The Breakdown - The Five Most Important Stories in Crypto and Macro This Week

Episode Date: February 3, 2024

Recorded live with Scott Melker on Friday Feb 2, 2024 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 3rd, 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 in the show notes or go to bit.ly slash breakdown pod. Hello, friends, happy weekend. It is time for another weekly recap. This is, of course, the show that I record live with Scott Melker on Friday mornings. And today we talk about everything from the FOMC and the jobs report to layoffs in crypto and whether there's something you should be stressed about to, of course, a little ETF update and everything in between. It's a good one. So without any further ado, let's dive in. We were going to try to not say ETF, but I have a feeling we're going to say ETF. Only a little, though. Only a little today. Just a nice little baby check-in.

We're going to do the Salt Bay thing, just a little sprinkle of ETF today. Well, this wasn't necessarily my intention, but I think we should actually start with a bit of the macro because today's job numbers dropped. The U.S. economy added 353,000 jobs in January as markets mull a slower pace of rate cuts. If you guys weren't paying attention, I believe it was about 175, 180,000 that was predicted. And they revised this time the December number up, meaning that they added more jobs. We've kind of been seeing these revisions where it looks like jobs are great, and then they revise them down. In this case, it seems things are only getting stronger. And if you guys don't know why that matters, we live in the upside down where a lot of people

having jobs is apparently really, really bad for stocks. Yeah, I mean, so we had two things this week that sort of all point in the same direction. We had the first FOMC meeting of the year. And traders have basically been pricing in and betting on rate cuts for this year. That's, you know, everyone knows that that's where we're headed. The Fed is indicated that that's where we're headed. It's a question of when it begins, right? So we're now over the hump into a new phase of the cycle from a monetary policy standpoint. However, what we have is a situation where the Fed, because basically they're seeing inflation continue to go down in the way that they want without any sort of negative consequences of overtightening, it gives them leeway to just not

do anything for longer. And basically what Powell said on Wednesday was that it was unlikely. Basically, from where they were sitting, it was looking pretty unlikely that March was going to be when rate cuts started. So I think between the beginning and the end of that conference, the market had been pricing in a 60% chance or something like that of rate cuts before the meeting, 35% chance coming out of it. Now with this, with these sort of numbers, really reinforces. the thing that Powell was saying was giving them a longer leash, basically, to do nothing. The market is even sort of now wondering if May is going to be when these rate cuts starts or whether they're going to be pushed out farther.

My money is unpushed out farther, right? And predictive markets have been wrong this entire time for anyone who's paying attention about a year ago at this time. We were supposed to get, I think, three or four rate cuts in 2023. Right? And that was being priced at 85, 90, 95 percent chance that we have, cuts, there's literally just no reason for them to do anything right now, unless there's something under the hood that we don't know about that's already broken.

Also, for anyone not paying attention, when they pivot is usually when the stock market crashes. Yeah. Well, the other interesting thing, which obviously, you know, Powell didn't get into this dimension, but the countervailing force of big tech and particularly AI enthusiasm as a sort of risk-on factor in a sea of things that might be risk off for the last year also has created a weird dynamic where, you know, it's almost like the market is behaving in two separate ways. It is sort of less lavishly devoted to monetary policy than normal because there's this other factor that keeps it, you know, sort of its animal spirits alive.

And so it even doesn't feel really like it's been totally kind of, you know, risk off and weight. It's just an interesting dynamic right now that all of it. definitely points to Powell just sitting on his hands, you know, and the Fed having to do nothing. It's incredible to me that markets have remained this high for this long, that jobs have remained this strong for this long, that inflation has come down. I can't possibly even wrap my head around the idea that Powell pulled this off. Yeah. There's really a soft, Andy. I can't. I don't know why. Maybe my bias was just so wrong. Who knows, man. It's interesting. I mean, listen, you know,

The good news is it's probably good for us, you know, even if it's bad for the, bad for the commentators. But, you know, as things go, better, better than, better than some catastrophic, you know, crash because they overtightened or something like that. So yeah, well, let's do the Salt Bay thing. We've got a little bit of an ETF update. And the only update we're going to give you here is that BlackRock finally had more trading volume than GBTC in a single in a single day, which is a big deal. that means that the GBT selling is slowing, but also that the Black Rock buying is increasing or staying high enough that it is bigger. This is what we all want to see. We want to see GBT marginalized. Yep, absolutely. I mean, listen, this is this is actually two separate trends, which are

both positive. One, if you pointed out, is sort of we want to see the sort of, you know, the GBT trade declining and that it has been, you know, not as fast as perhaps everyone would like, but, you know, slow and steadily decreasing as a factor. But then at the same time, in addition to just BlackRock trading more as an indicator that GPTC is showing less of an impact on the space, it's also positive just entirely in its own terms from the standpoint of there being these continued volumes weeks now after the initial launch, right? One of the things that would have been a question or was going to be a question was how much enthusiasm would there be after the initial pop? Is this going to be the type of thing where there's a ton of hype race to a billion, a couple billion in assets under management and then a real decline?

