The Breakdown - The ‘Everything Crash’ Is Coming? Markets Go Risk-Off as European Stocks See Worst Day in 5 Months

Episode Date: October 29, 2020

Today on the Brief: Section 230 hearing with social media CEOs in Washington D.C. Bitwise now has more than $100 million AUM Trump website defaced with Monero request Our main discussion: Markets go risk-off.  With rising fear of COVID-19 lockdowns, everything from stocks to oil to gold and, yes, even bitcoin is down on the day. The important question is whether this is a short-term volatility phenomenon or part of a larger systemic shift.

In some ways, the relevant narrative here isn't whether it's for sure that the everything crash is coming. It's the question. It's the fact that when we see markets turn down, the question becomes not, what can we do to get them back on track? But is this the final pinprick of a bubble that we don't have any real control over? 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. The breakdown is sponsored by crypto.com, nexo.io, and elliptic, and produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, October 28th, and today we are talking about markets going risk off,

and whether it's a sign of an everything crash coming or just a normal little reset. First up, however, let's do the brief. It is a big deal for social media and the internet as the CEOs of Twitter, Facebook and Alphabet are testifying before the Senate Commerce Committee on their role in shaping political discourse. The hearing is specifically focused on, quote, the unintended consequences of Section 230 of the 1996 Communications Decency Act, which is the part that protects companies from being held liable for what people on them say. Now, when it comes to the two parties involved in these hearings, they are kind of interested in different things. Republicans are focused on

accusations of these companies censoring conservative views, while Democrats are more interested in the spread of disinformation. Jack Dorsey tweeted out his opening remarks, which I'll share now. Section 230 is the most important law protecting internet speech. Removing 230 will remove speech from the internet. 230 gave internet services two important tools. The first provides immunity from liability for users' content. The second provides good Samaritan protections for content moderation and removal, even in constitutionally protected speech, as long as it's done in good faith. That concept of good faith is what's being challenged by many of you today. Some of you don't want to trust we're acting in good faith. That's the problem I want to focus on

solving. How do services like Twitter earn your trust? How do we ensure more choice in the market if we don't? This is, of course, a massively important topic, and this hearing is much more of a beginning than an end to the conversation, so something we'll have to watch very closely indeed. Next up on the brief today, Bitwise asset management is now managing over 100 million in assets. Bitwise has been one of the strongest institutional proponents for Bitcoin in the crypto industry as a whole. They've unsuccessfully proposed a number of Bitcoin ETFs, and they say that this growth in their assets under management is explained by rising demand from hedge funds, financial advisors, and multifamily offices. They also mentioned that the moves by public companies to put Treasury into Bitcoin has increased. confidence among many of their investors who are on the edge. This growth and confidence will be relevant

for our later discussion, as you'll see. Finally, a little bit of crypto comes to the campaign. The Trump campaign website was defaced. For about 30 minutes, hackers changed the website to say that they had compromising info on Trump and his family, and were soliciting Monaro in honestly kind of a creative way. People had two choices for donating Monero, a wallet that wanted them to share the data or a wallet that wanted to keep it public. So effectively, it was a vote with your money around this potential leak. Anyways, after about 30 minutes, it got back to normal. And of course, the mainstream media coverage of it is a crypto scam, even though it has nothing to do with crypto and it's just a tool for them to do what they wanted. But what do you expect? This episode is brought to you by

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Manage your risk. Scale your business. Visit elliptic.co slash coin desk to talk to a crypto-compliance expert today. That's elliptic.com slash coin desk. Let's move to our main discussion. Markets go risk off and European stocks see their worst day in five months. The markets are bloody today. The Dow Jones is down more than 700 points at 2.6%.

The S&P is down to. 2.63%, NASDAQ, 2.81%, stocks, oil, emerging market currencies of all tumbled, gold was down 2%. The stocks, Europe 600 index fell as much as 3% to a 5-month low, with auto and real estate having the steepest declines. Even Bitcoin fell today under 13,000 for the first time in a few days, although as of recording, it has rallied back. It's entirely possible that by the time you're hearing this Bitcoin will have regained all of its losses, but even if it hasn't, I think it's important just to remember how we need to interpret when Bitcoin moves down with other parts of the market. First, you have to remember there's a commingling of people who are involved. The more

