The Breakdown - Should Bitcoiners Trust Politicians?

Episode Date: July 20, 2024

NLW and Scott Melker count down the five most important stories in crypto this week, with a special emphasis on the question that guided community discussion these week: how much should we trust these new political allies of ours. 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 Friday, July 19th, and that means it's time for the Friday 5. 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. Hello, friends. It is Friday 5 time, and we have lots to talk about. We have some of the most convincing comments we've ever heard from Larry Fink on Bitcoin. We've got rumors about Jamie Diamond changing his tune. All that and much more. So without any further ado, let's dive in.

Yet another huge week that hits just keep on coming, and I have a feeling that it's not going to slow down any time between now and the election for the news cycle in this market. Luckily, I have NLW here to unpack it all for us. I think story number one has to be J.D. Vance. Trump's VP pick is the first ever Bitcoin on a presidential ticket. Of course, we had this article in the New York Post, which surprised me. Trump picking J.D. Vance as his VP is a big draw for the Bitcoin crowd at the ballot box. And if you read deeper into it, it almost implies that Trump specifically chose J.D. Vance

because of Bitcoin. That is a bridge too far for me. I don't think it has anything to do in it, but I do think it helps solidify that base that was likely already, you know, willing to support Trump. Yeah, I don't think that it was a Bitcoin-only decision by any stretch of the imagination. Now, certainly it does appear that the set of sort of tech Trump whispers

have had an influential role in some of these decisions, but Trump isn't going to make decisions that he doesn't want to make. He had had sort of a long courtship with J.D. Vance over the last little bit. I think he sees him as an heir apparent. I think there's a lot more going on than just this guy's opinions on Bitcoin and technology. However, it certainly does align with the part of the whole thing that matters most to our particular community.

And he is the first, to my knowledge, VP or presidential candidate, who is a known holder of Bitcoin up to $250,000 he reported not that long ago. Of course, he's been exceptionally critical of the SEC. He's been supportive of the industry in general, has been sort of one of the early political leaders that has been talking about our industry in the first place. You have to imagine that regardless of the other politics, which I have not followed and don't get too deeply into,

this is probably a net positive for the industry if he ends up in power. I've looked at this a lot from both the AI side and the Bitcoin side. And there is actually a fairly consistent ideological throughline when it comes to his perspective on technology. And that's basically like, so I don't know, for those of you who caught this or didn't catch, this this week, Ben Horowitz and Mark Andresen put out this long 90-minute conversation around why they were supporting Trump in this presidential campaign. And it basically comes down to what

they call their little tech agenda. And the idea is basically sort of contra big tech monopolist type control. They're trying to make sure that the space is safe for innovation and startups and whatever. And like, you can critique there, but that's their, that's their philosophical conception. And Vance is very little tech, even if he didn't use the same words as those guys. He's concerned with monopolistic control of big tech. Now, he may come at it from a culture war perspective. His biggest sort of critiques of tech tend to be the way that they censor voices that are on the right side of the political perspective.

But whatever the case or whatever the motivation is, he is definitely sort of an antagonist towards big technology of any kind. And I think Bitcoin fits within that, as do some other things. So there does seem to be a consistent throughline. To your point, and one of the things that I think has some folks pretty excited about this from, again, strictly from the Bitcoin point of view, is that whereas, you know, with the Trump sort of move back into the Bitcoin space, there's this sort of lurking question of, like, how deep is that conviction?

How much has it changed? You know, for Vance, he just happens to be a Bitcoin holder. He actually hasn't spoken specifically about Bitcoin. He hasn't articulated, you know, a crypto position recently. these are just disclosures of him, you know, actually putting his money where his mouth is literally. So, you know, it kind of represents a slightly different type of force. That's interesting because there's a lot of people obviously think that Trump is taking advantage of an opportunity, a wedge issue to get the voters in crypto and maybe it's not a genuine interest

