The Breakdown - Markets Rip Following the Elections

Episode Date: November 9, 2024

Crypto remains in a state of euphoria as the reality of a pro-crypto administration takes hold. 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 Thursday, November 7th, and today we are continuing to get our post-election takes, what it all means for crypto. 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. Well, friends, we are continuing our sort of fallout coverage of the election. I think this was pretty inevitable this week. I promise it won't last forever.

But for now, it is where people's minds are at. It is where the discussion is. And it is certainly where markets are. For many, Trump's election win, undeniably ushers in a new chapter for the industry. Projects are already beginning to position themselves for the changes they see on the horizon. Investment decisions are being made. and for the first time in several years, there's a belief that the U.S. crypto industry will not only survive, but thrive. So the goal of this episode is to sift through the takes from the day after to figure out where people think the industry is heading next.

And of course, we have to start with the big and obvious dimension of this, which is price action. If you had to sum up how people feel about things, in general, is that the election results remove the cap on the market and there is no telling how far it can run. Plum Network's CEO, Chris Yin said, crypto supporters saw Trump victory is very bullish for crypto, which you can see via election night price movement on Bitcoin and Doge. Now we're all looking forward to a golden bull run. Investor Mike Alfred tweeted, we're getting to the part of the cycle where you stop asking what if I'm wrong and instead start asking what if I'm right. This cycle can run so much farther than most people can imagine. Be patient, breathe, hold, win. Alex Thorne of Galaxy Digital thinks

it's quite simple. No one, he writes, is bullish enough. The only lingering question is whether this is truly the start of a sustainable bull run or if this week was just a one-off repricing. We did see a new all-time high yesterday of 76,000, but it's a little too early to know where their market heads next. The timeline is in a state of absolute euphoria, but those kinds of moves often retrace. We could be on the verge of a months-long face-melting rally like we saw at the end of 2020, or this could be the market just quickly repricing now that the risk of a further crackdown has been removed. TXMC writes, it's almost not worth even saying this on here, but screw it. The degree of confidence in the outcome for crypto over the next 12 months makes me very

uneasy. Seemingly, everyone is convinced of what's going to happen next. Is everyone right for the first time? Then again, no one really wanted to hear this right now with a breakout in sight. As economist Alex Kruger put it, ride the wave, embrace the pump. Still, one of the big reasons to remain bullish is the ongoing Fed easing cycle. By the time you're listening, Jerome Powell will have announced another 25 basis point cut and likely signaled another cut coming in December. He's been very clear over the past six months that the Fed is staying right out of politics. And further, he noted that the Fed can't make decisions based on campaign promises. They need to deal solely with the data and policies of the moment. Felix Javan, the host of forward guidance tweeted, Powell will still cut tomorrow. To change course this late and the game

opens up too many political can of worms. He needs to stick to what they guided and not let it seem like they're being reactionary to fiscal and panicky. Trump's tariffs, deregulation, and tax policies might be inflationary in due course, but for now the Fed is pretty much locked into cutting rates. Analysts at Nomura now believe the Fed will only cut once next year due to these policies, but for now, rates are heading lower. Analysts Will Clemente sees nothing but tailwinds, tweeting, just to crystallize the situation in case you're in disbelief. Bitcoin just broke all-time highs. The Fed is cutting rates into a strong economy. Sailor just announced $42 billion in Bitcoin buys. We now have a strongly pro-crypto president and VP, Bitcoin to six figures per coin.

As further signs of how insanely bullish traders are this week, the Bitcoin ETFs put up a monster day, on Wednesday. They did a combined $6 billion in volume with $4.1 billion for the BlackRock ETF alone. Putting that in context earlier in the morning, Bloomberg's Eric Balcunas tweeted, damn, Ibit has seen $1 billion in volume in the first 20 minutes. That's about what it does in a full day. Other Bitcoin ETFs in the same boat, crazy volume, set for a record-breaking volume day and given prices up so much, this is likely a feeding frenzy versus crisis volume. Look for inflows this week. When all was said and done, it was the biggest trading day ever for the products. We haven't seen anything close since the early days.

