The Breakdown - Respect the Bitcoin Pump

Starting point is 00:00:00 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, April 22nd, and today we are talking about why you should respect the Bitcoin pump. 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, it has been another bumpy 24 hours in markets. The latest thing to freak them out yesterday was more scuttlebutt between Trump and Powell. But if you are listening to this show, you probably were noticing that throughout all of this,

Starting point is 00:00:49 Bitcoin was not only holding its own, but actually going up. So what's going on? Well, that's what we're going to talk about today. Getting down to the nitty-gritty, Monday's trading session saw the S&P 500 lose 2.4%, alongside another drawdown in bonds in the dollar. Gold continued to rip, hitting fresh all-time highs. but the outside performance was definitely in Bitcoin, which seemed to some to finally be playing its role as digital gold, or as Black Rock's Larry Fink puts it, a hedge against optimism.

Starting point is 00:01:16 Bitcoin was up almost 3% yesterday, reaching a peak of 88,800 late on Monday evening. This morning continues to look good, the time of recording were up above 90,000, and it appears that Bitcoin is starting to trend upwards as the U.S. financial complex falls in on itself. Investment advisor Ben Simpson wrote, Bitcoin just posted all-time highs relative to the NASDAQ. The stock market is in extreme fear, and Bitcoin is showing massive strength. Monday's updates on trade talks explained why traders were looking to hedge their optimism that issues would soon be resolved.

Starting point is 00:01:46 In his first parliamentary address since last week's talks, Japanese Prime Minister Shigeru Ashiba said, If Japan concedes everything, we won't be able to secure our national interest. Regarding the trade barriers that the Trump administration is seeking to remove, he added, we have been working to protect Japanese agriculture using various methods, such as tariffs and minimum access rules. We must continue to protect it. And of course, we must also protect consumer safety. For whatever reason, a key demand is that Japan should import American rice even though they currently produce 90% of their own supply. Reports from last week had indicated the Japanese were open to using

Starting point is 00:02:17 rice imports as a bargaining chip. Separately, the Japanese are preparing to send a high-level delegation to deliver a letter to Chinese president Xi Jinping. Bloomberg reports the letter is an attempt to avoid threatened retaliation if Japan signs a trade deal with the U.S. China and Japan have had their own long-running trade dispute over seafood, which the Chinese assert are contaminated from the 2011 Fukushima disaster. The envoy was originally planned to further talks of restarting trade, but will now be an exercise in carefully balancing the interests of the two superpowers. Back home, Trump cannot stop tweeting about the Federal Reserve Chair. On Monday, he doubled down on the antagonism posting,

Starting point is 00:02:51 preemptive cuts and interest rates are being called for by many, with energy costs way down, food prices, including Biden's egg disaster substantially lower, and most other things trending down, there is virtually no inflation. With these costs trending so nicely downward, just what I predicted they would do, there can be almost no inflation. But there can be a slowing of the economy unless Mr. Too Late, a major loser, lowers interest rates now. Europe has already lowered seven times. Powell has always been too late, except when it came to the election period, when he lowered in order to help Sleepy Joe Biden later Kamala get elected. How did that work out? With the president actively undermining then the Fed chair, it's not all that.

Starting point is 00:03:25 that surprising that confidence in the bond market is not holding up. Two-year treasury rates rose to 3.8% yesterday, starting to head back up after moderating over the previous week. Christopher Wong, a strategist that oversee Chinese banking corp, said, firing Powell not only undermines the principle of central bank independence, but risks politicizing U.S. monetary policy in a way that markets will find unsettling. Alan Cole, a policy analyst at the Tax Foundation, tweeted just how abnormal the particular combination of market action yesterday was. He wrote, I need you to understand that the combination of stocks down, bonds down, dollar weaker in tandem is not just markets doing markety stuff unrelated to you. It's a very bad combination that's

Starting point is 00:04:03 going to make you poorer in a variety of ways, some obvious and some more subtle. Still, the Bitcoin element of yesterday's moves is a new development and one that's starting to break through into mainstream financial commentary. The Kobayisi letter wrote, the narrative in both gold and Bitcoin is aligning for the first time in years. Golden Bitcoin are telling us that a weaker U.S. dollar and more uncertainty are on the way. Bloomberg also reported on the move, noting that Bitcoin has now recovered the entire drawdown from the April 2nd tariff announcement. They saw comment from Sean McNulty, the derivatives lead at Falcon X, who said that the move had been exaggerated by thin holiday liquidity. Economist Alex Kruger had a different read on the

Starting point is 00:04:37 situation, separating recent price action by time zone. He tweeted, Asians buying Bitcoin as a safe haven, Americans trading Bitcoin as a risk asset. Now, one of the biggest debates in the financial world is whether we're witnessing a gargantuan risk-off event or actual capital flight out of the U.S. During asset market drawdowns, the dollar traditionally rises. The dollar index is currently down 4.6 since Quote-Oquote Liberation Day and just reached a three-year low. The strength has largely been in the euro, which is up 15% for the year. Bloomberg reports that hedge funds were selling the dollar on Monday, according to traders familiar with the transactions. CFTC position data showed that hedge funds are in their least bullish position on the dollar since October.

