The Breakdown - The First Week of the New Bull Market?

Episode Date: February 17, 2024

NLW and Scott Melker discuss the five most important stories in crypto, with NLW arguing that this week felt like a significant milestone. 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 Saturday, February 17th, and that means it's time for the weekly recap. 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 of the show notes or go to bit.ly slash breakdown pod. All right, friends, back with a weekly recap. This is the show that I record each week on Friday morning live with Scott Melker. And as you'll hear, the point that I make at the end of this show is that this really felt to me,

like if the world was divided into the before Bitcoin Spot ETF times and the aftertimes, in many ways, this was the first real aftertimes week. It just genuinely felt like it was not about the drags of the past, but was all about moving towards the future. Check out the stories that we talk about and see if you agree. And thanks as always for listening. It's the Friday 5. I've got NLW here. We are punctual and on time as usual. Yeah, technical difficulties. Yeah, we nailed it. We nailed it. But yeah, let's dive right into it. This should be a pretty quick one. Bitcoin price is booming. Bitcoin ETF inflows are booming. People think we could go to 70,000 making a new all-time high before we even really get to the halving.

here would be pretty crazy. Bitcoin price actually is aligning with pre-having rally. We've got a whole lot of tailwinds right now, man. What's going on here with Bitcoin price and the ETFs? I mean, we are now living inside the speculated world of a never-ending institutional bid. And right now, it's still relatively small. It's just getting started, but it's very self-reinforcing. There is a positive feedback loop happening, I think, where inflows into the these ETFs help increase price. Price gets headlines, headlines helps, you know, inflows to the ETF. And we still haven't even gotten into the world where this is a normalized sort of asset. I think that the biggest takeaway for me is that all of our sort of four-year models and

expectations and, you know, sort of mapping one cycle to the last has in a pretty meaningful way been broken by the introduction of this totally new buying force that has come. you know, sort of both all at once but still almost barely. It's just a totally different thing than the retail we've had before, you know, and it's layering on top of people who never sold. So it's a really interesting combination. And I think that, you know, trying to understand how price is going to behave especially with respect to the having based on previous cycles is probably going to be a fairly challenging exercise, let's say. Yeah, I don't think that we're even seeing the mainstream news stories that we sort of hinted at last week. Remember, we were

talking about. If this thing gets above 50,000, is that going to be the catalyst where all the sudden everybody's talking about it? Or is it going to be a new all-time high that brings that, I'm not seeing it here at 52 or 53,000, right? I think we're getting a whole lot of crypto-based media talking about spot ETF inflows. I don't think we're seeing much about price in the mainstream news. I'm not seeing the Bitcoin to the moon, new all-time high on Bloomberg yet. No, no. So far, the evidence suggests that, you know, it's going to at least have to be some other number that actually starts to attract attention. And right now, I think the best guess is probably all-time high, right? You know, if 50 can't capture people's attention in mainstream

media is 60, probably not. There's nothing that it's in context of, whereas a new all-time high, I think, is a very different thing. You know, we also talked about how the burden for retail is likely to be higher this time around, right? There's going to be more. skepticism among that audience before they dive in. And so it really may require something that is a thing that was sort of unthinkable in previous cycles, which is reaching a new all-time high before retail got there to actually get them to even sort of be open to the possibility once again. Right.

This article here, Bitcoin's rise to 52K is driven by strong U.S. demand. The Coinbase Price Premium suggests. I've had a number of guests on basically this week pointing out the fact that we don't really have that high of open interest. Leverage is not piling up. We're seeing a premium on spot. This is from an article I read 75% of the demand for Bitcoin spot buying right now coming from the ETFs. I mean, this is real Bitcoin buying period. Yep. I mean, it's it is incredibly, if we take a step back and we're not just excited about price, which is wonderful to be excited about. Think of how much different this is right now. The last time that we were at these levels,

was late 2021, you know, not counting on the way down. And that was driven by leverage, by, you know, by a whole different set of factors that just looks so different than a whole bunch of new people, you know, casually buying Bitcoin because they have access to a product that makes it easy for them. Just a very different world that we're living in. And obviously, since we just talked about a Coinbase Spot premium, just to sort of wrap this first story about everything happening with the end.