of February and March. Ibit did more daily volume than Berkshire Hathaway, Netflix, or Visa. Some believe this represents Tradfai rushing to get in on the trade. K.Y. Crypto wrote, might be Hopium, but every Tradfai macro strategist is going to be pitching Trump trades even harder since few expected a sweep plus popular vote for him to do whatever he wants. Crypto is an obvious Trump trade and Tradfi is basically limited to Bitcoin already at all-time highs and Eath. End quote. The Coinbase premium, a proxy for domestic U.S. demand, doubled during yesterday's open, hitting $400. dollars. Joe McCann of Asymmetric Capital wrote,

The notional volume for Bitcoin on Wednesday was the highest since early March and was the second day in a row with a Coinbase Premium. In March, when the notional volume was this high, we witnessed a week of Coinbase Premium Days. Now, we are just beginning. Once the flow data came in, it was clear just how insane the day had been. The product saw 622 million worth of net inflows, despite a 69 million outflow from BlackRock. Now, due to technical reasons, BlackRock's flow data is on a one-day lag, so this actually represents flows from Tuesday. Nate Garassi, the president of the ETF store, was expecting a new record.

Once the final numbers were in, he tweeted, No record, actually outflows from Ibit yesterday. Let's see flows for the rest of the week. Guts says the record will still be broken. Need polymarket on spot Bitcoin ETF flows, by the way. Otherwise, I'm just another Nate speculating on outcomes. It wasn't just the ETFs that saw crazy activity on Wednesday. Coinbase stock saw a 31% jump, taking its year-to-date gains to 62%.

Robin Hood was up almost 20% while Marathon Digital and Microsoft. micro strategy each added more than 13%. Several smaller Bitcoin miners saw gains in more than 20%. Beyond crypto yesterday was the largest post-election trading session for stocks in general. The S&P 500 was up 2.5% while the NASDAQ rose by 3%. It felt like Wall Street taking off their hedges and getting extremely long on risk. Ryan Grabinski at Stratiga said, The biggest takeaway from last night is that we received the certainty that the market craves. In terms of the more substantive policies, one of the more outlandish but to Bitcoiners' very exciting promises made on the campaign trail was that of a creation of a strategic Bitcoin reserve.

Trump's announcement during the Nashville weekend was very slim on details. However, shortly afterwards, Senator Cynthia Lummus came on stage to explain a legislative and regulatory proposal that would set up the framework for getting it done. It seems that Lummus is dead serious about pushing this policy over the finish line. On Wednesday, as her first statement after the election, she tweeted in all caps, we are going to build a strategic Bitcoin reserve. The Lummiss proposal was far more expansive than Trump's. He merely promised to hold on to seized Bitcoin owned by the government rather than selling it off. Lammis wants the government to purchase one million Bitcoin and hold it for 20 years as a method

to pay down the debt. This larger plan would require legislation, but with Republicans likely to control both houses of Congress, it's not infeasible. Pop made the obvious but necessary point that this would be extremely bullish, tweeting, if the United States establishes a Bitcoin Strategic Reserve, it will kick off a global fomo unlike anything we've ever seen before. When it comes to whether this can actually get done, Bitcoin Magazine CEO David Bailey thinks the time is of the essence. He tweeted, America is at a major risk of being front-run on its Bitcoin agenda. We must establish the strategic Bitcoin Reserve as quickly as possible. President Trump has the House and Senate. He has a mandate. The environment is there for us to get this done in the first

100 days. Others, though, are still deeply uneasy about the idea. Bitcoin Policy Institute fellow Margo Pius wrote, I'm old enough to remember when Bitcoiners were about separation of money in state, not for the consolidation of Bitcoin and state. Ultimately, it will still be a heavy lift to convince conservative lawmakers that this is a good idea, but there is a pathway to seeing it happen. And one extremely enthusiastic Wyoming senator who wants to make it a reality. Another big change on the horizon is a shake-up at the SEC. Trump has pledged to fire Gary Gensler on day one. And whether or not that happens, it's clear that there will be big changes in the way the SEC engages with the industry. Coinbase chief legal officer Paul Grewell thinks the agency