in the industry. Now, I would say it probably started that way and is somewhere on a sliding scale between truly Orange Bill and sheerly speaking to the audience. But I think he's obviously moving in the direction of really believing in a lot of this. Like you said, Jady Vance owns the stuff. He's talked about the stuff. That was even before he was necessarily a politician. So there's no question that one of the two is a true believer because he's put his money where his mouth is and has conviction in the asset class. Yeah. I mean, listen, one of the interesting conversations this week provoked most particularly by Vitalik's long essay about this is actually a question of, It's a broader political question. It's not just for us. It's how much should a constituency care about the motivation for their elected representatives convictions, right? Do they require of their political leaders that they believe the same things or simply that they represent the voices of their constituency in a way that's clear? And I think that's an interesting and open question. Now, paying attention to this a lot, there was recently a very long Trump interview. And it was from June 25th. So it was pre-assassination attempt.

and everything. But it seemed pretty clear to me that where the real kind of genesis of this crypto thing outside of, you know, whatever sort of, you know, convenience or politics there are to it or, you know, sort of new allies that are whispering in his ear, there is a very strong clear, I want the U.S. to be the best at everything. And if you read that interview, which we might get into a little bit later, it is very, it is screamingly loud that the reason to, you know, support crypto innovation here is that if we don't, China is going to and we don't want to lose any competition with China, including the crypto competition with China. So once again, I think there is a philosophical through line in some ways, even outside of the asset class itself. Well, I think we've long

said that people criticize us for being single issue voters or people in this industry, but that the issue isn't Bitcoin and its price. The issue is freedom, right? And so it stretches, crypto itself, that issue is symbolic of a much great ethos and belief in the way that people should be able to interact, period, but certainly with their money. And I think that that's what it speaks to. And the Taliban kind of touched on that a bit in this essay. I thought it was really great.

But I think that that's what people maybe miss in this conversation. But it does speak to the sort of broader question presented, and we'll get into Diamond and think soon, but be careful who you call your friends. The original point of Bitcoin, obviously, was to not have to listen to politicians. Right? So we're kind of stuck in this interesting bipolarity where we're cheering them because they get it. And it's going to certainly help the industry. And frankly, it's just backlash to how much pain there has been for the industry in the past few years. But the other side is why trust any of them if you can just buy Bitcoin and self-custody? I think one of the most compelling reasons for a lot of people is if someone says they're going to enshrine a right to self-custody, that makes a difference in our ability to not have to trust everyone else, you know? And the reality is, of course, that like, we all live in a world

of politics, like it or not. And yes, Bitcoin and crypto represent a release valve and an escape valve, but they still operate in a context. And if you are operating in that same context, you do have to be conscious to some extent of how other things are functioning. But listen, you know, I think that I would say that this is bringing up a lot of very important questions around how sort of Bitcoin and crypto audiences should view politicians, should engage with politicians. And, you know, it's still pretty early. Like we've commented frequently on this show about the sort of head-spinning shift from where we were even just six months ago to where we are now. And sort of we're rapidly catching up with ourselves in terms of what it means to be a political

constituency that actually has a voice that's meaningful. Yeah. And we've seen sort of people running the gamut from let's not listen to these politicians at all to going completely all in and thinking it's the most important thing that's ever going to happen to the industry. It's been really interesting to watch. I will say I wasn't intending to talk about it. I just want to bring this up for people who missed it because you should know, by now I'm a huge supporter of John Deaton. I did a fundraiser for him, excuse me, in Austin at consensus. And he was struggling actually initially to raise money, but you guys may not have seen this, but the Winklevost twins just gave him a million dollars in Bitcoin. And Ripple Labs also

gave him a million dollars. So he has to be massively outraising her at this point, which I think is huge. Because that first quarter, he had raised $1.4 million. It was more than her, but a million of it was his own. Yeah. I mean, listen, momentum begets momentum, you know, and I think that what you're seeing is political momentum around these issues. Yeah. So pivoting from political momentum to institutional momentum, it's no surprise, obviously, that we have Larry Fink talking about Bitcoin once again. We got the Ethereum Spot ETFs likely coming next week. But the bigger story that we'll get into is the report from Trump. We haven't seen evidence of it from Jamie Diamond's mouth that he, has had a change of tune, coincidentally in the same breath of saying he could be the secretary

of the Treasury. I actually have the Larry Think video, the interview with Jim Kramer. I think it's worth watching because even as pro-bitcoin as he's been, every interview is an evolution of his view. And he truly sounds like he's been deeply, deeply orange-pilled and is critical of the government and the system. So let's just watch that quickly. It's about two minutes. I know you have been a leader in willing to embrace crypto. You have made it so that people can be in Bitcoin. We hear that you were thinking about Ethereum. These are incredible things.