institutions in Bitcoin. Coinbase shares surge after crushes Wall Street expectations. Crypto exchanges, transaction revenue doubled from previous quarter as crypto markets soared. They absolutely just slaughtered it yesterday after hours. Yeah, I mean, listen, Coinbase at this point is, you know, has not only proven itself to be, you know, the most rock-solid long-duration crypto institution that we have, but I think is also at some point going to be recognized as a case. study in incredibly long-sighted vision, an incredible sort of like tortoise versus hair strategy inside the industry that most radically rewards hairs in the short term. I think it's actually going to be looked at even from outside the crypto industry as just an incredibly well-run,

sophisticated, you know, long-duration company that's not only not going anywhere, but serves as a model for how to build something in any industry. Yeah, totally agree. Let's move on to the next story, which obviously is here on Tom Emmer's website. Emmer presses Treasury under Secretary Nelson on erroneous reports of crypto terror financing. Now we got the FinCEN guys and the actual Treasury employees and representatives saying it's all crap. Elizabeth Ward is full of it and the Wall Street Journal reported lies. We all knew that, but we're still hearing the narrative, no matter how many times we get it, The narrative still comes out of Elizabeth Warren and Friends, Mouss that Bitcoin and crypto are being used for terrorist financing.

Listen, this was great for a number of reasons. One, always wonderful to see Tom stick it to the man, you know, which is a function that he has to play a little too frequently, unfortunately. He got it on the congressional record that the Treasury agrees that those numbers don't actually represent the real engagement of Hamas and other terrorist organizations with this. He got it on the congressional record that it. In fact, Treasury agrees that it's not a particularly popular way for Hamas and other terrorist organizations to raise capital, right? The most that Undersecretary Nelson could manage was sort of a, that it might get more challenging in the future, a more popular way to get funds in the future.

And so it's something they needed to keep an eye on. However, I think one of the under-discussed part of the story, just because obviously, you know, we're in the crypto industry and we're focusing on the, you know, sort of slap them downside. The Treasury representative here could have had a very different stance and posture on this line of questioning. He could have hemmed and hawed. He could have, you know, caveat it. He could have tried to, you know, push back and sort of make it seem worse than it was. He was totally forthright, didn't try to genuflect at all. He just basically said, yep, this is similar to what we're finding. Now, that still led Emmer to make his point, which is like, look, the Treasury,

if it knows these things, has an obligation not just to respond to me truthfully, which appreciate that, but also to be clear about the reality of the situation because when a false reality is reported, it opens up the opportunity for legislation that could be incredibly damaging to this industry. And so Emmer's point was that even with them being, you know, and acting appropriately in the context of this hearing, there was still a big problem with how the Treasury had handled this. But still, overall, a nice shift in tone from the Treasury just in so far as it was, you know, not lying anymore. Yeah, not lying anymore and completely dispelling the myth, but we still have this lady just pushing it, as I said. But now all of a sudden,

apparently Elizabeth Warren is on our team. She pivots on Bitcoin honors Nacomoto with flag over capital. This in Bitcoin magazine, after years of vilifying Bitcoin as money for criminals, terrorists and climate change. And I are Senator Elizabeth Warren honored Satoshi Nakamoto for the 15th anniversary of the network's launch with a commemorative flag over the United States Capitol. What a heartwarming and utterly ridiculous and false story. So when I saw this, I was like, all right, something has to be wrong here. This has to be a fake story. It turns out it's not a fake story. It's that the way that this is sort of roughly the equivalent of when you name a star after someone in the star registry, right?

can pay 20 bucks or $99 or whatever it is. And then some star of the trillions is named after a person. Sort of like when you can buy one square foot of land in Scotland to be a Scottish lord, right, for 25 bucks. Similar principle of flying the flags. I think it's $34 or something like that. They get hundreds of these requests. It's just this little thing that goes on constantly. And it seems like basically someone just played a prank on this office. They made a bet that Some overworked, underpaid staffer was just going to push this all through because they had a stack of these things to sign. And that kind of seems what it looks like. Now, one interesting little piece of the story is that Caitlin Long had reported or had tweeted that she had heard previously that there was a Bitcoin mole in Elizabeth Warren's office.

