The Breakdown - The Last Day Before Crypto's Next Era

Episode Date: November 6, 2024

After a very long, strange campaign, election day is here. NLW explores how markets are looking at what comes next, and what it all means for crypto. 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 Tuesday, November 5th, and that means it's Election Day. 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. All right, friends, well, here we are. All of the campaigning, the cajoling, the accusing, all of it is coming to a head today with a sense that this election could be extremely consequential for Bitcoin and

crypto. As we've discussed many times, the one thing that is unignorable about this election cycle is that crypto has become a major issue. The Republicans under Trump have adopted crypto as part of their core platform, and the Democrats under Kamala have been forced to start to turn away at least from the Biden White House and its disastrous crypto policies. During the last presidential term, we had the rise and fall of SPF, Operation Chokepoint 2.0, the emergence of the Bitcoin ETFs, and so much more. But now, as we get ready for this election day to commence, what are people's sense of what the possible outcomes for Bitcoin and the crypto industry are, at least in the short term. Consensus has been forming that the downside risk of the election,

election is fairly limited. Trump has, of course, been outspokenly positive about Bitcoin, while the Harris camp has shied away from campaigning on hostile policy. In their final research note before the election, investment bank Bernstein updated their forecasts. They still view a Trump victory is wildly positive, predicting that Bitcoin could reach between 90,000 and 100,000 by the end of the year, should he win. A Harris victory, they see, is a short-term negative, but the severity has been reduced. They've reined in their prediction to 50,000 when it was previously set between 30 and 40,000. Generally, the big takeaway is that Bitcoin will continue on the same path towards adoption, regardless of which party wins the White House. Analysts wrote,

The Bitcoin Genie is out of the bottle. It is hard to reverse this course. Our Bitcoin price target for the end of 2025 remains $200,000 independent of the election outcome. Basically, they believe that any Harris dip will be short-lived and they remain optimistic for a year-end rally. Coin desk analyst James Van Straten landed on the same take, predicting that Bitcoin will arrive at the same $100,000 valuation regardless of the election winner. By extrapolating the diminishing returns of each cycle, he believes the post-election rally will be around 50%, taking all of next year to get to 100,000. He did note that, quote, Bitcoin is currently undervalued compared to previous cycles. Now shifting back to the short term,

Bitcoin volatility has hit a three-month high heading into election day. Rising volatility has been evident across all markets with both bonds and equities hitting medium-term highs as well. Hedge funds are positioned to profit from a volatility spike at the highest level since January 2019 to give a sense of how consensus that view is. Trading firm QCP Capital said this indicates, quote, a significant risk premium around the elections. According to Nick Forster of derived.xyz, current metrics imply a two-thirds chance of 10% price swings on Tuesday night. One of the mechanical features to keep an eye on is that heightened volatility expectations reduce liquidity. Hedging becomes more expensive

and trading firms are forced to de-lever their books. If we get a decisive result in favor of either party, a rapid drop in expected volatility could drive a rush of liquidity into markets. But then again, that's on the other side of what is expected to be an extremely volatile night. Credible Chris wrote, If you think we're going to wake up regardless of a Kamala win, and you want to sell here to try to buy back lower, you better be a damn good trader because the volatility is going to be nuts before the big Bitcoin move many will be sidelined. Just hold on and sit tight. Obviously, there will be basically nothing but political discussion for the next 24 hours or

more, but of course, we will check in on what we think are the results so far tomorrow. In the meantime, some folks are looking beyond this election to the next set of elections. Venture firm A16Z has pledged 23 million to crypto super PAC fair shake to fund operations around the 2026 midterms. Chris Dixon, the head of A16Z crypto said, regardless of what happens in the 2024 elections, were committed to supporting policymakers, irrespective of party affiliation, who will work to establish a practical regulatory framework that protects consumers while allowing the industry to grow. Many industries come to D.C. asking to roll back rules, and we have come to D.C. asking to establish

them. This is the second major commitment after Coinbase announced 25 million in funding late last week. Fairshake looks set to come out of this election cycle with 30 million in the bank, meaning they'll have close to 80 million in the war chest to fund pro-crypto candidates running in 2026. Fairshake was one of the largest super PACs during this election and seems poised to come away with several of their preferred candidates in House and Senate seats. The super PAC already put their thumb on the scale during the primaries, ousting several crypto antagonists. The funding was so large that wealthy crypto donors are already a part of the election narrative for Democrats, which of course is a narrative that will only be cemented if they fail to win the

