The Breakdown - Repo Market Madness & Bitcoin Macro / CT Reacts To Libra Hearings / LabCFTC

Episode Date: October 25, 2019

Most of the world outside crypto twitter that saw a clip of Mark Zuckerberg's testimony would have no idea that it was, theoretically about Libra. On CT, basically everyone bemoaned the clear lack of giving-a-crap that pretty much any Congressperson had for the actual issue at hand. Elsewhere on CT, however, I announced Bitcoin Macro, a new pop-up podcast I produced for CoinDesk and two of the three first guests - Caitlin Long and Travis Kling - discuss the repo markets. Finally, a quick news rundown including a new BTC futures options product from Bakkt and a new standing blockchain office from the CFTC.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

The things I think that you're probably sensing from us is that the dollar is very important to us as a tool, a tool of American power and also a tool of American values. So we would much prefer to put sanctions on a country than send our soldiers there. As you know, the power that we have because of that, because of the banking system is significant. You can see some of the outlaw states that we have today. We're able to work with our colleagues around the world to do something about what they're doing because of the power, the dollar. So when something threatens the dollar, we get very nervous, and I think we should be, because that's something that, again, has been very useful for foreign, how did I say,

projecting American values and foreign power. Do you understand all that fairly cool? I think you do. I mean, you've been hinting at that, but I want you to make sure that you understand that because you're playing in a space that is a delicate space for us. Congressman, at a high level, I certainly understand it, and that's why part of what we're doing is trying to design this system from the ground up so it can enforce U.S. sanctions, travel rule, a number of the regulations that are important for creating stability and security around the world. And that's, I think some of what is at stake here is that I just think that if we don't innovate, there's no guarantee that we'll be able to extend those same rules and project that kind of influence around the world going forward. I think we need to innovate as a country in order to keep on ensuring that we can do that.

Welcome back to another crypto daily three at three. What's going on, guys? So obviously yesterday was a big day. It is now Thursday, October 24th. Yesterday was the six-hour marathon session, grilling, really, of Mark Zuckerberg, Facebook CEO by the Congress, by the House Financial Services Committee, all about Libra theoretically. In point of fact, it was mostly not about Libra. It was about Facebook's track record on diversity, it's track record on data, the lack of trust

that Facebook has. It was about political agendas as it relates to everything from free speech to anti-vaxing to God knows what else. It was a wild, weird day. And obviously, for those of you who watched yesterday, I did my own recap of everything. But in doing so, I missed a lot of what other people were saying. So I wanted to start today. And I'm going to keep this brief because you obviously got a ton of Libra yesterday.

I wanted to go through quickly what some of the other folks out there were saying. So first of all was the reaction from everyone outside of crypto. You saw this. So Libra, a payment system, a cryptocurrency, an exotic, systemically risky financial instrument that just happens to fall through existing regulatory cracks proposed by a company with gobs of private data and a history of misusing it. This is kind of one, this is almost like the informed kind of understand techie general take outside of the crypto industry. The less informed take, which was embodied in, you know, Instagram posts from celebrities and all this sort of

stuff, was almost entirely the gotcha moments that had to do with election meddling, that had to do with fact checking or not fact checking political ads, right? If you ask the average person who heard about this hearing yesterday, what it was about, they would have no idea that it was about Libra or a cryptocurrency or a payment thing or anything. It was just, it was an affirmation that this is just one more kind of social media stage. I mean, this might as well be a damn Instagram wall, practically speaking, for these politicians, right? Which we talked about extensively yesterday. But that was kind of the world's reaction, right, outside of crypto. Within crypto, you had a couple different reactions. One was the, this affirms.

is a reminder of how powerful it was that Satoshi Nakamoto decided to be anonymous, right? So pomp here with the reminder, Bitcoin CEO was unavailable for today's hearing. That was echoed in Warren Davidson, Congressman Warren Davidson's comments yesterday on the record, joking about how it was hard to get Satoshi to appear for a subpoena. But then I think that the overall, I would say the biggest reaction that I saw from crypto-Twitter folks is mostly what you heard from me yesterday. Nicholas Merton here says, I'm disgusted with the lack of quality dialogue and questions our elected representatives have had for Mark Zuckerberg on Libra.