And so her presumption was that this was that mole acting up, which if that's true, one of the best pranks we've seen in Bitcoin world for a very long time. I mean, this is not at the level of, but up there with the buy Bitcoin sign in Congress. So pretty exciting to see a nice little story. Yeah, it's a nice little story. I loved obviously that we got that from Caitlin Long, although it seems like maybe more likely that just this just kind of. passed through the system without her necessarily noticing. But you know, you can see that there

were corrections and other media sources. No, Elizabeth Warden didn't just endorse Bitcoin despite viral story. But man, absolutely hilarious because it's more egg on her face regardless, right? Isn't that just what we want? She looks silly. Media is super happy to correct this particular Bitcoin story as soon as they figure it out. But still Hamas is out there raising funds with with crypto. So yeah, right. So you also see that you got community noted or Bitcoin magazine actually got community noted over this, making the point, the exact point that you did. The next story, obviously, CNBC's full interview with SEC chair, Gary Gensler, this one got heated. We obviously had Sork in there. Kernan, Joe, man, Joe is really a Bitcoiner now, I think. He's one of us, Joe Squawk,

Joe Kernan. He pushed back really hard against Gary Gensler. We could watch this. I don't know if you want to. Probably not worth it. It's a couple of minutes. It's long. I think maybe we can just give the greatest hits here since we've both watched it. Yeah, I think, you know, the highlights are probably better. It's worth watching if you haven't seen it. The TLDR of this is, there are a bunch of different pieces of Gensler. None of this will surprise you at all if you've seen Gensler talk at any point in the last few months about Bitcoin or crypto. He said that there was no, you know, they talked about the Ethereum ETF. He continued to say that Bitcoin is, or that the ETFs are cabined to Bitcoin. Again, that word is just like aneurysm

in my brain because he's the only person who I've ever heard use it and he just keeps using it. So no Ethereum ETF. But then he sort of started to go even farther in his critique and his diminishment of Bitcoin. One of the parts that got Joe really fired up was that he basically made fun of people for investing in an asset on the basis of it being an accounting tool, totally diminishing the value of a transparent public ledger that doesn't require an intermediary for people to trust, you know, who owns what, which is obviously the central innovation of the blockchain that underlies Bitcoin. And that's sort of where Kernan went off. And like I said, it's worth going and listening to what he said. It doesn't matter so much what Joe said.

What mattered was that, you know, for the first time, this Gary Gensler got serious pushback in a major interview setting. And it shows, I think, just an overall shifting tone and sentiment where the sort of the lies, the diminishment of Bitcoin, the just sort of antagonism is just not going to go un sort of pressed. And, you know, I think it reflects, although it's not a direct byproduct of the ETF by any stretch of the imagine, Joe, has had a long history or has it a long period of sort of, you know, coming to understand Bitcoin. What it shows, though, is Gensar just looks more and more out of touch. The SEC just looks more and more out of touch. It rings so hollow when he's trying to sort of air these pathetic arguments, frankly. And, you know, the nice takeaway is less even about a one-time point scoring from Joe Kernan, although that was awesome too. It's more that it just feels like in the post-ETF world, more people understand that this sort of fud and sort of negative narratives, just don't really hold water anymore. So a nice, I think, moment of what is probably a larger

shift that we're seeing. Yeah, I totally agree with that. I think now we have to talk about stable coins because we're actually seeing some movement here, it seems, which maybe we didn't think we would. Fed Chair Powell told House Democrats U.S. needs stable coin bill. He also alluded to the fact that it could be exceptionally close. Then we have Waller, a Fed governor, saying that DeFi could boost the dollar's global strength, making the point that Palo Ardoino and Tether fans have been making forever. Palo Ardoinno literally said it last week on my podcast, said, listen, we're helping hyper dollarization here, right? This stable coin, the United States dollar is being strengthened by people using this. It's fully backed and all over the world people are getting access to dollars

