The Breakdown - The Mounting Evidence of a New Bitcoin Bull Market

Episode Date: August 8, 2020

This week’s Breakdown Weekly Recap is all about that vibe you’ve been feeling - that inescapable notion a new crypto bull market is afoot.  NLW looks at the evidence: Rising gold price Recirculation of crypto money out of zombie protocols  New growth in small holder addresses Demand from emerging market p2p markets    It’s just possible this new bull market isn’t just starting to be seen in narratives, but is also showing up in numbers.   

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, BitStamp, and nexo.io. And produced and distributed by CoinDesk. What's going on, guys? It is Saturday, August 8th, and that means it's time for the Breakdown Weekly Recap. This week's episode is pretty simple, man. It is about that bullman. market vibe that you are feeling. I want to reflect just briefly on what's driving it, what evidence

there is, and what might happen next. First of all, evidence for this, there's obviously a price to mention. We saw Bitcoin get up over 12 briefly before having a dump, but it still had this great week of around 11,700 for a couple days. Admittedly, I am recording this on Thursday, so I'm not sure what happened on Friday and Saturday morning, but it's still a really good, solid look, and it feels like something has been reset where maybe 11,000 is now the new bottom. Part of the reason for that, certainly popular narrative-wise, at least has to do with the dollar. The dollar is going through a long period of retreat after a huge explosive growth right after the crisis in the beginning of March.

The DXY, which is the dollar index that measures it against a basket of other currencies, is down again on Thursday to around 92. It was at 97 a few weeks ago and got as high as 102 earlier in the year. Some think that this is really more of a story of the euro's strength than it is of the dollar's weakness, and there's some evidence of that. And if you want that perspective, I recommend going and following Jeff Snyder, who is always going to have interesting things to say. However, it's hard not to look at some other commodities like coffee, like lumber, etc., that have all seen significant price rises and not conclude that there is some real weakness in the dollar. This is, of course, obviously showing up in gold as well, which at the time of recording

was on its fifth day of record highs. After breaking that psychological barrier of 2000, gold has continued to scream. And in many ways, the interesting thing about that story to me is who's getting involved. You're seeing more articles that are about the fact that gold is an institutional bet in an increasing way, that institutions who had previously just only looked at treasuries and government bonds as their safe haven are potentially diversifying into gold, where they're hugely under-indexed because it potentially has some upside, especially in the context of a real negative interest rate world. Of course, the interesting thing here is there's a real intersection of narrative but also

data. If you listen to my interview with Keith McCullough from Hedgeye earlier this week, you will hear that he is not a narrative guy. In fact, he says in his own words that most narratives are bullshit. Instead, what he focuses on is what data is telling him particularly growth and inflation data about what secular moment we're in. And right now, he sees us in something that is resembling the beginning of a stagflation period, with growth declining but prices inflation rising. That creates a context for commodities, for emerging market stocks, for Bitcoin to do well. But is there other evidence of where Bitcoin might be showing up as a new bull market? And of course, the answer, if you've been following along at all this week, is yes.

Two specific examples I want to point to. The first is Square. Square had an absolutely monster quarter when it came to Bitcoin revenue. It was $875 million, which was up 186 percent quarter. to quarter and 600% year over year. This suggests that more new actors are getting involved, as Square's cash app is one of the most popular ways for new entrants to join the market. That's also seen in the number of small holder addresses, which is at 16.6 million, a new all-time high, up 14% from the previous peak of 14.5 million in January of 2018. That data comes from

Glass Note, and again, suggests that there's more small holders than ever be. which is an incredibly bullish sign if you see a lot of new people coming into the market as a bullish sign. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is crypto.com. Crypto.com offers one of the most cost-efficient ways to purchase crypto out there, as they've just waived the 3.5% credit card fee for all crypto purchases. What's more?

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What's more, interest is paid out daily, and you can add or withdraw funds at any time. Get started at nexo.io. Another interesting point that I've read about the potential new bull market has to do with defy. Anil Lula from Delphi Digital wrote on a coin desk opet about how he saw money from the sort of zombie protocols from the first wave of ICOs being recycled into defy. And certainly, defy has had a huge breakout year. The total value locked in defy is up over $4 billion, and it's increasing every 10 or 11 days by another billion. These protocols are moving much more quickly, and while some people are still, I think, rightly nervous about what happens when more, especially

less mature, less knowledgeable money floods into that space, there's no denying that these defy protocols have much more substance than a lot of these project promises that we saw funded the first time around. There is also, unfortunately, the global pain dimension of this story, which has to do with the fact that part of the challenge right now is that many emerging market currencies are having a very hard time. Turkey has spent $65 billion, according to Goldman Sachs, trying to defend the price of its currency, but it keeps falling. It's down 18% on the year and was just down 3% on Thursday alone of this week. Those create incentives for people to try to flee their local monetary regimes, and I think that we're seeing so far over the course of this

year that that's shown up in USD stable coins, but it also might find its way into Bitcoin as well. Kevin Rook pointed out that there were P-to-P Bitcoin volume all-time highs in India, Kenya, South Africa, Ghana, Argentina, and Chile all this week. So clearly some number of people are exchanging for Bitcoin in these situations. Now on this front, there was a really interesting conversation kicked up by Meltem Demers last week that had to do with the fact that these places shouldn't be seen by the Bitcoin community as just case studies. And what I think Melton was saying is that we have a tendency or we can have a tendency to be too clib with how we discuss these places, as though they exist only in the context of whether they can be an interesting market for Bitcoin.

I think her appeal was to have some humanity and understand the economic turmoil that drives people to this, rather than to say that Bitcoin doesn't have a role in these places. But I think it's important to keep these things in mind. Bitcoin is the type of escape from a local currency regime that is incredibly powerful and new and such a positive force for existing, but the fact that it has to exist in many of these places, while inevitable, still reflects a lot of economic pain and turmoil in many cases. I don't think it's at all inconsistent to be saddened by the context that drives people from their local currencies to something like Bitcoin, while also appreciating the fact that it is

amazing that we live in a time when people have the ability to exit those local currency regimes that are no longer serving them. If anything, it should make us want to make these systems easier for people to opt into, be they Bitcoin, be they stable coins, be they other financial infrastructure as it matures. The competition of non-state money and non-establishment infrastructure could be one of the most powerful release valves for the right type of savvy audience around the world of anything we can imagine. But only if we make it so. So maybe I'll do a short version today and just leave it there and let us think about what else can we do to make this infrastructure, alternative that is being built, that is giving people who are enfranchised technologically a way to

opt out of that and opt into something different, how do we make that easier for them? How do we expand the number of people who can actually take advantage of that system to do something better for themselves, for their families, for their community? There's a lot of great people working on exactly that. It's one of the things that I care about most in this industry. And it's one of the things that I would love to see characterize this new bull market if that's in fact what we are going into. At the end of the day, however, I keep coming back to that conversation with Keith from Hedgeye earlier this week. He is just so not a narrative guy as much as I am. And I would love to see a bull market, a new Bitcoin bull market, a new crypto bull market that is numbers, not narratives,

and data not dreams. Let's see if that's the case. Until tomorrow, guys, be safe, take care of each other. Peace.