The Breakdown - The Big Bitcoin Vibe Shift

Episode Date: February 26, 2024

A reading and discussion of https://www.coindesk.com/consensus-magazine/2024/02/20/the-crypto-vibe-shift/ 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 Sunday, February 25th, and that means it's time for Long Lead Sunday. 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, a fun little speculative one for you today. We are going to kick off with a piece by Daniel Kuhn over at CoinDesk called Does Anyone Else Feel the crypto vibe shift, surveying the small telltale signs that the market is back.

But what's different this time? Let's read it and then let's discuss. Daniel writes, Is crypto back? It seems that every other week there is a headline saying Bitcoin and Ether are trading hands at prices not seen since 2021 when the crypto market was in an upswing. It's not obvious that the price appreciation is going to stop anytime soon. Things feel different this time around.

The pandemic-era bull market was a period of mass exuberance, hysteria, and fun. Everyone from Elon Musk to my mom seemed to be talking about crypto. Celebrities were endorsing meme coins and buying NFTs, crypto became a cultural touchstone. Perhaps the best signifier of an economy going through wild gyrations as the post-pandemic world began to reopen, a weird time dominated by vibes. In comparison, the latest market upswing has been quite, it. Sure, a few friends have reached out to see if they should buy Bitcoin, an anecdotal indicator

suggesting increased retail interest. But by and large, it seems very few people have taken notice as crypto prices have ticked up. Of course, following the wave of protocol failures in corporate bankruptcies in 2022, starting with the high-profile implosion of Terra and culminating in the collapse of FTX, crypto has become toxic to talk about. The same level of enthusiasm and lightheartedness is hard to regain while still living through the hangover. There are a number of indicators besides price action that suggests the crypto market rebound has begun in full force. Metamask, the primary means of accessing the Ethereum network, is nearing an all-time high of monthly active users at 30 million. Coinbase, the largest US crypto exchange, posted its first

profitable quarter in two years as trading volumes bounce back, and Bitcoin's search interest is bouncing back a little, according to Google trends. A number of factors could be contributing to rising interest. The Bitcoin having, an event that occurs roughly every four years, is always a popular media topic. Meme coins and token airdrops feed the idea that the crypto industry prints people-free money. Endorsements from figures like BlackRock CEO Larry Fink and even government bodies in places like Hong Kong and the United Arab Emirates foster a sense that crypto is technologically significant. Most notably, the launch of nearly a dozen spot Bitcoin exchange traded funds has gone better than expected. With BlackRock's ETF already posting the fifth

largest inflows this year and billions of capital flowing into the crypto funds. Moreover, there is a growing sense that the worst may be over for crypto, legally speaking. Large overhanging concerns have more or less wrapped up, often in crypto's favor. The Department of Justice settled with Binance imposing a strict financial penalty, but won the world's largest exchange appears able to carry. The U.S. Securities Exchange Commission's hostile attempt to regulate through enforcement was dinged after Ripple won a significant legal battle in court, and as the agency faces other uphill battles in court, and the FTC's bankruptcy processes winding down, with full restitution expected for all former users. Increasingly, governments, including in the U.S., appear to want to work with the industry

to develop policies that protect consumers without hampering the development of crypto. The European Union passed the significant Mika rule set, while the UK, Hong Kong, Nigeria, and others are all vying to become crypto hubs. It's as dangerous as it is stupid for journalists to try to predict the future, especially in an industry as volatile and quickly changing as crypto. There's no guarantee the Bitcoin rally will continue, and there's always the chance for fortunes to reverse. But there certainly is a growing sense that crypto is on the cusp. A lot of things have changed since 2021, many for the better. If the buzz grows, crypto has the opportunity to do better this time,

