The Breakdown - Mati Greenspan on the Technical and Macro Roots of Bitcoin’s Price Surge

Episode Date: January 14, 2020

Bitcoin is up more than 8% in the last 24 hours. BSV, meanwhile, is up nearly a whopping 100%. The question is, of course, why? Is it some larger macro context? A pump-and-dump? Or just the crypto markets being as crazy as they are. The Breakdown invited guest Mati Greenspan, former e-Toro analyst and now founder of Quantum Economics to give his take.  We also look at two stories around the growing crypto derivative markets: the launch of the CME’s options on bitcoin futures and CFTC Chair Heath Tarbert’s comments yesterday that regulated derivatives will bring legitimacy to the space. Finally, we look at a just-released Investor Alert from the SEC on IEOs. 

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. What's going on, guys? It is Tuesday, January 14th. And today, of course, we are going to be talking about the price of Bitcoin. It is hovering at 8730 at the time of this recording, up 7.66%. the last 24 hours. And of course, this is the latest in a surge that's been going on for the past couple weeks. And my general feeling about short-term price action is that if you zoom out and you

think about this new asset and this new asset class holistically, short-term price action is one of the least interesting things about it. However, it is undeniable that these moments where the price spikes, where the market starts to rally and race, they are engaging and exciting and they drive attention and they keep people connected to the markets and they keep people excited. They're valuable and they're important. I even joked online earlier that when the market goes crazy like this, the only thing to do is rampant speculation. So we're going to give rampant speculation.

It's due here on the breakdown podcast and ask why the number is going up right now. To do that better, we've actually invited. I've invited Maddie Greenspan, who was previously the headed analyst at E. Toro and is now running a new company called Quantum Ecanon. that's all about crypto and crypto trading to give his take on why the market is doing what it's doing right now. So that'll be first. Second, we're going to look at maybe some of the underlying fundamental shifts happening around the financialization of Bitcoin that whatever happens with

this price action, they are factors that are going to be driving the way that investors look at this market over the course of this year. The first of those is comments from the CFTC chairman, Heath Tarbert, about derivatives. And the second is CME options on Bitcoin. opening up yesterday. We'll talk about that. And then third and finally, we're going to shift to a different part of the regulatory sphere and look at new comments from the SEC around IEOs. But let's kick it off with a little bit of price talk. So let's talk about price. First, let's get the elephant out of the room and talk about BSV for as crazy as the Bitcoin price movement is, like I said, seven and a half percent over the last 24 hours, 25% this month or something like that. BSV is going even crazier.

BSV is up 93% in the last 24 hours. It's hovering at 332 right now. It has flippant the XRP as the number three crypto asset. It's ahead of Bitcoin Cash. Ryan Selkis says Bitcoin Sve is the number three crypto asset, which is great because nothing is real anymore, which I think is how a lot of people are feeling about this. Now, the BSV stalwarts will tell you this is just real. Other commenters in the market have a very different opinion. Crypto Damijici says, BSV pump is exclusively Asia-based. Most Western U.S.-based traders are uninvolved for two reasons. No Western exchanges listed it and narrative against Craig is strong. What happens next? So obviously a more skeptical take. Other folks I saw say pump and numb scams are back. Other folks I saw suggested that it has a lot to do

just with the lower level of liquidity, so any volatility is going to impact the price even more, right? So it's hard to compare apples to donuts type of comparison. It's happening. So I think that the one thing that I'm not seeing, which is making me happy, is the alt season screaming, right? Which has been a characteristic over the last nine months, 12 months, whatever. Anytime the price of Bitcoin goes up, people start to scream about alt season. Despite seeing BSV pump this hard, we're not seeing that. Moreover, I actually think that that kind of characterizes the response that I'm seeing in the markets right now. When I asked people why they think Bitcoin is going up, I did get some answers. And we'll hear some rational kind of thoughts that have to do with both fundamentals and

the macro markets and technicals from Maddie Greenspan. But more or less, most people's reaction is shrug. Don't know, going to enjoy it, not going to put too much stock in it. And in some ways, if this radical 100% 24-hour pump of BSB, to me, suggests a lack of maturation in the markets, right? That's the type of thing that shouldn't be able to happen in a mature market, that sort of crazy swing. On the other hand, the response that I'm seeing of folks to the Bitcoin movement is a sign of a maturation in this market. People are not putting too much stock in it, which feels correct to me. So let's actually get into what some folks who spend a little bit more of their time on price and markets think about this.

As I mentioned, Maddie Greenspan, former head analyst for Eitoro now running his own shop called Quantum Economics, which does a bunch of interesting things. He has a daily newsletter. He puts out educational content. I asked him to explain just why he thinks the price of Bitcoin is surging right now. Hey, Nathaniel, so this is Matthew Greenspan from Quantum Economics to answer your question. why is Bitcoin rising right now? In the short term, this movement seems to have been triggered by the geopolitical risk in Iran, and specifically the excitement that Bitcoin can now be seen somewhat as a safe haven against political tensions in the world is quite exciting for many.