But the volumes have remained really healthy and really strong relative to other ETF trading going on. Yeah, it's been really impressive. And I think we're going to continue to see sustained demand outweighing sort of the supply side, which just to me is huge. Exactly again what we want to see. We don't need to talk about the ETF anymore. I think at this point, that's the kind of last, I'm sure we'll find a way. That was sort of the last straw and the last thing we need to talk about to finally see GBT losing the race there.

I really wonder if there's any buying in those GBT flows or if it's literally all still selling, but I think it's interesting to parse in the future. The next one, sort of the title here, Chainlink rally. We don't talk about all coins in these projects very much, but Chainlink's link token tapped 22-month high of $18, ending three-month breather. Now, A, it's interesting to see even amongst all this Bitcoin ETF hype that we can have all coins still booming and having these sort of select ones going up massively. But pretty big deal that this is making a 22-month high after sort of sitting at these prices for a while and after already having such a big run.

And this really is in my mind, and if you read this article, because of the real world asset narrative. And maybe that's what's worth discussing here. Maybe that will be the king of the next cycle. Yeah, absolutely. I mean, there's a couple things going on. So one is, I think it absolutely does have to do with the real world assets narrative. This has been sort of the second place narrative throughout this entire sort of recent buildup where, you know, I mean, listen, it was even the second place narrative for Larry Fink, right? When he was sort of getting into the Bitcoin Spot ETF, obviously that's what they were leading with, that's what they were going with. But he brought this up in every interview as well, tokenization of all assets. And now that's a big exciting opportunity.

We talked about how he refused to make it in either or, right? Now, the other side of making neither or is not just sort of a boost for Bitcoin. It's a boost for this theme. Chainlink is sort of an obvious player in that space. And even more than that, I think that they are actively engaged at this sort of intersection of traditional finance and, and crypto finance in a way that is not predicated on this hype cycle, right? If you watch what Chainlink has done over the last couple years during the bare market, it's been entirely focused on that. There's been a series of partnerships and launches and announcements that, of course, you know, not really enough to make it through the din of, you know, Sam Bankman-free trials and things

like that. But they've been quietly building towards this in a pretty kind of inexorable march. And I think that, you know, maybe now the market is catching up as that narrative catches up little bit. Yeah, I agree. And just interesting to see that some of these monsters from previous cycles actually have a lot more left in the tank and can, I think, sort of rebrand and get a new narrative and move forward. So interested to see what happens with Chainlink. Now, something brand new, the opposite of Chainlink, I would say, is Jupiter rallies on with Salana supporters leading the charge, one of the most anticipated Air Drops-based social media ire over its novel distribution plan. So nothing can go off without controversy, obviously, in the crypto space.

You can drop million, 700 million or so in helicopter money all over people's heads, and people are going to somehow find a way to complain about that. But this was huge, obviously, a big fundamental event on Solana, but way out of my pay grid to understand and discuss. Yeah, I mean, listen, this is if chain links, you know, potential essential, into the ranks of big legitimate infrastructure for a new era, you know, between, you know, sort of that intersects crypto and traditional finance. This is the straight up classic beginning of a bull market. We're so back baby kind of story. It's a, you know, a hypey new thing on a chain, which, to be fair to the Salana community is legitimately celebrating its continued

survival, you know, and a return to excitement. But it's giving away free money in the form of tokens, it's all those dynamics. You know, this is, this is, you know, if you're, if you're watching from the outside and you don't particularly care or aren't invested too much in, you know, the specifics, it just looks like, you know, a signal that there's a, we are really moving into a new kind of bullish time, you know, in crypto. And new bullish times are always going to look like the old bullish times in some ways. And this is that. Some people say that this time will be different. But I think, as you said, we have a clear signal that this time will be exactly the same. in your opinion, is this helicopter money and money printing, or is it a distribution of value?

This is an argument that I've been having with people. Maybe it's somewhere in the middle, but apparently the team sold a whole lot when. Yeah, I mean, listen. I don't know you saw it, but yeah, that's where the criticism comes from and then you dig into the tokenomics, which I don't think are necessarily horrible. But it's sort of like they re-skinned the old IDO, ICO technique. and disguised it as an airdrop that was good for the community. Yeah.