It shows a clear lack of care or concern for actual progress and exactly why financial technology is stuck in the 21st century. Over here, Robbie Soav from Reason magazine says, Congress asked Mark Zuckerberg a bunch of really, really stupid questions at the Libra hearing, which is both a bit on the nose and a bit accurate. Bologi said, like so many founders, VCs, execs watching Zuckerberg hearing with the same thoughts. So much grandstanding and scapegoating. So much hysteria about binusia.

Demands are contradictory. Impossible to satisfy these people. But they have guns. This is the U.S. government. He brought out some of the best hits. Like I mentioned, here's one. Duly elected congressman asking Mark why Facebook is filtering information on vaccines. Here's another one asking Mark why he hasn't memorized diversity stats for 21 organizations.

Here's Maxine Waters telling Zuck that standing for freedom of. speech is holding himself above the law. Some of these, except maybe the anti-Vax one, are tame compared to some of the stuff I remember seeing. You know, it's just, this feels like what a lot of folks, what a lot, a lot of folks felt at this. And actually, I want to go find one from Nick Carter, because I thought this one was really particularly summed it up for me. He says, struggling to think of a form of discourse worse than politicians dragging CEOs in front of Congress to make them the unwilling subjects of a made-for-instagram viral moment. It's gratifying to see certain unaccountable tech feudal lords take their lumps, but it's also a pretty stupid waste of time.

You don't want truth or accountability. You want to post Dragon Queen in the comments of a clip where your favorite political entertainer hurls a metaphorical tomato at the face of the villain de jour trapped in the village stocks. Once again, Nick proves that if this whole crypto thing doesn't work out, he can go right for a profession. But second, and more importantly, I mean, this really captures it, right? Like these public appearances are supposed to be in the public interest. They're supposed to be an example of our elected representatives doing their job to understand really important moments and really important parts of our discourse. And instead, we do tend to get now these gotcha moments. Now, of course, we're really debating and arguing about

two different things. One is just what the nature of political discourse is in this country. And then two is what should be happening as it relates to crypto and Libra specifically. The nature of political discourse in this country is way beyond the scope of this, but I don't think there's anyone on any side of the aisle who thinks that it's anything other than total trash. Second, when it comes to Libra, the single biggest challenge that Libra has always had is the fact that it's coming from Facebook. It's not the audacity of the mission. It's not the even things like setting it up in Switzerland. It's the fact that it's Mark Zuckerberg who's trying to do that. And that was really, I think, the biggest takeaway that we saw over and over and over again if you were outside

crypto. For those of us in crypto, the obvious sentiment was frustration and a real sincere, you know, disconcerning feeling that these elected officials just weren't taking their responsibility seriously, with few exceptions. So that was the Libra recap. that I saw. I'm sure you guys saw different reactions as well. But actually, I want to take this moment and this last tweet from Nick Carter to jump into something very different that I'm excited to announce. So today I announced a new project with CoinDesk. So it's a pop-up podcast called Bitcoin Macro. And so let me give you the idea. That's basically the idea of a pop-up podcast is something that I've been turning around for a while. And it's a podcast that doesn't do the normal weekly schedule thing.

And it doesn't live on for perpetuity, right? It is instead about having a topic that is really interesting for a specific period of time and putting a bunch of great bingeable content in that topic, right? So short, high impact topical bingeable. So CoinDesk has this event coming up called Invest New York City, Invest New York, just next month. I'll be speaking at it. I'll be moderating a session all about basically crypto-twitter battles but come to real life, which should be fun. But they were thinking about this really strong emphasis on the relationship of Bitcoin and the macro environment. And previously, CoinDesk has been critiqued by some for not giving Bitcoin it's fair due, right, for being more focused on the blockchain side of the house.

