The Breakdown - One Way or Another, Bitcoin Looks Ready to Break Out

Episode Date: October 18, 2024

It feels like momentum is emerging in the BTC space, but which way that momentum is pointing remains a big question. NLW explores the latest market dynamics in this episode. Unlocking Bitcoin DeFi with ExSat The exSat Network aims to unlock and scale the Bitcoin ecosystem without compromising Bitcoins Ideology. The network has partnered with the largest mining pools in the world, major custodians and exchanges, Cefu, Cubolt, Matrixport, Copper, OKX and aims to have over $200M TVL at mainnet launch on the 23rd of October.  Follow exSat’s Twitter to stay up to date @exsatnetwork or visit the testnet exsat.network 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, October 17th, and today we are talking about the Bitcoin surge. 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. All right, friends, well, as we head into the second half of October, Bitcoin has come alive. So far this week, we've seen a 7% rise with Bitcoin challenging the $68,000 level for the first time since July.

Will Bitcoin finally break out of the choppy summer downtrend, or will this be yet another failed rally? If the month ended today, this would be the fourth worst October on record. Each of the other three came during brutal crypto winters. However, the historical record does show that the bulk of October gains usually come in the back half of the month, so there's still time for on October to remember. There are a ton of signals that could go either way, but Bitcoin is definitely in the region where a breakout is possible. Veteran trader Peter Brant wrote, Bitcoin prices in the window. Will Bitcoin escape through the window or have the window slammed on its head? One of the most noteworthy points is that this is clearly Bitcoin outperformance. In previous upcycles,

Bitcoin is always led. Dispersion into altcoins is usually a sign that the bull market is getting a little long in the tooth. We saw a few hints of a rotation over the summer, but nothing long-lasting. Bitcoin dominance has simply been up into the right for months and reached a new cycle high of almost 59% this week. We're still nowhere near multi-cycle highs above 70%, but seeing Bitcoin dominance rising on a strong rally is a pretty good sign. On-chain activity seems to be picking up, which is usually a very good sign as well. Bitcoin active addresses have broken out of the summer downtrend trend and have been heading higher for the past 45 days. CryptoQuant wrote, Historically active user participation has been a critical parameter in every bullish cycle,

suggesting that demand is returning to the network. A concerning sign for further Bitcoin strength is that multi-month highs have encouraged a lot of profit-taking. $480 million worth of Bitcoin was deposited to Binance by short-term holders on Monday. We haven't seen anything close to that volume of deposits since Bitcoin hit its all-time high in March. This additional supply wouldn't be a problem if demand was strong, but Glass Note is picking up a little weakness. In their weekly newsletter released on Tuesday, they wrote, a notable divergence between supply and demand forces continues to grow. The demand side of the market has declined markedly since the March all-time high, while several measures of the active supply continue to compress and constrict. With respect to historical precedence, prior examples of acute tightness

across the Bitcoin supply side have been a precursor for a regime of heightened volatility. So then, not an outright bearish signal, but a sign that the next leg will be anything but calm. That volatility is showing up in leveraged markets with the past few weeks seeing a noticeable uptick and liquidations. Yesterday's positive move saw $65 million in short liquidations, suggesting there's plenty of dry tinder on both sides of the market to push a big price move. Another issue is a rapidly rising dollar. The dollar index, or Dixie, reversed its downtrars trend this month, breaking above 103 earlier this week. It's still in a stable long-term range, but a strengthening dollar usually doesn't present the best conditions for a Bitcoin pump.

Trader Max Price tweeted, The Monster is back. Dixie is a day or two away from reclaiming every major moving average. In the past, this has opened the pathway to a monster rally to the upside, with 110-plus being easy goals in a relatively quick period of time. Keep an eye on this as Bitcoin may be exit pumping in anticipation. The keyword is May. Highblock capital CEO, Sub Varna, is expecting one more shake-up. to come, writing, the prudent move may be to expect a final dip before the market attempts another leg up. He noted that less than 40% of retail traders on Binance are positioned long, adding,

this could indicate a potential reversal, but if retail traders begin piling into long positions en masse, it could be a bearish signal. Notably, this is the fourth attempt to break out of a 217-day downtrend. Technical analysis will tell you there's no such thing as a fourth touch. The catalyst is also becoming clear. Whether you agree or disagree, Bitcoin has become identified as the Trump trade. The discussion even had Peter Schiff gnashing his teeth, tweeting, while everyone is focused on the meaningless Trump-inspired Bitcoin pump, they're missing the significance of gold hitting another record high. Anyway, whatever happens next, this week feels like an inflection point for BTC, a moment to either break out or throw in the towel on a stunted cycle.

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Next up today, Venture Capital Firm A-16-Z have released their annual State of Crypto report, telling a story of continued strong adoption into this cycle. The big headline is that crypto usage is at an all-time high. According to their metrics, there are 220 million monthly active wallet addresses. That's three times as many as at the end of 2023, and the first year that A16Z found more than 100 million monthly active users. The growth in activity was largely driven by Solana, which accounted for 100 million active users all by itself. Coinbase L2Base clocked in with 22 million as the most used EVM chain. Near was another notable chain with 31 million monthly monthly. monthly active addresses. Bitcoin is currently seeing around 11 million monthly active addresses, making it the fourth most active blockchain behind Solana near Entron. This speaks to a fairly vibrant on-chain ecosystem despite the stereotype that Bitcoiners are only interested in hoddling.