Starting point is 00:05:18 Gareth Berry, a strategist at Macari and Singapore, had pretty clear reasoning, stating, the latest catalyst for dollar selling might have just been pressure on Powell, but the reality is that no further justification of USD selling is needed. What has already happened over the past three months is justification enough to warrant ongoing U.S. dollar selling perhaps for months to come. Ben Hunt of Epsilon theory is convinced, tweeting, we're in the early stages of a bank run on the United States and the U.S. dollar and everyone on Wall Street is heading for the exits, including domestic investors. No matter what happens in the U.S.-China trade war, everyone in the business of money is now suspicious about counterparty risk with the global prime broker

Starting point is 00:05:53 that is the United States Treasury. And once you have that suspicion, if you wait, you're screwed. Julian Brigden is seeing it in the charts, commenting, if you doubt that the world is dumping dollars, you only have to look at today's price action. One of the few contrarians is Brent Johnson of Santiago Capital, who wrote, they're dumping the dollar because they're paying off the carry trades in their local currencies, as their local markets are also under extreme pressure. The same thing happened in September 2008 and February 2020. Johnson is best known for his dollar milkshake theory, whereby the U.S. asset markets suck in excess cash from foreign stimulus. His point with this market action is that there's a global margin call

Starting point is 00:06:27 currently underway. So investors aren't selling into dollars, they're immediately using these dollars to take down leverage. After the margin call was done in 2008 in 2020, global risk assets saw a rebound as stimulus was rolled out, and Johnson is betting this time will be no different. TXMC trades points out that the world operates in a state of perpetual dollar shortage, writing, I'm bullish on dollar in a sense that the world can't escape the hundreds of trillions of dollar liabilities they owe each other, implying tremendous future demand for USD, otherwise the entire world defaults on itself. No one wants to do that, but currencies can still fluctuate. Stepping away from the big think, Spencer Hakeemian of Tulu Capital had the very plain read,

Starting point is 00:07:03 tweeting, even if you still don't want to accept it, you just need to know that you're living in an emerging market country right now. And the investing playbook for an EM is very different than for a DM. Invest accordingly. Today's episode is brought to you by CryptoTax Calculator. If you're looking for accurate crypto taxes with no guesswork, check out Cryptotax calculator. Get accurate CPA-endorsed tax reports with full support for IRS rules. For those who have fallen down the on-chain rabbit hole, CTC has you covered with more than 3,000 integrations. They have full support for Defi staking and NFTs. Import directly to TurboTax or H&R Block or share securely with your accountant. Create an account, import your sources, and review. It's that easy.

Starting point is 00:07:43 Hello, friends. I am thrilled to share that Ledger is once again partnering and sponsoring with the breakdown. Many of you know, but for those of you who don't, Ledger is the most secure hardware wallet for your crypto and logins. It's trusted by 7 million users and secures 20% of the world's digital assets. What's more, Ledger is a lot more than wallets. Over the recent years, they've built a comprehensive ecosystem of products and services, all of which are designed to make digital ownership more secure and accessible. You can buy your Bitcoin with Ledger and Ledger Live, so much more. Basically, not only did they want to keep your assets secure, they want you to be able to do more with them. Ledger's newest devices, the Ledger Stacks, and Ledger Flex, introduced the

Starting point is 00:08:22 world's first secure touchscreens, making it easier and safer to manage your transactions and assets. Alongside Ledger Stacks and Ledger Flex, the company also launched the Ledger Security Key app, offering a safer alternative to traditional passwords and enhancing your digital security. If you are in this space, you owe it to yourself to at least check out Ledger and their ecosystem what they have available to you. So thanks, once again, to Letger. for sponsoring the show. Some are simply sitting back and soaking in the fourth-turning vibes. Brent Donnelly commented, crazy how after all these years, Michael Pettus, Ray Dalio, and Neil Howe are all going to be right at the same time. Now, while many are cheering on Bitcoin's uncorrelated move,

Starting point is 00:08:59 many analysts remain wary. Peter Chung, the head of research, at Presto Research, stated, it's too early to say we're out of the woods yet as the negotiations with key trading partners are still ongoing. The lingering nervousness is evident in the still elevated 10-year treasury yields and weak dollar. Still, Chung said it was notable that Bitcoin held up well. Taking a look at trading activity on BitFinex, it seems that large traders are taking down their leverage. Positions were reduced by $100 million towards the end of last week, suggesting that the Bitfinex whales are either anticipating a price correction, or at least losing confidence in further gains. Bitfinex isn't really a retail platform anymore and largely services high rollers in professional

Starting point is 00:09:34 trading desks. So whether or not these highly leveraged players are the quote-unquote smart money is in the eye of the beholder, but their position shifts are worth paying attention to. Importantly, though, the Bitfinex traders are far from bearish. They're simply less bullish. There's only around 28 million in short positions on the platform, a tiny fraction of the long positions. There's also plenty of concern about a bull trap, with Bitcoin currently overbought on the latest move. Trader Bitcoin hyper tweeted, Bitcoin just tapped the golden pocket resistance, a massive longs push price higher. But if you're longing here, you're not early, you're bait. Still looking on-chain, large full-cycle investors seem perfectly happy to add