should get started right away, tweeting, I hope the SEC understands what has happened tonight on many, many issues the voters said loud and clear that they want change. Crypto is no exception. Stop suing crypto. Start talking to crypto. Initiate rulemaking now. There's no reason to wait. The sentiment was shared in the Tradfai world, with Chris Iacovella, the CEO of American Securities Association stating, last night the people voted for this country to take a new direction and Chairman Gensler should respect that vote by stepping down from his position immediately. There is a very real sense in which the election result was not just a victory for Trump, but also a mandate due to how overwhelming vote was. If Gensler breaks with convention and chooses not to resign, he could be portrayed as defying

the will of the people and breaking with democratic norms. And while it would surprise no one if Gensler fought to the bitter end, there's a few signs that Democrats are giving up on their crypto crackdown. Justin Slaughter, the VP of Regulatory Affairs at Paradigm passed on a quote from a former White House staffer. No Dems are going to fight with crypto to the death anymore. We have too many other things to worry about and crypto clearly has more staying power than we thought. Paul Graham, the co-founder of Y Combinator, tweeted, Their biggest mistake was antagonizing the entire crypto community. This was entirely unnecessary. There wasn't some other constituency they were trying to win points with by doing it.

The tech and business communities will be watching to see how Gensler conducts himself over the next few months. Overly aggressive moves could have lasting political costs for the Democrats who have already seen support collapse in this cycle. Then again, the crypto lawyers, on the other hand, are still extremely uneasy, expecting Gensler to go out in a blaze of glory. Cooley lawyer Rodrigo Sierra tweeted, I worry that crypto is not out of the woods yet. Gensler strikes me as someone who may file a ton of lawsuits on his way out in a desperate attempt to entrench his flawed policies.

Remember how Clayton sued Ripple on his very last day as chair? Jake Chivinsky, a variant fund, meanwhile, pointed out there's still a lot of time before inauguration day, tweeting, President Trump will take office on January 20th. Cryptopolicy will immediately and significantly shift when new leaders take over the federal agencies. Between now and then, the outgoing administration may be busy finalizing rules and filing enforcement actions. Stay frosty. While it will be months or even years until we see clear regulatory changes, the defyy

industry is rushing to get ahead of them. Yesterday, MarketMaker Wintermute made a governance proposal that Athena turn on their fee switch and start distributing profits to token holders. Uniswap and Maker-Dow have made similar proposals in the past, but they've always been viewed as having far too much regulatory risk. Anthony Sassano of the Daily Guay tweeted, The Ethereum Defy Revenge Arc is going to be absolutely biblical with a hostile SEC out of the way. Imagine the next four years being the complete opposite of the last few years when it comes to what Defy projects are allowed to do. Fee switches.

Fee switches everywhere. While these protocols might be jumping the gun just a little bit on the regulatory side, turning on the fee switch could also have market risks. In the immortal words of Russ Hanneman from Silicon Valley, if you show revenue, people will ask how much and it will never be enough. Distributing profits would allow defy tokens to be compared to dividend yielding companies. And yet none of the major DeFi protocols generate anywhere near enough to justify their valuations.

Crypto-Twitter comedian Gwart tweeted, Oh, good job, guys. Now our tokens are going to be valued off their cash flows. Hope you're happy, idiots. All that said, the market is responding well to the idea of the Defi Renaissance. Multiple governance tokens have jumped to 20% since the Trump victory, and people are excited for the narrative. Returning profits to token holders was also a central part of the promise of DeFi from its inception.

Even if the valuations don't quite stack up for TradFi investors at the moment, it's a necessary step to show that DeFi can make for a fairer financial system. frankly, market-focused returning to tokens that do something would also be a refreshing change from the endless stream of meme coins. The revival of the U.S. crypto industry also has a huge number of second-order effects. Chief among them is a fresh wave of capital looking to invest in a promising industry now that the regulatory risk is lower. In their note on Wednesday, Bitfinex analysts wrote, We expect that in the short term, a significant amount of capital will be unlocked for crypto ventures. It's been obvious that VCs and other crypto funds have had a rough time over the past two years.