where they couldn't. So this actually could be a good thing for the United States dollars. And then, of course, that U.S. regulators do have some control over the stable coin tether, that the U.S. Treasury Department, Office of Foreign Assets Control, OFAC can exert control over the stable corn, tornado cash being an example, and that basically Tether has cooperated with, you know, the legal system when asked to. We're getting some real movement here with stable coins. Yeah, I mean, this legislation is really close, or at least all the reports are, you know, we heard it from Maxine Waters even recently, the sort of leading Democrat on it. And the one sticking point that has been the sticking point for a while is the relationship between the states and their control and the Fed and their control.

And without seeing the exact details, and Powell is obviously a very political animal, my guess is that Powell cares a hell of a lot less than the Democrats do on this particular point, and that the obvious sort of solution is a combined hybrid approach where states get to be involved in this process, but the Fed has sort of ultimate oversight and the ability to get in there. It just doesn't seem like a particularly hard compromise. And that's kind of what it feels like the signals I'm reading from Powell is that there's an obvious answer. And to the extent that that answer isn't being implemented, it's just about politics. But I think that you're seeing a real, you know, confluence of these things, you know, start to come together. I think the Waller comments are in some ways even more interesting.

I mean, this is something that people who have been interested in stable coins have been talking about forever. The idea that stable coins actually could, you know, sort of perpetuate the dominance of the U.S. dollar, you know, outside of all other forces pushing in an opposite direction for an entire new generation, right? Because whatever the worries are about U.S. control and sanctions and things like that, right now the dollar is still the most accepted, the most desired currency in the world, you know, bar none, hands down, not even close. And when a technology like Stable coins makes it even easier to use that already most in demand thing, it just increases the burden that any sort of challenger would have to face so much. So the fact that you're seeing both the

political side kind of saying, look, we're pretty close and it's probably pretty easy to get this done. And then the sort of more big picture side arguing that, you know, this is actually a good technology for the U.S., for the U.S. dollar system. I think that's a big shift. that we're seeing. My feeling has always been, based on the history of the U.S., that at some point, rather than a CBDC, the U.S. is going to be happy with just sort of semi-nationalizing one of these stable coins. I think Circle has been positioning for that forever. Tether is now seeming to jockey for that, you know, even though they have such a different sort of history. But, you know, the fact that the U.S. political establishment is finally talking about how obviously good this is

for the U.S. dollar is a big thing. This is the lowest hanging fruit for legislators as well. We've talked about that many times. It was in the Gillibrand, Lummus bill years ago already and has been discussed. It's been pushed by McKenry. It's been pushed by basically anyone with any common sense to say this is just the simplest thing that we can get done, do something for the crypto space, get this regulated. And now when you have people like Lutnik from Cantor Fitzgerald out there saying, listen, Tether's a good company. It's fully backed.

I've seen the books. the FUD is gone, right? So it's time to just put something sensible in order and get this out of the way. Yep. That's it. That's five stories. Did we miss anything? Not really. I think this is an interesting week. I think that this week felt to me like the first real post-ETF week. You know, listen, one thing that we didn't even really get into is the fact that ETF inflows are not just continuing to be strong, but actually accelerating in many ways. This last week we saw some of these funds have their best days since the first day, which is a huge and sort of unprecedented thing given the time scale. But it really felt to me like if the ETF was a clear before and after divide,

we are firmly in the after. And what comes next will be interesting to see. Totally agree. Guys, listen to the breakdown. Check out NLW. That's how I like it when we get it done in like 20 minutes. Perfect. Even better than 30, especially on a.

Slow news week, but these are not slow news weeks at all. I mean, these are absolutely huge stories. It's just when price is up and the bull market is raging, they kind of go unnoticed. Everyone just wants to talk about price. But guys, we will be here, of course, next Friday, the Friday 5, 9 a.m. Eastern Standard Time. Thank you guys for joining. See you on Monday. Peace.