Starting point is 00:10:09 at these levels. The number of wallets holding over 1,000 Bitcoin, surged in April, with 60 new wallets added to the roughly 2,000 whale holder ranks. Wallets holding more than 100 Bitcoin were also up, although wallets with more than 10 Bitcoin have been declining. The whale wallets tend to be the major signal as their size is large enough to have an impact on markets. Wallets with more than 10,000 Bitcoin had been selling on aggregate between October and March. They flipped buying this month, with last week's purchases running at three times the issuance rate. Simultaneously, coins are being withdrawn from exchanges at a record pace. Now, staying in crypto but shifting away from price action,

Starting point is 00:10:42 for a minute. The Wall Street Journal reports that multiple crypto firms are planning to apply for bank charters. Sources say that Circle and Bitgo are preparing their applications, while Coinbase and Paxos are considering following suit. This news ties into the growing sense that stablecoin issuers will be required to hold a banking license, especially if the banking lobby gets its way in Washington. The journal reports that some of the firms are looking to apply for narrow licenses that would only allow them to issue stable coins, but not issue loans and take deposits like a commercial bank. One of the interesting things to watch will be whether these firms can fast track the notoriously slow and difficult process. Only six new banks were established last year with just

Starting point is 00:11:16 eight in the previous year. There was a long stretch between 2011 and 2016 when a grand total of two new federal bank charters were issued. In the pre-financial crisis period, the fewest banking charters issued in a year was 90 back in 2008. However, Trump's acting FDIC chairman, Travis Hill, has said that encouraging new bank formation is a focus for his agency. In a speech earlier this month, he'll noted that the number of new banks had fallen off a cliff, adding, we need to find ways to encourage more new bank formation, and we're actively considering several ideas to achieve this objective. Bloomberg's Matt Levine was amused by the prospect of crypto firms becoming banks.

Starting point is 00:11:51 The premise of his article was that the policy makers might ultimately balk at the idea of stablecoin issuers becoming narrow banks that do nothing other than issue digital dollars. This hasn't been a systemic problem so far as stable coins are a negligible part of the overall financial system, but if they gain dominance, then Levine notes that narrow banks might, quote, make the alchemy of banking harder to achieve. Bitcoiners would say that that's kind of the entire point, but Levine suggests there might be pressure for crypto firms to become quote-unquote real banks with fractional reserve lending. Sticking with stable coins, the block noticed that

Starting point is 00:12:20 Circle has been mounting a quiet comeback against Tether. Over 17 billion in USC has been issued so far this year, bringing the total market cap to 61 billion. Meanwhile, Tether has grown their supply from 138 billion to 145 billion. USDC is still very firmly in second pace, but with 38% supply growth for the year, Circle is outperforming on both a nominal and percentage basis. This could be demonstrating the benefit of regulatory clarity on the horizon. U.S. institutions can be relatively assured that Circle will fit within the regulations however they turn out, whereas Tether's regulatory status is entirely up in the air. Circle outperforming is a notable shift in the market, which had been sour on U.S. DEC for the

Starting point is 00:12:56 past couple of years. Following the Silicon Valley Bank collapse in 2023, when Circle's reserves were questioned, many felt the U.S.-based table coin was less safe than Tether. That 12% deep peg during that scary weekend left a deep scar. Still, with a couple of years gap, either concerns about Circle are dissipating or new entrants in the market are dismissing the events of 2023 as well on the past. Over at the SEC, meanwhile, the crypto-etf applications are piling up. We stopped tracking new crypto-etifs right around the time the first Dogecoin application was

Starting point is 00:13:25 filed, but Bloomberg ETF analyst Eric Vakunas has remained locked in all year. Yesterday, he published his list tweeting, there are now 72 crypto-related ETF sitting with the SEC awaiting approval to list or list options, everything from XRP, Lightcoin, and Solana to Penguins, Doge, and 2X Melania, and everything in between. Going to be a wild year. The assumption is that some amount of these applications will be waived through in due course. We probably won't end up getting a 2x Melania ETF, but some of the major alts seem like a shoe-in. However, Belcuna suggested it might not matter, writing, No second best question mark?

Starting point is 00:13:57 Bitcoin ETFs command 90% of all the crypto fund assets globally. While a ton of Alt and Memecoin ETFs are likely going to hit the market this year, they will only make a minor dent, with Bitcoin likely to retain at least 80 to 85% share long term. If you're wondering, Ethereum ETFs make up around 6% right now, with another few percentage points in crypto index funds that have a majority of their exposure in Bitcoin and Ethereum. The Everything Else bucket of all coin ETFs have only a couple of billion in assets globally. So that is the story from here.

Starting point is 00:14:25 I think over the next couple days, we're going to either have a narrative retraction or a narrative doubling down depending on what Bitcoin does and how it relates to the rest of the markets. For now that that is where we will wrap this breakdown. Continues to be crazy times out there. Appreciate you guys listening as always. And until next time, be safe and take care of each other. Peace.

The Breakdown - Respect the Bitcoin Pump

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