Now, BlackRock is not known as a gun slayer by any means. So you obviously must believe that this may be as an alternative. Is this an alternative in order to be able because of a deficit? Maybe something long term people should have? Absolutely. As you know, I was a skeptic. Yes. I was a proud skeptic.

And I studied it, learned about it, and I came away saying, okay, you know, my opinion, five years who was wrong, here's my opinion, say this is what I believe in today. I believe the opportunity today. I believe Bitcoin is legitimate. I'm not trying to say there's not met misuses like everything else, but it is a legitimate financial instrument that allows you to have maybe uncorrelated, non-correlated type of returns. I believe it is. An instrument that you invest in when you're more frightened, though. It is an instrument when you believe that countries are debasing their currency, debasing their currency by excess deficits. And some countries are. I believe we have countries where you're frightened of your everyday existence and have an opportunity to invest in something that is outside your country's, you know, control. Then you can have more financial control.

And so I'm a major believer that there is a role for Bitcoin in portfolios. I believe you're going to see that as one of the asset classes that we all look at. I look at it as digital gold, as I said before. And I do believe there's a real need for everyone to look at it as one alternative to, I would say, the optimism that I have in the world. If you want to hedge hope, Bitcoin is not an instrument for hope, unless you're hopeful you're going to make a lot of money on it. But I look at it as a vehicle in which you're expressing your financial acumen in something that you're more frightened of the world. You're more frightened of your existence. And I believe there's a great industrial use for it.

And I think a lot of people are missing that. I mean, that was a greatest hit CD for Bitcoin. Yeah. I mean, like he didn't even just go through like the ethos. of money printing and fear of government and digital gold and hard asset. He also hit on the good fear portfolio, idiosyncratic risk, uncorrelated. I mean, he hit every single talk to before. I mean, listen, I think that the, I think that an interview that starts with, I hadn't really spent a lot of time on it and I had an opinion and I studied it more and I started to like it. There are more than a few people sitting here watching this conversation that had that exact same

journey, you know? Like, very few people come to Bitcoin with clear conviction the second they hear about it. There's usually a journey. And I think that there's sort of an acknowledgement here that in many cases, previous attitudes towards Bitcoin were based on just not really spending that much time with it, right? Probably just reflecting whatever the mainstream was saying about it. You know, Fink was probably listening to Diamond back of the day and, you know, dismissing it because he respects people like that, right? I actually think it's radically more, it's going to be much more compelling to people who haven't necessarily spent that time that Fink said, you know, I changed my mind on it. That's a lot more honest than, no, I was wrong. You know, you misinterpreted what I was saying before.

I also think that the, you know, look, when when push comes to shove, hold aside any of the ideological points, I find that the part that is the hardest to ignore for for most people, even who aren't particularly interested in the sort of philosophy of Bitcoin is the hedge against debasement argument, right? Because it's just math. It's just numbers. There are lots and lots of smart people out there who have the concern that currencies are going to get devalued on the way that because of debt. And maybe they don't all agree that Bitcoin is the proper approach. Maybe some of them have skepticism around how strong that 21 million hard cap is. But they get, once you acknowledge that that is a risk, it's hard not to understand why some people would look at this hard-capped thing

as an answer to that risk. And so, you know, to your point, I think that a lot of these are, these are non-ideological arguments that still understand or put it in a global context. And I think it's, you know, every interview with him is more compelling than the one before for people who haven't, you know, really given it a fair shake yet. Okay, Jamie Dinan, though. I mean, are we believing this? It's hard to say. So again, this came from the same interview. was that June 25th interview. And the interview is fairly leading in the sense that Trump is talking sort of broadly

