiracy, if I had to bet, the Silk Road coins are moving on a schedule that was drawn up long ago for boring logistical reasons independent of political calculations. Jeep was pointed out that any level of planning might have been a little more diffuse,

tweeting, all it really takes in an administration without leadership for a thing to happen is one bureaucrat in the line to think it's a good idea. If the plan is to sell all the coins in an attempt to nullify Trump's new voting base, well, be my guest, please do, sell away. For those that have stuck their neck out for the Harris campaign, this was seen as a massive strategic error. Anthony Scaramucci of Skybridge Capital wrote, It's very odd that good policy supported by Donald Trump has now become a rallying cry for the hard left to do the exact opposite, just for spite of no other reason.

The result is they're going to disenfranchise 30 million people who could potentially vote for the Democrats in November. Mike Novogratz was a little more blunt, tweeting, tone-deaf anyone? Moving Silk Road Bitcoin two days after Trump's pledge to not move them is just dumb. For those that were against the Bitcoin Strategic Reserve, this was a pretty stark demonstration of why they want the government's hands off of Bitcoin. Blockchain Boris wrote, I don't like any of this strategic Bitcoin reserve nonsense. Just a matter of time before

government bureaucrats treat the Strategic Bitcoin Reserve just as they do the Strategic Petroleum Reserve and use the reserve to manipulate markets. Ultimately, whether these coins are being moved for sale or simply stored at a custodian, there is still the potential that they find their way to market over the coming months. We've seen government selling before, and now we have a recent example of the market absorbing several billion dollars worth in short order with the German liquidation. What's different in this case is the overt political overtones. It's no longer a given that the government needs to liquidate their Bitcoin. Following the Trump speech, it's difficult for many to justify why this couldn't just wait until after the election, giving people a chance to vote

on the policy. What's more, the move gives Trump additional fodder for his campaign. Macroscope, for example tweeted, if the government now sells Bitcoin after Trump's pledge, watch for him to hit back hard by promising to instruct the Treasury to re-buy it to restock U.S. reserves. I don't know, man. For me, Occam's Razor is usually the right answer. I find myself agreeing with Troy Cross that the most likely reason for this is just that it was pre-scheduled and that it doesn't signal any big intent or reason to hit back at Trump. Not because I believe the government is incapable of making that decision, but just because the stupid, boring, bureaucratic reason tends to be correct in most cases. However, at the end of the day, it shows just how charged our little corner of the world

has become. We now get to see political implications to everything where we wouldn't have before, which I guess is an indicator of how far we've come or not. It sounds as though Congress is calling it a day on crypto legislation. Hello, friends, before we get back to the rest of the show, I want to implore you to join me at Permissionless. Permissionless is the conference for crypto-natives by Crypto-Natives, and the reason it's so important this is, here is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today the tide is turning.

Policymakers have pivoted from fighting crypto to embracing it. Literally now we are in a major political party's platform, which will lead ultimately to the creation of new financial products, new applications, and ultimately new adoption. Permissionless is the conference for those using and building on-chain products. It's home to the power users, the devs, and the builders. And perhaps more importantly, I will be there. The location is Salt Lake City, the dates are October 9th to the 11th, and tickets are just $499. If you want to get 10% off, use code breakdown 10.

Go to the Blockworks website, blockworks.co. There will be links to register for the conference, and again, you can use code breakdown 10 to get 10% off. One of the big movements out of D.C. over the past month was Democrat Senator Debbie Stab now, pushing forward her own version of a regulatory framework for crypto. The Senate Ag chair has been working on the bill for months and was planning to hold a markup hearing this week. Those plans have now been pushed back to September, after Republican co-sponsor John Boosman refused to sign off on holding the markup session. The draft bill hasn't been publicly

circulated at this stage, but it seems as though numerous industry concerns have been raised. The bill would substantially expand the powers of the CFTC, so it's understandable that industry leaders would want to make sure the bill is well thought out. State now had promised to finalize and release the text of the bill by August. Cody Carbone, the chief policy officer at the digital chamber, said in a statement, the legislation has been going through several iterations as industry leaders and committee members are continuing to provide input to Senator Stave Now's team. At this moment, it appears that consideration of the legislation will move to after August recess in order to build more consensus. It's positive that Senator Stab Now continues to reach out to

stakeholders for feedback. A press release from Stab Now's office seems to imply a rift opening up between the two parties. Stabnow said she was proud of the bill and has been working to ensure it would not stifle the industry. She claimed there was still time to pass the bill this year, but, quote, I need a Republican senator to step up in order to accomplish that goal. I sincerely hope that politics does not get in the way of good policy. Usman seemed to confirm that something had fractured in the process, firing back his own statement, which said, digital commodities and the regulatory issues they raise are complex. Standing up a market regulatory regime for the first time ever requires due diligence and outreach

necessary to consider all unintended consequences and warrants a process that gives members adequate time to deliberate the legislation they are being asked to approve. We have time to get this right. I remain committed to a bill we can all proudly support. Masari founder Ryan Selkis suggested this bill was a little too close to the one pushed by Sam Bagman-Fried back in 2022. Selkis tweeted, the FTX 2.0 bill, Stabnow bill is mostly dead unless there are major revisions.