Beyond regulatory threats and subpoenas, the fundraising environment has been extremely depressed. Van Spencer, a framework ventures tweeted, Hard to describe how tough it was to operate a billion-dollar crypto fund during the Democratic rain. One morning the banks we used would get shut by the government and no one would take our business. LP's questioning if crypto will survive in any form. Founders getting sued weekly, constant surveillance sweeps. It's all gone now, like tears in rain. By all accounts, the appetite for investment is returning fast. During a conference appearance yesterday, Dan Tapiero of 10T Ventures said, we have 300 investors in our funds, 30 to 50 suddenly want to talk this

morning about how to get more exposure. Tom Dunleavy, a partner at Master Ventures tweeted, Every allocator got flat-footed this morning with how under-exposed they are to crypto. Expect the next six, 12 months to be a massive catch-up tray not only in liquids, but also in venture. There's also the very real issue of people feeling they need to move their companies and family offshore to continue building. That process is already starting to run in reverse. Galaxy Digital's Alex Thorin wrote, Can you hear that? That's the sound of thousands of crypto and blockchain founders booking tickets to the United States looking up office space. Chowang of Alliance Dow tweeted,

Our coins will go up, but even more importantly, smart people will want to build in crypto again and they will want to build in the United States of America. The fresh enthusiasm around venture and startups can drive a flywheel effect, benefiting everyone in the industry, including hardcore bitcoiners. Juan Leon, senior investment strategist that Bitwise tweeted, crypto has never had a U.S. administration that was openly supportive. Regulatory headwinds have become tailwinds. Crypto's potential is about to see escape velocity.

Finally, as we've seen countless times over the past two years, administrative positions really matter for crypto policy. It's arguable that the Treasury Secretary, the Fed chair, and the SEC chair are more important than the person in the White House. It's still extremely early to discuss who Trump would install with any sense of certainty, but some early discussions are filtering out. The SEC chair is a completely open question. Sources generally agree that Hester Perce is uninterested in the position due to how much politicking is involved. As former SEC Senior Council, Ashley Ebersoll put it, she cares more about getting it right than she cares about politics. The other Republican Commissioner, Mark Uaida, also seems suitable.

If Trump decides to bring in someone new, the names that have been floated so far, are Robin Hood Chief Legal Officer Dan Gallagher, or perhaps the return of Jay Clayton. All are viewed as positive for crypto, especially in contrast to the current SEC. At the head of the Treasury Department, macro investor Scott Besson is viewed as the frontrunner. On crypto, Besson has said, I've been excited about the president's embrace of crypto and I think it fits very well with the Republican Party. Crypto is about freedom, and the crypto economy is here to stay.

The Democrats are running from it because they are trying to wash off the stench of Sam Bankman-Fried and his family donations to the Democratic Party. They're willing to take on the whole industry because of the bad behavior on their part of one actor. I think everything is on the table with Bitcoin. And to me, one of the most exciting things about Bitcoin is for a generation of investors who, post-GFC, have been looking for investment opportunities and soured on markets. Crypto is bringing in young people and people who have not participated in markets. Having a market culture in the U.S. and people believe in a market that works for them is the centerpiece of capitalism. During an appearance on Squawk Box yesterday morning, Besson also poured

cold water on the idea of the president taking over the Fed. He said, my impression, he doesn't want to be in the room. He just wants to be a voice that's heard. He understands that Central Bank Independence anchors long-term inflation expectations, which anchors long-term rates. Moving on to the Fed Chair, Jerome Powell's term continues until 2026, and Trump has said he won't be reappointed. In the same interview, Besson said, I think we nominate the next Federal Reserve Chair very early. Kevin Hassett, who served as chairman of the Council of Economic Advisors during Trump's first term is viewed as a potential pick, but that decision seems much more up in the air. Hasn't served on the board of one river asset management, a hedge fund that was later acquired by Coinbase. Generally, we don't have a lot of

information at this point about administrative appointments. Sources within the Trump campaign said the president was too superstitious to talk about transition planning before the election was over. So presumably no firm choices have been made. Still, it feels like there's a deep bench of pro-crypto elections to choose from. And so, friends, that is the story. Frankly, even more exciting, I think, immediate aftermath and likely to just get more so from here. For now that that is going to do it for today's breakdown, appreciate you listening as always, and until next time, be safe and take care of each other.

Peace.