And I think that the way that they've programmed this to me suggested that there was a really strong, clear imperative that they got what was the most important thing to so many. many of us, which is Bitcoin. And so basically we put together this pop-up podcast. It'll be running over the course of the next couple weeks. The first three podcasts dropped. They are Nick Carter, who you saw. They are Caitlin Long and it's Travis Kling. So all of them are answering a really similar set of questions, which is one, is Bitcoin a macro asset? Two, is Bitcoin a safe haven asset? And three, how will Bitcoin fare in a recession? So it's all super interesting stuff. But I I thought just for the sake of three at three, we could maybe go look at what these folks were

tweeting about. So obviously you saw what Nick was tweeting about. Kately Long and Travis Kling, however, are tweeting about something different. They are talking about the repo markets. So for those of you who have been following along here or just with mainstream financial markets, the repo markets are basically a bank-to-bank lending facility where banks cover their obligations by lending from other banks. It's an overnight facility. and it's supposed to be one of the more stable, one of the more easy to kind of function types of loans in the entire markets, right? Because it's banks who are lending to other banks. Over the last few months, basically, the overnight repo rate, the rate of interest at which banks are lending

to each other has gone up significantly. It's lost its kind of theoretical peg or mirroring, at least, of the larger kind of Fed funds rate. And so that's obviously a huge cause for concern. It suggests that there's some amount of liquidity crisis where people don't want to lend out money. And so the Fed has been injecting huge amounts of money. And it started a few weeks ago with billions and billions of basically the Fed offering repo facilities. And then it became, I think, as of maybe not last week, but the week before that, an ongoing offering starting in kind of mid-October. And so Travis Kling here says temporary repo facility size increased from 7.000.

25 billion to 120 billion today. Permanent repo facility size increased from 35 billion to 45 billion today. There are problems with dollar liquidity right now and they're getting worse. So this was interesting to me for a couple reasons, but one of them is that on the Bitcoin macro podcast that he did with Nolan Bowerly, he was the head of strategy at CoinDesk, Travis actually made the argument that the repo market action from a couple weeks ago was tied to the Bitcoin price decrease when we went from like 10,000 down to 8,000. And what he, his argument basically was that it's not that there's a direct clear correlation. It's just that a little bit of a liquidity crunch, if you're talking about ripples in the global market,

when there's so little, when the relative size of Bitcoin is still so small, it can have these big impacts. So I thought that was super interesting. And I wanted to actually share maybe just a clip from Bitcoin macro with Travis right now around this topic. So I'm going to turn myself off. I'm going to turn this on. and I'll just let you listen to this clip from Travis. Through this dollar shortage situation that has been certainly all over mainstream financial media

and for good reason. Looks like 2006. Yeah, I mean, there's aspects. The first symptom of this dollar shortage situation first popped up when the Fed funds was offsides from the overnight offer rate, and then you had the repo market. And that's been going on now for like six months,

months. And that's not supposed to happen. The rational actor explanation for why that spread between Fed funds and the Fed funds rate and the overnight offer rate would persistently stay open is one that's kind of scary. And then we had the repo market blow out last week. And you had the Treasury Fed had to have to step in and essentially issue $53 billion worth of quantitative easing to to assouge this situation. And people, you know, Jay Powell at the Fed meeting last week and others are calling this transitory saying, oh, this is because corporations have to pay their cash taxes right now, even though they have to pay cash taxes every time this year, so everybody should know that that's going on.

They're saying that it's because of the $600 billion worth of treasuries that are going to be issued between now and the end of the 600 billion of treasuries issued between now and the end the year. It's sucking up all the dollars. There's there's probably some truth to that. But this is exactly what happened right before Lehman. And they said it was transitory then too. And I'm not saying that there's a Lehman lurking around the corner because I don't think that there is. But there are problems starting to show up here. The global economic data is undoubtedly turning down right now. And it's turning down in, in concert. It's all turning down at the same time. It's all turning down at the same time because

the whole world is now on this central bank trade and on this cheap money trade. But it's apparent that central banks are going to cut interest rates and juice QE into infinity to either prevent a recession or prevent the soft or kind of have the recession be as soft as possible. And those forms of quantitative easing are going to be increasingly more exotic because in the same way that, you know, if you do heroin long enough, then you got to keep taking a bigger and bigger shot of heroin, you need increasingly more exotic forms of QE to get a similar type of effect. Because if you're in Europe and you cut interest rates from negative 40 bibs to negative 50 bips, it just doesn't make that big of a difference.