mature Bitcoin gets, the more it's held by people who aren't just the pure conviction Bitcoiners who are probably listening to this show, but who are larger market participants who see Bitcoin as a part of their portfolio. When that set goes risk off, it's going to include Bitcoin sometimes as well. On top of that, there's been huge gains in just the last few weeks, so it seems like if you are going to have a time to pull back a little bit, it might be this. Regardless, basically the only thing doing well today is the USDA and short-term treasuries, i.e. the safe haven of safe havens. So what's driving this? It's simple. It's lockdown fears. Bill Callahan at Schroeder said with rising COVID cases, markets are afraid policymakers will react

with another harsh lockdown. These stocks that really depend on people going back to their daily habits are really being impacted right now. Hugh Gimber, a global market strategist at J.P. Morgan said a month ago, the narrative in the market was very much that lockdowns would be limited and targeted, so we would have a smaller impact on the economy. But now, what we are seeing is broader concerns that lockdowns might be wider and have a much wider impact. This seems to be validated by the German Chancellor today proposing to close bars and restaurants for a month amid rising coronavirus cases. We talked a little bit about the return of lockdowns yesterday, but there's also just continued fears around U.S. election

instability. Specifically now, there are concerns around delays in mail-in ballots, and we have multiple Supreme Court cases going on about how long they can be counted in different states. I made a joke online this morning about how in a week our long national nightmare will have ended because people in the media will be able to talk about something other than the election again, and the response was basically universal saying that no one thinks that it will be resolved in a week, which I think reflects the broader markets attitude as well. But really the question is interpretation in what comes next. Joe Wisenthal argued in his markets column this morning that after seven months, economists are still too pessimistic about recovery. He points to housing prices going up,

to durable goods orders being higher than expected, and to manufacturing index being higher than expected. The problem is, of course, that the language of recovery is happening alongside a discussion of lockdowns and all-time highs and caseloads, which means it's just the wrong language in general. The other side of this story is about a larger systemic crash that could be coming, right? A larger systemic pattern or cycle that's coming to its end, where the lockdowns and the economic crisis that falls from it and the response of central banks is all part of a larger super cycle that is heaving right now and is likely to end. This is embodied in a tweet from Robert Kiyosaki, the author of Rich Dad, Poor Dad, who said today,

The Everything Crash is Coming. Since 1987, the world has been in the Everything bubble. Now it's all crashing. Prices of gold, silver, and Bitcoin will crash too. US dollar to rise. Be patient. Massive money printing ahead, eventually destroying dollar. Time to buy more gold, more silver, Bitcoin coming.

Raul Paul also had a similar sentiment in his GMI letter this weekend that he tweeted out parts of. He called it suddenly everything changed and tweeted, The big rise of the COVID in Europe and U.S. and Canada is about to exert economic pressures and extinguish the hope phase of reflation dreams. Growth will not yet recover and a true economic recovery will take more than a post-election stimulus in January. This gets to an idea that he's been talking about for a very long time, that the real issue is an insolvency phase that's about the underlying fundamentals of the economy, not just something that credit and liquidity can paper over.

That said, his recommendations are similar to Kiyosaki's. He said, you can buy bonds or dollars or you can take the life raft, Bitcoin. Or to dampen the volatility of a risk-off event, we can and will see sharp Bitcoin corrections. You can have all three for a near perfect portfolio for this phase. Good luck. See how it plays out. Now, it's obviously impossible to know exactly where we are, but I will say that we certainly aren't seeing any lack of conviction. from the Bitcoin champions around this asset. This morning, Michael Saylor tweeted,

Some have asked me how much BTC I own. I personally hoddle 17,732 Bitcoin, which I bought at 9,882 each on average. I informed micro-strategy of these holdings before the company decided to buy Bitcoin for itself. Micro Strategy, as well as a firm, is also looking to increase its holdings, according to its president. By the way, its holdings are now at 521 million, which is a 22% premium over their $425 million investment. In some ways, the relevant narrative here isn't the answer. It isn't whether it's for sure that the everything crash is coming. It's the question. It's the fact that when we see markets turn down, the question becomes not, what can we do to get them back on track? But is this the final pinprick of a bubble that we don't have any real

control over? I think that narrative shift is interesting. It's something we need to watch continue to play out. For now, however, thank you for listening. I appreciate you hanging out. I appreciate you thinking through these issues. And until tomorrow, be safe and take care of each other. Peace.