A couple hundred million out. Yeah. Taking a couple hundred million out at this stage, I think, is sort of self-evidently problematic. When it comes to, I mean, listen, when it comes to the question of whether it's, you know, a helicopter money drop or, like, actually a distribution of value, that'll be almost totally based on how things evolve over the remaining period, you know? I mean, Jupiter's tried to signal, you know, in certain ways in terms of, you know, of the lockups and when team distribution happens

and all the sort of stuff that they're in it for the long term. But when you have that contradicted by the behavior at the very beginning, it gets a little dicey. But ultimately, if the market decides that it doesn't care that much, it's crazier things have happened than something becoming a legitimate play later on. But it's certainly not necessarily the portrait

of a fair distribution or a fair launch, at least as it appears currently. Yeah, and that's what it was obviously intended to be. Now we have to look at this guy, Sam Bankman-Fried. F-TX expects to fully repay customers but won't restart defunct crypto exchange. A, I'll say that I'm pretty happy that we're not going to see FTCS 2.0 because I'm not sure that I can deal with seeing that in my sort of inbox and news feed every single day of the rest of my life.

We can move on from those three letters finally. But what a misleading, utterly nonsense. identical headline to say they're getting fully repaid, right? For those who don't understand, they're getting fully repaid based on the account balance that they had when they went bankrupt, which is effectively $16,000 Bitcoin. I think it's like $15 or $16. Solana, still better than other scenarios in bankruptcies like Voyager, but still, you're not getting repaid in full what your account is worth today. Yeah. No, this is, so the FTX basically decided very early on in the bankruptcy process that they were not going to even try to return people

their crypto assets because they didn't have any, right? The whole point, the way that the fraud was perpetrated is that as soon as, you know, your Bitcoin was purchased, it was shipped on over to Alameda's accounts. Actually, it just started there basically, and they were betting with it, right? So, you know, they decided from a practical standpoint that it was, you know, they were never going to be able to sort of match, you know, crypto balances. So instead, they abstracted it all to cash and your cash value at the time is what they're talking about repaying. So to Scott's point, if you had one Bitcoin, you got, you know, 16,000 bucks or whatever, because it was already low at the time of the bankruptcy.

And really, that last week of when we were waiting for the bankruptcy to happen, really took it down its final peg. So it is totally misleading. You know, the FDX 2.0 thing is interesting. I'm certainly more in your camp on this one than I am in the disappointed camp. watching sort of XFTXer reactions. I think it's a little mixed for them because there are a lot of people

who wanted to see this sort of like, you know, build back on the work that they actually did and have a chance to sort of like make it right and do good things. But I think for the industry as a whole, being able to fully put this, you know, behind us is a net benefit. So it's some other exchanges turn to be good.

Yeah. This is not a phoenix that we need to see rising from the ash, is there's no triumphant comeback because there was no triumph in the first place when you actually dig into it. When the Phoenix was a fraud in the first place, I don't think you needed to rise again from the ashes. Some interesting nuance here, though. If you remember, people were buying other people's claims sort of at the beginning and throughout this process for nine, 10 cents on the dollar, even towards the end, 30, 40 cents. those kind of hedge funds and people taking large bets on this distribution are going to actually

be the ones who make a ton of money. And there's a lot of people who sold their claims for pennies on the dollar. Yeah. And even up until recently, it was still, I can't remember exactly the number was, but I think Travis Kling from Aikai was transparent with what they sold their claim for. Or maybe he said, you know, maybe I don't, maybe you didn't give the exact number. But, you know, I think that even as of, you know, a month or two ago, it was, you know, 60, 65, 70 kind of sense. So there's still a big opportunity to make money on that. So, you know, good for them for taking that risk because it was not guaranteed, especially given the fact that it seems to be in large part based on the, you know, increase in value of a single venture investment that

they're able to actually return this. So, you know, even riskier than it, I think, appeared at first glance to buy those, to buy those stakes at those prices. They got super lucky. But to be honest, man, I'm really happy for FTX creditors that they did get super lucky. As bad as this is, it's a much better outcome than was anticipated, much better outcome that than I think a lot of others had seen. But at the end of the day, the real winners here are the bankruptcy lawyers who have charged hundreds and hundreds and hundreds and millions of dollars and the creditors who get paid

on the value of the day of the bankruptcy with zero upside as these. assets rise. It's just it's sickening, but glad that it worked out the way that it did. We have a little more FTX news. FtX is missing 400 million. We're stolen in SIM swapping hack. DOJ says they've actually charged three people over the SIM swap scheme that targeted FTX. A lot of people saw this right when this was all happening. I'm kind of hazy on the details, but I remember that all of a sudden there was a 400 million went missing as the exchange was closing down as there was the bankruptcy tinfoil hats where that sam and the team were running away with 400 million dollars and this was an inside job but really this was yet another crypto sim swap