A16Z mapped monthly active users of crypto against growth of the internet in the 1990s. Crypto is now back on track for the same exponential growth curve after a fairly significant dip in 2022 and 2023. In terms of relative time frame, crypto growth since 2018, looks similar to growth of internet users between 1992 and 1998. It's out of the hypergrowth period and entering the slow march to a billion active users, which the internet reached in 2005. Another interesting point was that the marginal additional user is coming in through mobile wallets and lower-cost blockchains. A16Z found rapid growth in countries like Nigeria, India, and Argentina, with mobile wallets and stablecoin use a common theme. Monthly active mobile wallets hit an all-time

high of 29 million in June. Desktop and web-based wallets are still dominant, but a large portion of the growth is in mobile. The report also estimated that between 5 and 10% of crypto owners are active users. A16Z said that this presents a big opportunity to re-engage passive holders with compelling on-chain use cases. Given its election year, the report also took a microscope to crypto interest in the U.S. It found that crypto interest is spreading beyond the coasts into the heartland. Arkansas, Minnesota, Pennsylvania, and Wisconsin saw some of the largest upticks in crypto search interest since 2020. North Dakota was a surprising outlier with by far the largest increase in search interest. A16Z tie this data to the election, noting that Wisconsin and Pennsylvania are key

battleground states where crypto policy could be a deciding factor in the election outcome. Stablecoins were another key focus, with A16Z declaring that they have found product market fit. Turns out crypto's killer app is digital money. The deciding factor, according to the report, is massive fee compression. It claimed that the average cost to send a USDC payment on Ethereum was $12 in 2021. That cost is now down to $1, with multiple blockchains and layer 2s clearing stablecoin payments with fees under a cent. This obviously doesn't account for on-and-off boarding costs, but for countries where stablecoins are an accepted form of payment, the costs have hyper-deflated. The report repeated some of the eye-popping stats that Stablecoin settled $8.5 trillion in transaction

volume in the first half of this year. That's more than double the value transacted across the Visa network in the same period. The report also noted that Stablecoin supply has completely detached from crypto trading volume, implying the marginal user is now using stablecoins for real-world payments. A16Z Crypto Data Scientist Darren Matsuoka said, we appear to be at an inflection point for crypto infrastructure, which has rapidly advanced the scaling of blockchains and will unlock new possibilities for applications and user activity. The steep decline in user transaction fees has helped Stablecoins find product market fit. Now, there are tons of positive takeaways from this report, as you've probably heard.

It paints a fairly rosy picture of crypto adoption. To the extent that there is a lingering question, it's about what the next leg of crypto adoption looks like. It's fairly obvious that the twin driving forces of this cycle have been meme coin trading on Solana and Staplecoin adoption in the global south, Gaming and Defi both rated a mention, but they weren't notable enough to make the headlines. There's a feeling throughout the report that new users are willing to adopt crypto given a viable use case. The infrastructure is now fast and cheap and the systems broadly work properly.

However, that is different than the crypto industry making a successful push to become mainstream. Achieving the long-term goal of displacing traditional financial infrastructure like the internet did with traditional media is likely going to be a heavier lift than convincing DGens to gamble on meme coins. A couple more stories before we get out of here. According to J.P. Morgan analysts, the U.S. is winning the hash. In a new report, analysts noted that U.S. publicly listed miners now control a record 28.9% of Bitcoin's hash rate. Hash rate is up 4% so far this month, while profitability metrics are rising steadily.

The publicly listed miners in their index have added 70% to their hash rate so far this year, compared to a 33% for the overall network. A significant part of the increase came after the halving, when the stronger U.S. miners kept adding as weaker miners folded. Bank analysts said this divergence reflects the efficiency and greater access to capital enjoyed by the public miners. They noted that mining shares have risen 7% since the end of September, and are now trading at 1.9 times their share of four years' worth of block rewards. This is the lowest level since May, which analysts say could offer a potential, quote,

attractive entry point heading into the election. Lastly today, Republican candidate and crypto lawyer John Deaton took on Senator Elizabeth Warren in a televised debate. While Deaton has been clear that he's a crypto holder, his campaign has been about issues that impact the lower and middle class. When crypto policy was brought up, Deaton pivoted to discussing his impoverished upbringing, where he saw his mom struggling with predatory fees for money services. He explained that this was what drew him to Bitcoin as a way to disintermediate the financial industry that prays on poor people like his mother. Deaton then threw this back on Warren asking, with illegal immigration bankrupting the state, with inflation pricing regular people out of the economy, why did this senator wake up one day and say,

I will build an anti-crypto army? Warren responded, if people want to buy and sell crypto, that's great. I just want to make sure that crypto has to follow the same rules as every bank, every stockbroker, every credit union, and that is some consumer protection laws and laws that make sure it's not open for terrorists and drug traffickers and human traffickers in Iran. Now, I will note here that this caveating from Warren, that it's okay to buy and sell crypto, is totally new. This is not part of the conversation that she was having before. Still, lest we overstayed the transition, Warren then attacked Deaton for taking money from billionaire crypto donors, stating, if John Deaton has a chance to go to Washington, his crypto buddies are going to want a return on their investment. He's going

to be there to fight for crypto. Worth noting here that Deaton has actually received relatively little backing from the crypto industry compared to other candidates, including zero from industry super PAC Fershake. He even commented that he has several long-running beefs with the crypto billionaires due to his controversial takes. There was also an unbelievably intense moment that you may have seen on Twitter, where Deaton took Warren to task for being so obsessed with crypto that she failed to use time at a hearing to ask banking executives about their complicity in some very violent crimes, because all she wanted to do was grandstand about the issue. Ultimately, while Deaton is putting up a great fight, Warren still holds a 22-point lead in the polls, but still you got to admire the swings

he is taking. 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.