leaving behind the shameless celebrity endorsements, wanton financial speculation, pure fraud, and waves of rehypothication and backroom deals that defined crypto's bad vibes last time to focus on building something more substantial and long-lasting. So back to NLW here. I actually think that vibe shift is a good way to come at this. It really is a sense more than any one specific thing, a feeling. I talked last week about how I thought it was the first true post-ETF World Week, where we were firmly focused on the future rather than the past, and it's clear that Daniel is feeling something similar. Within that, there is a really interesting bifurcation. You have, of course, the crypto-faithful who are here in the middle of it all,

who have never really gone. That includes everyone from the Bitcoin Maxis to the defy-Dgens, to the somehow NFT faithful that stuck with their communities throughout the bare market, or in the case like something like Salana's Madlads, built something new. All of those groups have to some extent been forged by fire, making them even more convicted and probably less subject to short-term fears and gyrations. But what about the folks who aren't in that group? That's where you really see a split. Way too loosely put, that split is between institutional investors on the one hand and retail investors on the other. Retail investors are not back, and that's something we'll talk about in just a minute. What's interesting, though, is that not only are institutional investors here,

to ask some, they never really fully went away. Indeed, if you talked with people like Dan Tapiero during the bear market, people who straddled the tradfai in the crypto world, it sounded like there was less of a sense of doom and gloom than we had over here in some of those circles. Investors, by all anecdotal reporting, remained interested even if they weren't about to jump in with both feet until it was clear that the bear market was turning and something new was coming. Of course, one of the biggest signals for that was when BlackRock and Larry Fink did, in fact, jump in with two feet. I said this on a podcast I did the other day, and I've said it before, probably here as well. I think the history books will view the collapse of FTX as one bookend,

and BlackRock filing its spot Bitcoin ETF application as the other of a very significant interlude in crypto's history, where things could have gone a lot of different directions. That's not to say that crypto would have gotten worse or been even more impaired had BlackRock not filed, but Larry Fink effectively planted a flag in the ground that said this is as far as the slide's going to go. It instantly changed the dynamic around Operation Choke Point 2.0 and how much legitimacy that regulatory attack had. It instantly captured the attention of Wall Street, who had to meaningfully engage again, and it was more than just Fink and BlackRock showing up. It was that he was going around obliterating narratives at the same time. If you remember those

first interviews that he did after the announcement, CNBC hosts kept trying to get him to fall into the old canter of Bitcoin versus blockchain, and he just wouldn't. He was talking about tokenizing the whole world and real-world assets, but also waxing poetic about the specific value of Bitcoin and what it meant. It's hard to overstate, I think, how important that was, and to some extent I think we're seeing that play out in the way that funds have flowed into these ETFs, and how, as Daniel pointed out, they've been more successful than anyone would have imagined. Retail, though, retail is a very different story. It is clear that retail was not only burned, worse than we even imagined, but they were disgusted even more than we imagined. Bitcoin at $50,000 came and went without so much of a

hint, a whisper of interest from those retail folks. Now we're left speculating will an all-time high even get them excited, or as someone I was talking to the other day said, maybe it has to be all the way up to $100,000 Bitcoin before retail really starts paying attention again. I've said it before and I'll say it again. I don't think it's a bad thing to not have the same sort of intense retail focus trying to clamor into anything that might go up 10x as this cycle gets started. I think it would be fairly naive to think that that won't happen again, but one can certainly hope. I don't know right now what I think about when people come back and start trusting again. I sort of think in addition to number go up technology, it might need to involve something else

new to capture people's attention. Remember, NFTs were a force last time around that got people who didn't really care about crypto in other ways to start paying attention. Could NFTs do that again? Is there something else besides NFTs that's poised to play that role? I don't really know. I do think that the patterns that we've seen in previous cycles are probably a little bit exploded thanks to the new force of the institutional bid that's been enabled by the Bitcoin Spot ETFs. How much that changes all the other dynamics, especially those ones rattled off at the end of Daniel's piece like wanton financial speculation remains to be seen. But for now, the vibe has shifted and you should enjoy it. Until next time, be safe.

take care of each other. Peace.