If Kamala Harris had any juice or interest in pivoting, she'd help secure those revisions. Meredith Lee of Politico suggested that Stabnau might have even lost support even within her own party, commenting, multiple Senate Dems, not just Republicans, were poised to oppose Debbie Stabnow's crypto bill, had she gone ahead with a committee markup this week. And thus, blockchain association director of government relations,

Ron Hammond thinks there's now not much of a chance of anything happening until after the election. In his weekly roundup, he wrote, What was supposed to be a hectic week for crypto in D.C. has been largely kicked to September. Presidential politics is taken over everything and crypto is caught in the middle. When folks say D.C. grinds to a halt closer to the election, this week is a good example. As Congress focuses on campaigning in August, don't expect things to drop off for the rest of the year in D.C. for crypto legislation or hearings.

Regardless of November results, everything will reset in January 2025. Over in SEC land, in the latest example of them backing down, they have sought to amend their complaint against Binance. The SEC sued Binance in June of last year, claiming that BNB, BUSD, and a host of other tokens were unregistered securities. Early in July, the court made its first substantive ruling tossing out several of the SEC's claims. The court found that neither BNB nor BUSD were securities in the context of secondary trading on the platform. The SEC will still pursue Binance over initial sales of BNB. The SEC are now seeking to amend their claim regarding any secondary market transactions.

They had originally claimed that Solana, Cardano, Polygon, Cosmos, and several minor tokens were securities. In their filing, the SEC said that this change removes the need to, quote, issue a ruling as to the sufficiency of the allegations as to those tokens at this time. This means the SEC is no longer asking the court to consider those tokens at all. This is not, however, the same as the SEC formally acknowledging that these tokens are not securities. As the law currently stands, tokens seem to be covered under securities laws when it comes to ICOs and other types of primary sales. All this means is that the SEC no longer wishes to argue in court the tokens remain securities once they hit the open market.

The SEC had already lost the ripple case on this point and seemed to be heading towards several other losses along these lines. It's probably reasonable to read this as the SEC conceding the point and backing down from seeking jurisdiction over secondary markets via the courts. It seems unlikely that this action alone would pave the way for a Solana ETF, but it certainly doesn't hurt. We also seem to be heading back towards crypto exchanges being outside of financial market regulation, reinforcing the urgency to get some legislation on the books. Reinfourcing a point that many

have made, investment bank Bernstein thinks that crypto is no longer a bipartisan issue. Republican support is fairly entrenched at this point following Trump's policy announcement of a strategic Bitcoin stockpile. Analysts wrote, A National Bitcoin Strategic Reserve has implications on how nation states would adopt Bitcoin as a store of value and build Bitcoin Reserve similar to gold reserves. Van Spencer of Framework Ventures put a little more flair on a similar take, commenting, I believe Trump's watershed decision to support a strategic Bitcoin reserve may mark a pivotal moment of no return for our industry. To play it out, if Trump regains the presidency and actually implements this policy even partially, he will have effectively initiated a new space race,

compelling every country, every financial institution, to at least consider gaining some exposure to this asset. What follows from that is, of course, that the key thing to watch will be if Trump is able to implement this policy. On the Democrat side of the aisle, Bernstein seems to think that the fairly minimal reset is too little, too late. Over the weekend, reports surface that the Harris campaign had been reaching out to industry contacts at Coinbase Circle and Ripple. Analyst commented, we believe this olive branch is a tad late and the industry would seek more concrete action, i.e. reversal of previous wrongs before warming up to the Democrat campaign. Overall, their point was that, quote, the crypto community and industry seemed clear that

crypto is no longer a bipartisan issue. They noted that Bitcoin price action has become increasingly correlated to the odds of a Trump victory over recent weeks, adding, we believe the crypto markets will trade completely top down on political developments until the election results. in early November. So some interesting things going on this week. Not sure when we'll get more information around what this actual U.S. government movement represents. For right now, politics continues to absolutely dominate the discussion in this industry, which, depending on your interest level, could be a great thing or a fairly annoying thing, but in either case, it is where we are right now. Anyways, that is going to do it for today's breakdown. Until next time,

be safe and take care of each other. Peace.