about a meeting with like 70 financial CEOs. Diamond is the only one that gets called out by name. And when he does, someone asks, you know, the interviewer asks Trump if he would consider him for Treasury Secretary. Trump says, yeah, sure, you know, he'd be a great candidate. It's not like he went out of his way to say, you know what I mean? Like it's like there's a lot of the guy, the three guys on my short list, kidding me at a call, right? Exactly. That guy's awesome. Let's do that. Exactly. And listen,

what I would, what I would take the Bitcoin piece as is not at all diamond changing his tune right now. It's Trump saying that should this go the direction of him being a serious candidate for Treasury Secretary, he would have to change his tune. In fact, I think to the, you know, if Bitcoiners want to get excited about anything in this, it's, it sort of seems to me like a gauntlet that says a prerequisite for the next Treasury secretary is sharing my perspective, you know, my changed perspective on this particular asset. So that's how I read it. Hello, friends. Before we get back to the rest of the show, I want to implore you to join me at Permissionless. Permissionless is the conference for Cryptonatives by CryptoNatives,

and the reason it's so important this year is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today, the tide is turning. Policymakers have pivoted from fighting crypto to embracing it. Literally now, we are in a major political party's platform, which will lead ultimately to the creation of new financial products, new applications, and ultimately new adoption. Permissionless is the conference for those using and building on-chain products. It's home to the power users, the devs, and the builders. And perhaps more importantly, I will be there. The location is Salt Lake City. The dates are October 9th to the 11th, and tickets are just $499.

If you want to get 10% off, use code breakdown 10. Go to the Blockworks website, blockworks.com. There will be links to register for the conference, and again, you can use Code Breakdown 10 to get 10% off. You may have seen yesterday that Dennis Porter tweeted preemptively from what I've heard that Trump has said he would make Bitcoin a reserve asset. I'm not sure if you saw that. I didn't see it. Yeah. And rumor has it that that was maybe going to be Trump's big announcement that wasn't supposed to be leaked in advance of the Bitcoin conference.

But adding it as a reserve asset to the United States Treasury, can you imagine if Jamie Diamond was the secretary of the Treasury and Donald Trump told him to put Bitcoin on the balance sheet? I'm just here for the theoretical 1% future entertainment of that. Yeah, I mean, up is down and right his left, right? It's just unbelievable. I agree with you. I don't think this was saying anything specific about Jamie Diamond.

I don't think that they necessarily had a real phone call where Jamie said, you know, this Bitcoin thing may really work out for people, right? I think we know exactly what his tune is. The question to me is his dismissal of Bitcoin, his hatred for it really about him and Elizabeth Warren, and he'll go wherever the political winds are shifting in whatever benefits, J.P. Morgan in the long run. It feels to me, like his, his baseline is antipathy towards Bitcoin and crypto. I think it's fairly hard to ignore that. You know, if you map his statements, there is a slight pullback in just how antagonistic he is at moments where J.P. Morgan is somehow more involved, right?

There's been a slight pullback recently post-ETF, for example, because J.P. Morgan is involved as a market maker for all of these things, but he's still comparing Bitcoin as smoking. You know, he's saying, like, I think smoking's bad for you, but I'll defend your right to do it, right? Like, that's the most positive. Do your big point. He had another one of those sort of slightly more positive moments when we were on the up cycle last time. And then as soon as FTX happened, it was back to, you know, it's for criminals and I've always hated it. His baseline is that he does not like this asset.

