The Breakdown - The Most Important Stories in Crypto You Probably Missed Recently

Episode Date: August 21, 2024

NLW covers the latest in Mt. Gox distributions, a DAO voting on an SEC settlement and much more. 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 Wednesday, August 21st, and today we have a late summer crypto grab bag. 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. Well, friends, today we finally have the type of day that usually is pretty normal in the summer, where there's sure lots of little things going on, but no big, huge commanding story. Now, of course, this summer has been very different, given all of the political intrigue

around the U.S. presidential elections and the role that crypto has started to play in those areas. But like I said, today we have a little bit more of just a check-in on a bunch of different stories at various levels of interest and intrigue, which will hopefully get you caught up on some of the other news that we maybe have not covered as much given, like I said, the political stuff that's been going on. So where we kick off is with more Mount Gawks distribution. Mount Gawks' wallets are on the move again with what appears to be a further 700 million in bankruptcy distributions. Last night, 12,000 Bitcoin were sent to an unknown wallet presumed to be linked to BitStamp. This is the first movement of coins in three weeks, when around 2.3 billion worth of Bitcoin was sent to a wallet

suspected to belong to Bitco. Mount Gok's balance is now stand at 46,000 Bitcoin worth around 2.7 billion. That means around 70% of Mount Cox Bitcoin has been distributed since repayments began in early July, a little over $6 billion worth. Individual creditors signed up with Cracken now have full access to funds, while it seems BitStamp is still working through the final mile of the distribution process. The working assumption is still that this round of repayments is close to being finished. A second final round of distributions is expected sometime next year. Alex Thorne, the head of research at Galaxy Digital, has been tracking these distributions closely since they began. He believes this latest transfer was not actually a distribution to creditors, but rather Mount Gox sending Bitcoin

to a new cold storage setup. Either way, Thorne is under the impression that this round of Gox distributions is more or less over and isn't expecting another big wave until next year. His colleague Kelly Greer has been tracking the huge quantity of selling that has happened over the summer, and things large pools of Bitcoin are basically tapped out. She wrote, miners are buying BTC, governments and bankruptcies have run out in the near term after selling $12 billion since June. Bitcoin holdings by governments in order. U.S. only $20,000,000, for sale in the near term from Silk Road. The remaining don't have court orders to sell. UK, 61,000 Bitcoin would be shocked if this was sold in the near term. Chinese investors are demanding

this return to China. Germany, Dunn, Gox remaining 2025. Genesis Celsius blockfi FTX. Dunzo. Basically, Greer said that she is sleeping soundly knowing that this supply overhang is out of the way. As for market reactions, more broadly, traders are still reacting to the headlines, but the drawdowns are becoming less severe. Bitcoin did fall by almost 4% last night when the news, broke, but came back with a mild recovery into the morning hours. This drawdown was a similar size to the one surrounding the last movement of Gox coins. However, it was nothing compared to the 8% plunge that happened when the distribution first began in early July. Credible analysts still haven't seen anything that looks remotely close to mass selling from individual

Mount Cox creditors. theoretically, that behavior could change once funds are fully available on BitStamp, but for now it seems as though creditors are by and large just going to hold. Moving over to something that would only happen in crypto, Mango Markets Dow is currently voting in favor of a major settlement with the SEC. The settlement would see the Dow agree to pay a $223,000 fine. More importantly, the Dow Treasury would destroy their holdings of governance tokens, take steps to delist the token from centralized exchanges, and cease-all operations. During the last cycle, Mango Markets was the leading decentralized exchange on Solana. During the chaos of late 2022, the platform was exploited for $114 million by Avi Eisenberg.

who claimed he was merely implementing a very profitable trading strategy. Eisenberg has since been charged with wire fraud and Mango Markets is reportedly under investigation by the SEC, the CFTC, and the DOJ. The Dow proposal claims the SEC is pursuing allegations that the governance token is an unregistered security. Mango Labs, the developer of the platform, is also claimed to be facing allegations that it acted as an unlicensed securities broker. We haven't seen the SEC actually pursue litigation against a decentralized exchange before, nor have we seen them try to sue a Dow. The Mango markets token, and was sold to the public in 2021, although the Dow claimed it was closed to U.S. investors.