So obviously super interesting stuff. I'm really proud of this. I think it's a really cool project. So we've got the first three, like I said, that launched today. And then the rest of rest will be launched tomorrow. If you're interested in where Bitcoin meets the macro environment, which I imagine if you're watching me, you probably are. Definitely go check it out. And so with that, let's actually just shift over real quickly to our third topic for the day. We're going to do just a quick little news quick hits, right? Because we went so long yesterday. I want to keep this one a little bit more compact. And I used part of it for announcement. So I just want to do quick news that I thought was interesting. First, you have back to our launching

another product. They're launching options on Bitcoin futures December 9th. So to me, this is kind of an example of this, you know, when Back first launched, a lot of the narrative around it, which was always going to happen was it was overblown, it was expected to do this huge stuff and it really didn't. The whole point of backed in the market and the whole point of actors like backed in the market is to make them somewhat more rational and allow actors to participate in new ways, expanding the set of products that are available to them is a key part of that. So I think this is bullish news, right? Back is continuing to do more things, offer more products.

And they're seeing some uptick in the volume of those products. So again, as we said then, the weight of you backed is definitely not as a, how did it work within the first week or two? It's what is the long term look like. So that was worth mentioning that. Second, CFDC, man, providing the only bright spots in what is a kind of a aggressive regulatory environment right now in the U.S. So obviously a couple of weeks ago,

CFTC chair Heath Tarbert made the announcement that they officially considered Ethereum of Commodity. Now they just announced that they are making their FinTech and blockchain research lab a full-fledged office within this. So long story short, they had created this kind of initiative within the General Counsel's Office to explore some of these new things. That's now a full office within the CFTC that reports directly up

to the chairman, I think, I think that I read. And so again, what I like about this is, especially after seeing just how much, how much kind of derision and not even paying attention as there was for most elected officials in Congress yesterday, as it related to Libra and cryptocurrencies more broadly, seeing these offices actually commit ongoing resources, not just kind of one-off resources to really understand things like cryptocurrencies and blockchains and new technology, I think, is encouraging. So I thought that was really positive news. And then lastly, it's actually more of a shout-out.

So this comes from DevCon a couple weeks ago. Mariano Conti is, he works for Dai. He lives in Buenos Aires, Argentina. He's native Argentinian. And he has, for like the last three or four years, lived basically exclusively on crypto. And, you know, one of the things that I think is so interesting to me is how much everything is about context, right? So actually, let me go back over to Nick's podcast and we'll tie it in here. So when Nick was asked the question about this idea of whether Bitcoin was a safe haven, you know, he really said that it depends.

It depends on what your context is. So his exact quote was, if you were fleeing a country with just the clothes on your back and you want to take your savings with you, Bitcoin is an excellent. excellent safe haven. If you're happy to tolerate some of that exchange risk for the duration of the period in exchange for being able to store your savings in 12 phrases in your brain, from that perspective, it's a great save haven. But for a global macro allocator that cares about correlations and volatility, maybe it's not as good. But it's a lot of things to different people. It's kind of a heterogeneous asset. I think that like, so I got to spend time with Mariano down in Argentina earlier this year. And that was my reflection as well, was like, this is a thing where it's so hard

to get outside of our own context for what Bitcoin or what any of these crypto assets might mean. But for someone who's dealing with, you know, Argentina is hardly like a failed state. This is a thriving place with tons of smart people and tons of interesting businesses, but a relatively kind of back-and-forth political environment that is often subject to capital controls, depending on who's in power, and real volatility around the value of their currency. And it's, you know, they've dealt with 50% inflation over the last couple years, which obviously can just wipe out people's savings. Mariana has been able to avoid all that first through using Bitcoin and then Ethereum or Ether and then later and for the biggest majority of time by being

paid and dying, converting into it. So this is him telling his story. I love it. It's not just that he's a friend, although he is. I think it's a really important kind of reflection. And I think that the other piece about this that's important to me is that this type of story is not meant to overstate how usable and useful these tools are now. For me, the thing that I I keep coming back to is having spent most of my life exploring, you know, crisis situations and thinking I was going to go into conflict zones as my job and my career and my life. The fact that there are these non-state monies that are on the table that allow people to opt out of their systems, and maybe it's just a small fraction of people right now, but the fact

that they exist is in and of itself phenomenal. And it's hard to remember that when we get caught up in the day-to-day and the infighting and the Congress asking about vaccinations. But it's friggin' rad. And it's rad that you're here. And I appreciate you hanging out. So thanks for hanging out, guys. I will be back tomorrow with kind of a week wrap-up, I'm sure.

And for now, I will talk to you later. Peace.