And he thinks, you know, he's clear that he thinks the government should ban it. However, he's ultimately a market animal who's going to stiff the winds and cares more about making money than he does about being right. And I think that that sort of brings up, you know, the main question of the title of this episode, be careful who you call your friends. You know, it's one thing when we're talking about politicians. There's another thing when we're talking about appointed officials that we've seen how much control and how much ability to screw things up for us these folks have, right? Gensler has been, you know, the big bad for this entire cycle because he's sort of been off the leash and able to do what he wants. And, you know, I think that we should be careful,

especially when we see this sort of like, you know, full road to Damascus conversion experience, you know, expressed in a Treasury Secretary, Treasury Secretary has a lot of ability to screw with us. You know, you think that you think an antagonistic SEC chair has a lot of ability. It's nothing compared to a Treasury Secretary who decided that they really wanted to push. Yeah, I'm going to hope that this one just ends up in the rearview of our news cycle and that we never hear about Jamie Diamond for Secretary of the Treasury. again. There's other people who don't like Bitcoin very much, apparently. It's the German government. We've reported on this before, but it seems that even as of a week ago, they're done, right?

But so this is more a story about supply overhangs. I think Germany has unloaded all of their Bitcoin in an inefficient manner, as sort of an FU. We literally don't care about this stuff to the industry. But now we obviously also have Mount Cox, 36% of Mount Cox Bitcoin distributed to creditors, but whales keep accumulating, good news. And then this hyperbolic insino story saying it, 99% of Malcox's 8.2 billion could be sold, which just, like, how does that even end up in print? Okay. My comment, my official comment on that one is, okay. Cool story, though.

Yeah. So the German thing is actually interesting because post, they actually did a little bit of a post-mortem. And it appears that there was a bureaucratic triggering where when the government has an asset that they have to sell as part of this sort of normal course of business and, you know, criminal seizure like this. If there is a fear of a certain level of volatility, they have to unload it fast rather than sort of, you know, keep it on the books as per German regulations. And so there's speculation now that, you know, Bitcoin had dumped about 10% in the advance of when they started unloading.

And it might have been basically a bureaucratic trigger that forced them to, to move as fast as they did. Now, they try to say there's no impact on price and blah, blah, blah, blah, blah. But I don't think it's as clear cut as basically them saying, like, oh, we just don't like Bitcoin. We want to get rid of it. Oh, it's not. I'm just saying, you know, they didn't think about it. They did it sort of an inopportune random time and they had no problem just like sending it to exchanges and Yolo selling it into the market.

For them, it was, it's still a fake internet money that somehow landed $2.88 billion in their coffers, you know? Like, I don't believe that it was probably treated for the people who were involved in that sale as, hey, we could have maximized this and gotten $3.3 million, you know, billion dollars if we had done it right. It was, we went from nothing to $2.88 billion. That's a good day for us, you know. Yeah. Should you at least cover like one day of budgeting for any major nation, if not one hour. But yeah, next story, Ethereum spot ETS.

Are we actually going to get these things next week? Looks like Valchunis saying July 23rd or July 24th, that's now in four or five days. We do have evidence. So Bloomberg's getting ready. As he said, Tuesday, D.E.S. pages being put on Bloomberg now ready for action. So, you know, Bloomberg basically doing the back end work to make sure that these are ready for listing when it hits. And then, of course, James Seyfurt showing us the fee war. And maybe this is the more interesting story than

talking to death what's likely to happen when an Ethereum spot ATF gets approved because, holy my goodness, how can Grayscale be coming in with a 2.5% fee after seeing what happened for a 1.5% fee on GBT. Basically, everybody coming in with almost a 0% starting fee, then there's waiver fees, and then after a certain amount of time, we land somewhere between roughly 0.19 and 0.25 across the board. They're at 10x the fees and still have $9 billion, almost 10, sitting in the Ethereum Grey Scale trust ready to be just absolutely blasted into the market as a supply overhead. I don't think anyone has any idea what Grayscale is doing at this point. You know, they did, I guess, also pull 10% of the assets out and put them in this mini

trust, which has the lowest fees. But, you know, people aren't 10%. People aren't happy about that, too, because you have to, like, you have to realize the gains on, you have to sell to. You know, like, it's a whole weird thing. Listen, I think that the interesting story with this is, um, I've thought about this a bunch and I genuinely have no idea what I think is going to happen. What I think the demand is actually going to be. I think that we are very clearly not in anything approaching the hype level and excitement that we were going into the Bitcoin Spot ETF, both for the reason that, you know, that Bitcoin had been brewing for a very long time. And there was so much sort of, you know, question around it. We were also still on the upswing of like, you know, sort of new cycle