Since then, however, the move has been carried mostly on a technical basis. We've just crossed some critical resistance lines. We were able to hold above 7,800 and then above 8,000, and this is very encouraging. The next resistance that we have is the 200-day moving average, which sits slightly above $9,000 per coin at the moment. If we're able to cross that on strong volumes, you know, obviously the movement can carry on for quite a bit. The encouraging thing that we're seeing this rally is that it is happening on strong volumes. Asari Crypto is tracking about $1 billion per day lately on the top 10 crypto exchanges. As well, the sentiment is pretty good.

The tie shows Twitter sentiment at recent highs. The fear and greed crypto index is as high as it's been since August. So sentiment and volumes are looking pretty healthy. The one thing that does concern me, however, and I mentioned it in today's QE newsletter, was simply that the blockchain volumes are not there. blockchain volumes remain subdued around $800 and $900 million per day, where we have seen much bigger volumes. And usually these type of rallies, these speculative rallies, even the ones that are based on technicals are accompanied by bigger volumes on the blockchain. So we'll see

where this goes and hoping for the best. So the TLDR on that, in my estimation, is one deepening of the narrative around Bitcoin as a safe haven asset in the context of how it's performed relative to gold and crude over the last couple weeks in the context of the Iran situation, and two, a whole slew of technical fundamentals that are carrying and picking up, basically providing tailwinds to that narrative. So where I actually want to shift to next in the breakdown is looking at a couple indicators on the fundamental side about the markets surrounding Bitcoin and how they are growing and evolving and developing.

Yesterday saw the launch of options on Bitcoin futures from the CME, the Chicago Mercantile Exchange. And the tail of the tape is actually pretty decent for a first day. There were 55 contracts traded, each contract worth 5 BTC, so a total of 275 Bitcoin worth about $2.3 million. Now, this may not seem very much. However, when BACT launched their Bitcoin options on December 9th, they also saw very little action the first day, right? This is not the type of product where you're going to see people necessarily race race in. And importantly, those backed options have continued to grow, and CME's launch day

trading volume was actually double the average daily volume that backed has seen since then. So it's a pretty strong start. Now, why does this matter? And you're going to hear about derivatives a lot more this year. The reason that they matter is a couple parts. One is derivatives are an essential part of the way that markets price assets, right? By allowing people to get involved with the assets in ways that are more complex and differentiated than simply buying or selling it, you get much a broader discovery of what the market thinks an asset should be priced at. So that's a big piece of it. A second piece is that these types of instruments are the mainstream way that traditional financial institutions engage with markets, right? Like most traders don't actually trade pork bellies,

for example. It's a classic old meme in some ways. They trade derivatives, right, that sit on top of lots and lots of different asset classes. And those derivatives, again, allow the market to price things and to actually understand where different assets and asset classes sit. So for a lot of the folks who are looking at the ways that new and larger institutions, or rather traditional and larger institutions, get involved in crypto markets, derivatives are a really important part of that scenario. Now, this is sort of reinforced, I guess you could say, in comments from Heath Tarbert. Heath Tarbert is the chairman of the Commodities and Futures Trading Commission, the CFTC, which is obviously the U.S. body that regulates commodities. He was interviewed by Cheddar yesterday, and he said that

effectively derivatives, particularly regulated derivatives and legitimate derivative offerings will legitimize crypto, which is his word. So he says, by a last allowing cryptocurrencies to come into the world of the CFTC. It's helping to legitimate digital assets and adds liquidity to these markets. This is, I think, one of the mega trends of this year that isn't just about narratives but are about fundamental changes in the market structure. Last year, a lot of people thought or said was going to be the year of big institutions coming in, and it wasn't exactly. It was still infrastructure building for big institutions because they move incredibly slowly.

the fact that we're already seeing more of these products come to market in early January of this year, we're seeing policy discussion at the highest levels about them. You're seeing more and more of these big financial actors weighed their toe in vis-a-vis these new products. It's likely that 2020 actually is much more of a year of institutional engagement with crypto and with Bitcoin in particular than 2019 was. Now, the extent to which this is a good, healthy thing for the markets is still, I think, a hot topic with very differing answers. There are plenty of folks who warn about what happens when financial actors co-opt or start to just flood into a market, whether they're trying to co-opt it or not. And it's particularly interesting in the context of the value proposition of Bitcoin around a limited and fixed supply.

That's one of the things that people bring up is a worry, a concern that certain types of derivative products effectively amount to an inflation of the actual supply of Bitcoin because people can bet on it, can get involved with it without any actual exposure to the underlying. But most people, I think, are relatively bullish or at least willing to wait and see. So again, it's interesting to see just how much action there is already so early in the year. And speaking of action, I want to actually close today. by looking over at a late-breaking, just posted sentiment from the SEC. It's what they call their investor alerts and bulletins on initial exchange offerings.