White House. A renewed commitment to funding moving forward sends a clear message that this year isn't a one-and-done crypto election. Representatives will need to deal with a well-funded crypto lobby for the foreseeable future. Polling also suggests the crypto voter is only growing as a constituency, ensuring that these issues are permanently on the ballot. One DC insider speaking anonymously with decrypt, said that power in Washington is highest when special interest super PACs have large piles of money waiting to be spent. They said, I view it as a reload of the gun. The message intended is that regardless of the election outcome, crypto intends to stay highly involved politically, and no matter what happens tomorrow, we're not going away. With these funding

announcements, the crypto lobby is signaling they intend to be a permanent force in Washington, much like the banking or defense lobbies. Rodeo crypto commented on how much of a sea change this political cycle will be, tweeting, there are crypto regulations before Fair Shake and after fair shake and this election marks the beginning of the after fairshake period. Likely, a very good era. Now, in terms of not so good eras, obviously the Operation Chokepoint 2.0 era that we have been living through has been, let's say, not one of our favorites. Coinbase, however, has received Freedom of Information documents from the FDIC showing how they influence banks during Operation Chokepoint 2.0. Chief legal officer Paul Grewell tweeted,

slowly but surely the picture is becoming clear. After we sued, the FDIC finally started giving us information related to our FOAI request about the pause letters that's sent to financial institutions as part of Operation Chow Point 2.0. In short, the contents are a shameful example of a government agency trying to cut off financial access to law-abiding American companies. So far, we've uncovered more than 20 examples of the FDIC telling banks to pause or refrain from providing or not proceed with offering crypto banking services. The public deserves transparency, not an agency that's working behind a bureaucratic curtain. We don't have the full letters yet, but what we've seen so far speaks volumes. The letters largely relate to a period between March and April of 2022,

but there was no indication the letters have been withdrawn. Letters were sent from regional offices around the country indicating that this was a central policy from FDIC leadership. The judge has now made an order compelling the disclosure, suggesting the FDIC was merely getting ahead of that ruling. With the order now in the books, and the courts clearly taking a dim view of the way these actions were handled, Gribal said, so much needed sunlight is on its way. The documents largely serve as hard evidence of what is going on at the FDIC. Keep in mind, the first iteration of Operation Choke Point only ended in 2017 as a result of mounting lawsuits and political pressure. The crypto industry has put forward huge volumes of

opinion pieces and anecdotal evidence, but now we're starting to get clear facts. And it's getting much more difficult to argue that Operation Chokepoint 2.0 is just a conspiracy theory drummed up by the industry. Former Bitcoin Core developer Jeff Garzik said what we've all known for some time now. Operation Chokepoint 2.0 is real. Debanking is real. Zero transparency, zero due process, zero appeals. And indeed, that's really a good reminder of why it's so important to exert political force during this type of election process. Operation Chokepoint 2.0 is what happens when unelected officials are deputized to make policy based on their own personal biases, rather than reflecting the will of the American people. Politics can be messy and gross, but it is our mechanism for change.

And I think for those in the crypto industry, no matter who one's preferred candidate is, it's hard not to go into this voting day with a sense that we're better organized and have more power and influence than we've ever had. You don't need me to tell you that it could be a crazy couple days here in the United States, but no matter what happens, we will make it through, democracy will survive, and block by block, Bitcoin will keep chugging along. For now, we'll wrap our slightly shorter Election Day episode. Appreciate you listening as always, and until next time, be safe and take care of each other. Peace.