coming in, whereas now we're in this sort of weird low moment, plus we're in the middle of the summer. But on top of that, you know, the second one is just always going to be less of a big sort thing than the first one. I think that it's pretty clear that there's not likely to be a huge amount of sort of retail demand rushing in. I don't think. It could be wrong about that. But the thing that we're going to learn is what the quiet interest from institutions in Ethereum actually is when things go live, you know. I worry that the selling from grayscale is going to fairly significantly outweigh sort of inflows into the other products, but we'll have to see. We saw that with Bitcoin, which had much larger demand to your point, but also I think you have to have some concern

that if it's really ugly and really bad, your average person, an institution doesn't read the headline, they just see selling off for 90 straight days or something crazy like that. It just sort of of spoils the entire launch. Listen, I think that we're going to see most likely what we saw with Bitcoin as a result of this fee. If this fee came in low, I wouldn't be so concerned about a sell-the-news event, even though we know it's something fundamental. Now I'm concerned that if Bitcoin went down 20% because of GBTC post-ETF launch, a less liquid, higher volatility asset, we could get a 25, 30% drop in Ethereum if it's sort of the same playbook. But I'm buying that. just in the record. Yeah. Yeah. It'll be interesting to see. It's going to be interesting for sure.

Yeah. And the final story that we have, which wasn't even on my radar, actually, until you shared it, Judge Grants, Tornado Cash, Dev, Roman Storm's request to delay trial over prosecutors' objections. Maybe you can just go ahead and unpack this one. Yeah. I mean, so basically, so this is the tornado cash case. There's sort of a parallel case going on in Europe at the same time with a different developer involved with tornado cash. So what's notable about this is that the judge involved, Josh Velia is asking some really good questions. And it's very clear, you know, the stakes of this are much bigger than crypto to a lot of people because it's about the culpability of developers for what their, you know, tools are used for. And the U.S. government is basically saying that

the, you know, the developer of Tornado Cash is culpable for the use of it by actors like North Korea, right? And the interesting thing is that it appears that the case is not trying to pull up specific communications where, you know, this person knew about and had communications with the North Koreans. They're simply saying that by not taking it down when they, you know, had a sense that it might be being used by that, that makes them culpable. And it appears that the judge is real, real skeptical of a lot of the government arguments. Now, the case is going to proceed. It's not going to be dismissed. She granted them a sort of an extension, basically a delay to do more, you know, kind of discovery. Effectively, the defense said there's, there's so much

discovery. A lot of it's in Russian. It needs time to translate. You know, we need extra time. So what's positive about this is that the judge in the case appears to be biased towards rejecting the most extreme sort of interpretations of developer culpability as being argued by, by U.S. prosecutors here. So it's, you know, continues to be an interesting to watch, one to watch. I don't think we're going to hear that much more. for a little while, but it is a fairly significant case, you know, not from a kind of bags perspective, but from a human freedom perspective. It is from a human freedom perspective. This is one of those other things that could be massively altered, not the case itself, but sort of the view on how

this is judged if we get regime change. Yep. Absolutely. I mean, this is, and this is one of the big fights for sure. Absolutely. All right. I think we unpacked that all well. Are you going to Bitcoin Nashville next week? I'm with family elsewhere in the world. I'll be watching them. It's smart because I think this one is going to get back to. It's going to be a show. I will. Showiness. Yeah. Listen, I don't have a FOMO bone in my body, but there will be part of me that is that is missing out for sure. I'll tell you offline the biggest rumor that I heard.

And I know they have some other huge things coming. I cannot share it lest I be ostracized, but I'm going to message you. All right. I love it. It's going to really FOMO you. And look for that next week on 9. That's right. I got you guys. Thank you guys. We'll see you next week.