IEOs. What an interesting phenomenon. I actually said last year towards the end of the year that I thought IEOs ended up being one of the biggest nothing burgers of the year. And what I meant by that is that IEOs, when they first started to peek into our consciousness, which was the early part of last year. It was definitely Q1 last year. I remember after folks came back from Token 49, Arjun Belaghi, who's now at Pantera Capital, wrote a bunch about this. Larry Sermak from the block wrote about just the amount of conversation that was about

IEOs and people copying Binance Launchpad. And for the first call it Q1, Q2, people were really excited about this, you know, especially around the Binance IEOs. Now, they really didn't take off in a huge way. The limitations that were kind of self-imposed really limited their ability to create an ICO 2.0 sort of thing. However, when it comes to regulation and enforcement action, the SEC tends not to care whether things are wildly successful if they are in their estimation breaking the law. And so this investor alert, basically the TLDR on it is that ICOs are IEOs and you should stay away from them. So they go into a few different things. Catherine Wu from Notation Capital flagged a few of the important parts. So one, basically the SEC says that the exchanges that

host IEOs likely need to register with the SEC separately as a national securities exchange. They really didn't buy the idea that it's okay if you're participating in an overseas platform. if you're a U.S. citizen, the SEC's jurisdiction is about U.S. citizens, not just U.S.-based platforms. Another quote from them, any offering purporting to avoid the federal securities law because it is occurring on an overseas trading platform, but otherwise allows persons from the United States to invest, is a red flag. There's also issues around a broker-dealer. So further, the online trading platform involved in an IEO may also be acting as a broker or dealer that is required. to register with the SEC and become a member of a self-regulatory organization, typically FINRA.

And then here's the real hammer of it. There is no such thing as an SEC-approved IEO. So, obviously, this amounts to a total banhammer from the SEC on IEOs, which I don't think is particularly surprising to anyone. This isn't the type of offering that the SEC ever seemed like they would be particularly keen on. Now, the question in some ways, or one of the questions, is how this impacts exchanges more broadly. Nick Carter wrote about, in his 2020 outlook, how he thinks that in 2020, these offshore exchanges become pariahs. So he says, the last few months, former Altcoin Casinos in Chief, Binance and Poloniacs have kicked U.S. traders off their platforms, although Binance did launch a neutered version for U.S. traders. BitFinex has been Geoffense for a while now,

on the heels of a lawsuit, Bitmecs may well become more strict about U.S. traders. The honeymoon looks to be ending as exchanges servicing U.S. customers try to avoid the scrutiny of the dreaded quartet, the SEC, CFTC, FinC, and NYAG. It is tough going out there. And he talks about how it's not just the U.S. It's also in the U.K. and in Europe. The confluence of events will see crypto exchanges come under pressure in Europe. Together with the SEC's ever more austere attitude, by the end of 2020, the two largest global markets for capital may well effectively ban the long tail of crypto assets. While crypto is a global market, capital is unevenly distributed. The exodus of US and EU traders from these platforms will

pressure the liquidity of coins that trade exclusively on the less regulated exchanges. Korea and Japan alone are not sufficient to keep them ticking over. The pariah exchanges will continue shuttling from jurisdiction to jurisdiction and hoping to avoid the long reach of the law. They can still function lacking banking and affixed headquarters thanks to the unstoppable liquidity engines that are Bitcoin and Ethereum. This gives them an ability to resist coercion that is unprecedented. That said, the BTCE case study is worth reflecting on. No matter where you are located, the U.S. probably has a way to sniff you out.

I wouldn't want to be running one of these bucket shops in 2020. Obviously, Nick has some strong and well-written language about this, but I do think that this is a major narrative trend to keep an eye on, right? You are continuing to see, I mean, just in the last couple days, we talked about deribate having to move from the Netherlands to Panama. Now, theoretically, it was to avoid the cost of compliance around the AML 5D. Whatever the issue is, you're seeing just these exchanges have to be in a constant flux of where they operate. So I think it's also particularly interesting in the light of these U.S. exchanges, which are seeing rising regulatory inquiries. We talked last week about how

Cracken had seen double the number of regulatory inquiries in the last year in 2019. as it did in 2018. All of this amounts to just more and more and more pressure on the fundamental trading infrastructure of this industry. And what that does, as Nick points out to the long tail, I think will be interesting to see. But for now, it is just a weird day out there. There's just no way around it. BSV up 100%.

Bitcoin pumping in a major, major way. It just feels weird. But I guess it's weird in the right direction. We'll just hang on to the roller coaster and see what happens next. For now, thanks for listening, as always, guys. Appreciate all of your listens and shares. Find me on Twitter at NLW. Subscribe on iTunes or Spotify or SoundCloud.

Just look up the breakdown podcast or my name, Nathaniel Widowmore, and you will find me. And I will, as always, catch you tomorrow. Cheers, guys.