Legal filings in the Eisenberg case suggested that regulators had identified at least one member of the Dow that resides in the U.S., so perhaps the regulators have uncovered an issue with that sale. It could also simply be the SEC pushing forward with a case against a weak defendant to force a settlement. The CFTC used a similar tactic against multiple Daos over the past years, most notably obtaining a default court judgment against Uki Dao. Settlements don't carry any weight as precedent, so couldn't be used to support other cases such as an anticipated lawsuit against uniswap. Still, a settlement could have a chilling effect for other DAOs and dexes,

serving as yet another warning to stay out of the U.S. and out of reach of the SEC. The Dow vote is still open, but members appear to be unanimously voting to settle. Staying on the Salana theme for just a moment, applications for Solana ETFs have been rejected by the SEC, according to unnamed sources. 21 shares in Banek both filed paperwork to list the products late last month. However, the applications appeared to have stalled out and were never added to the Federal Register to begin the formal process. Now they have been removed from the CBOE website and the SEC database.

Sources claim the SEC had talks with the ETF issuers about their concerns that Solana could be a security. That would make the applications improperly filed as commodity-based trusts. One source said that this isn't the end of the road for Solana ETFs, and anticipated that there could be new filings with a stronger legal case that Solana should not be considered a security. Matthew Sigel, the head of digital assets research at Van Eck, was happy to go on the record about the issue.

He tweeted, some have noticed that the 19B4 for the Vanek-Salena ETF has been removed from the CBOE website. Remember that exchanges like NASDAQ and CBOE file rule changes, 19B4s, to list new ATFs. Issuers like Vanek are responsible for the prospectus. Ours remains in play. Finance lawyer Scott Johnson discussed the ramifications of the SEC claiming the applications were improperly filed as commodity-based trust shares. This would prevent the regulator needing to provide a formal disapproval that can be challenged in court. He suspects this was also the game plan for disapproving the Ethereum ETFs, but the SEC screwed up by adding the applications to the Federal Register, beginning the process and opening themselves up to a legal challenge.

Johnson suspects that the Solana ETF will need to wait until the Coinbase and Binance lawsuits are resolved, tweeting, issuers wanting to file for a sole ETF and actually get a fair 19B4 hearing, will now likely need the exchange-related enforcement actions to be completely resolved first. Bloomberg Senior E.T.F analyst Eric Balcunis put it more simply, a snowball's chance of hell in approval unless there's a change in leadership at the SEC. Meanwhile, over in Brazil, their securities regulator has approved a second. second salina-based ETF, with the first approved earlier this month.

Hello, friends. Before we get back to the rest of the show, I want to implore you to join me at Permissionless. Permissionless is the conference for crypto-natives by crypto-natives, and the reason it's so important this year is that despite regulators' best attempts to push industry, founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today, the tide is turning. Policymakers have pivoted from fighting crypto to embracing it. Literally now, we are in a major political parties platform, which will lead ultimately to the creation of new financial products, new applications, and ultimately new adoption. Permissionless is the conference for those using and building on-chain products.

It's home to the power users, the devs, and the builders, and perhaps more importantly, I will be there. The location is Salt Lake City, the dates are October 9th to the 11th, and tickets are just $499. If you want to get 10% off, use code breakdown 10. Go to the Blockworks website, blockworks.com. There will be links to register for the conference, and again, you can use code Breakdown 10 to get 10% off. Staying on the financialization of crypto theme for a moment,

Index Fund Giant State Street is moving forward with their blockchain strategy. The $4.3 trillion asset manager has announced a new tokenization platform for institutional clients. In addition to tokenization, the platform will also offer node management and custodial services. The service is in partnership with Swiss crypto company Taurus. The initial focus seems to be on infrastructure support for issuing digital securities and fund management vehicles. Donna Milrod, State Street's chief product officer was clearly disappointed that the state of U.S. regulations have made it impossible for the firm to offer custody to U.S. clients. State Street is the largest custodian bank in the world, but having a banking license makes them

functionally locked out of providing crypto custody services. Milrod said, while we're starting with tokenization, that's not where we're ending. As soon as the U.S. regulations help us out, we will be providing digital custody services as well. We know how to be a custodian. We don't do that on our balance sheet. We do that off balance sheet. They're not our assets. These rather pointed comments are, of course, referring to SEC Staff Accounting Bulletin 121, which requires banks to hold custody crypto on their own balance sheet. Lameen Burhmi, the co-founder of Taurus, also used the occasion to call out the problems with U.S. regulation, commenting, commenting, commenting, commenting, I'm quite sure this partnership with State Street will be a positive signal for the U.S. financial markets in general, which, because of SAB 121, have been lagging those in Europe. Brahimi also noted that tokenization is somewhat limited without the ability to also offer custody,

saying we believe custody and tokenization are the two faces of the same coin, especially when it comes to performing asset servicing of tokenized securities. Another interesting story, Swiss-based Signam Bank has written the first Bitcoin-backed loan offered through a regulated bank. The syndicated loan for $50 million was offered to lending platform Leden against their Bitcoin collateral. Leiden said the loan would be used to ensure clients have more flexible access to capital. Lennon claims to have offered $1.6 billion in digital asset loans over the first half of the year, largely to institutional clients.