which we've seen over and over and over just three three friends from the midwest having a 400 million dollar party yeah what a party that must have been for them well now they'll get to a party with sam so maybe they uh they won the sweepstakes right because these guys are going to jail and we have another bankruptcy closing. I mean, all of it in one week, Celsius to distribute three billion crypto to creditors as firm emerges from bankruptcy. The distribution will be made through PayPal and Coinbase. I still find it amazing that Celsius and FTX creditors who had literal frauds and Ponzi schemes at the top did better than Voyager creditors. What a system. But here we are. I mean, is this a, are we tying a bow on this one? Is this closing yet another chapter? I mean,

we haven't seen what's going to happen to Machinsky, but at least Celsius creditors now know other path. Yeah, I mean, listen, in some ways, the, the, the, the creditor outcome matters a lot more. You know, our sense of Chardon Foyda and justice and all those things demands that there be some accountability on Mishinsky's side, but you have to think that that's coming, right? His trial is set for September. It could be pushed back, but, you know, it's unlikely that he escapes, you know, justice entirely. I think, you know, it matters more how much people get back, how whole they're made, how much they're sort of, you know, able to continue engaging, you know, as they wish with the space. So I think it's a, you know, as good an outcome as it can be. I do think that

the prosecutions are sort of an important step in, in kind of the moving on. But, you know, it feels to me likely that even that that one's going to be more of a side show than, for example, the Sam trial was last October. I think, you know, seeing Sam held to account was the the thing that was the most sort of an emotional psychological scar for the crypto industry to heal. And now that that's past, you know, I mean, we'll see what the sentencing holds. But I think that the Michinsky trial will kind of, you know, probably be going off right at the same time as, you know, the markets are going off because we'll be six months post-having and everyone will be excited.

And, you know, that's the way it should be. Like, let him get punished. Let him be able to account and let us move on and enjoy our lives not facing down the prospect of jail. Yeah, don't even give him the spotlight or the time of day. Let it die and just accept that he's the last vestige of another time, hopefully, in crypto. And we can all move on with higher prices and a lot more fun. We have an honorable mention story here, which is that layoffs are happening across the crypto industry and beyond. I don't have the whole list of layoffs in tech and all that. But one of the lead stories, Polygon Labs cuts 19% of staff, 60 rolls for enhanced performance. The block is cutting jobs to achieve cap of 12,000 staffers. This seems a bit older.

Near Foundation to cut staff by 40% says Treasury remains strong. This is kind of echoing what's happening in the actual economy and markets, right? It's interesting, we have these huge job numbers, but then you see layoffs across tech and across these companies. I mean, are all these companies just getting leaner and meaner and kind of cutting off the excess? or is there any sort of canary in a pole mine do you think here with this job situation? I think it's more the fallout of things we've already experienced than a presage of what's to come. You know, I mean, listen, specifically with Block, for example, which is the biggest set of cuts. These were cuts that were announced last year, right?

And they're just sort of following through on them. The total amount of cuts that they made, they're not intending. But the logic from Dorsey is that they just hired faster than they grew. and they have to address that balance. And I think that every company in tech especially has had to go through some amount of that reconfiguration as it thinks about what the sort of the right headcount actually is as we've shifted from the growth at all cost world

of the entire 2010s and the beginning of the 2020s into a very different world that's still emerging when it comes to efficiencies and revenue and profit and all those things. So I think that to some extent, you're seeing the sort of just recalibration going on. Now, bigger topic, maybe not for us for today, but some of the tech layoffs, the big tech layoffs,

that I do think are presaging something else coming, are more if you look at Google and meta, the layoffs that have happening there. Those are actually pretty clearly driven by them implementing AI, on their own teams, particularly around advertising products, right? You've got Google and meta both sort of pushing all of their advertisers to use self-serve AI-created collateral now, and that's reducing the need for real humans to create that collateral on behalf of clients. So that's a little bit

of a different story. I think these ones in crypto are really more just sort of people shoring up their, you know, their staffs in advance of a new cycle. Yeah, it's different, but dare I say, that's actually bullish firing. Yeah. Right. I mean, that's good for those companies. They're cutting staff, finding a cheaper and better way to do it.

It sucks for the people who are losing their jobs, obviously, but that does tell you what the future holds for a lot of these companies. A lot of people who have sort of marginal jobs at those companies. That's it, dude. We did it in like 20 minutes, 25 minutes today. We absolutely nailed it. I love a quick recap of the week. And I think we got all of it done.

I'm not sure if we missed anything. but if we did, it's always next week, right, man? So, guys, you can follow at LW, check out the breakdown, everything that he's got going on. Of course, you can listen to this on his channels and on his audio channels over the weekend. Other than that, man, thank you so much. Guys, we will see you on Monday. Cheers all.