Signum's head of credit and lending, Benedict Codle said, with the first Bitcoin-back syndicated loan from a fully regulated bank, Sigmunders is excited to support Leden's future growth and kick-started a new market for institutional lenders and borrowers as the crypto ecosystem matures. Lennon CEO John Glover added that the loan was a, quote, significant step forward in integrating crypto assets into mainstream financial markets. Discussing recent market moves, A new report from GlassNode shows that short-term holders drove the bulk of the selling

during Bitcoin's big sell-off at the beginning of the month. On August 5th, Bitcoin fell by more than 15% as global markets were rattled by the unwind of the yen-carry trade. This plunge took Bitcoin below $50,000 for the first time since February. According to GlassNode data, short-term holders were the most likely to panic sell since the event. This cohort, who have held their Bitcoin for less than 155 days, have been selling coins for a loss for the past three weeks. The average cost basis for short-term holders remained fairly steady, locked in at a little less than $60,000. Given the larger-than-usual divergence between cost-bases and selling price, Glass Note commented, it could be argued a modest overreaction may have occurred as the market sold

off below 50K. Long-term holders rarely exit the market for a loss, and this event was no exception. Profit margins did dip to the lowest they've been since February, but long-term holders on average locked in 75% gains. Long-term holders are currently locking in around 138 million in profit per day, way down from the recent local top of 900 million per day. In terms of realized profit from long-term holders, the charts show similarities to previous cycles. The March 2024 top in price saw a spike of profit taking in line with previous cycle tops. Current levels are similar to both mid-20201 and late 2013, which were both mid-cycle corrections. That said, in terms of predicting where we are in the cycle, this probably doesn't hold a lot of information. This metric also fell to current levels at the end of each

prior cycle. The useful point, then, is that long-term holders are trading the recent correction in the same way they traded in the middle of 2021. This is a distinction from the 2018 bull market, where 30% drawdowns were heavily bought for the entire run. Overall, Glassnode warned that current prices are a perfect setup to make short-term holders nervous. This cohort are the ones that bought Bitcoin at any point since the March all-time high. On average, they have been holding at a loss over the past six weeks. Glassnode wrote that having short-term holders underwater for a sustained period can, quote, lead to a higher likelihood of investor panic and precedes a more severe bearish market trend. This data might go some way to explaining why sentiment has started to get a little tense.

We've had two failed breakout since March, followed by two big drawdowns, but by and large, price action has been painfully sideways. It's been far too volatile to call Bitcoin range-bound, however, there has been a lot of time spent in this range between 58 and 59,000. Samson Mao tweeted, 58K is the new 9K. This comment refers to the $9,000 to $10,000 range where Bitcoin spent a total of 167 days throughout late 2019 and 2020. That period of chopper. was also broken up by some of the most insane volatility markets have ever seen. But anyone that spent time in Bitcoin remembers how boring the summer of 2021 was. We're currently at 35 days of Bitcoin closing between 58 and 59K, so not quite as long, but starting to get there. This range is also notable

as the longest period stuck at a single price anywhere north of 10K. During this period of chop, Bitcoin whales have also slowed down their purchases. According to a report from CryptoQuant, the 30-day percentage change in whale holdings has decreased from 6% in February. The fastest pace since February 2019 to just 1% currently. Historically, Bitcoin price rises usually coincide with whales adding to their stacks at more than 3% per month. With demand from Wales at very low levels, crypto-quant suggests the next logical catalyst to look at as ETF flows. Daily net inflows for the ETF are currently healthy, but way down from where they were as Bitcoin hit all-time highs in March. Last week's daily average saw 1,300 BTC added to Bitcoin ETFs, which was nowhere near enough to

make up for muted demand from Wales. The one cohort of demand that hasn't slowed down over recent months are wallets that CryptoQuant has labeled as permanent holders. These are addresses that only buy and never sell their Bitcoin. The report noted that, quote, despite slower overall Bitcoin demand growth, permanent holders have continued to accumulate Bitcoin at unprecedented levels. The total balance of these holders is growing at a record high monthly rate of 391K Bitcoin. Demand from permanent holders is increasing even faster than it did in Q1, 2024, when the price of Bitcoin exceeded 70K. And so to the extent that you take the biggest signal from those long-term convicted, maybe things aren't as bad or at least as boring as they currently feel. However,

that is going to do it for today's episode of The Breakdown. Appreciate you listening as always. And until next time, be safe and take care of each other. Peace.