The Breakdown - The USG is Selling $2B Worth of Bitcoin

Episode Date: December 4, 2024

The outgoing administration doesn't seem keen on President-elect Trump's Bitcoin Strategic Reserve, as they prepare to sell billions worth of seized BTC during the lame duck session. 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, December 3rd, and today we are talking about the U.S. government selling its Bitcoin. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a reading, 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, the U.S. government appears to be selling another tranche of Bitcoin. According to on-chain data from Arkham Analytics, the government sent 19,800 Bitcoin to Coinbase worth around $2 billion.

The funds were part of a seizure from Silk Road hacker James Zong in 2022, totaling 50,000 BTC. The government obtained a court order allowing them to liquidate the Bitcoin earlier this year. Since the U.S. Marshal Service signed a deal with Coinbase custody earlier this year, it's become a lot more confusing to figure out what the government is doing with their Bitcoin. Half of this transaction appears to have been deposited with Coinbase Prime, with the other going to a fresh wallet address presumed to be Coinbase Custody. Finance lawyer Scott Johnson has pointed out that the custody agreement requires the government Bitcoin to be stored in a segregated

account at all times. Coinbase Prime doesn't fit that description, so in Johnson's opinion, the government is quote, selling or sold already. On-chain analyst, Sani has been tracking the legal status of the government's roughly $18.5 billion worth of Bitcoin. After selling $10,000,000, BTC yesterday, he believes there's another 60,000 Bitcoin the government is currently allowed to sell worth roughly $6 billion. Notably, this doesn't include any of the Bitcoin seized from the Bitfinex hackers, some $9 billion worth. BitFinex will presumably mount a legal challenge to force those assets to be returned, which could drag out well into the future. And while this sale went through the legal process and was planned for years, it's impossible to separate it from the

political statement it represents. President-elect Trump campaigned and won on a platform of retaining the government seized Bitcoin to form a strategic reserve. Assuming the government doesn't get to hold on to the 94,000 Bitcoin from the Bitfinex hack, this is a large chunk of the government's Bitcoin being sold for no reason during the lame duck period. Space Force Major Jason Lowry tweeted, Just so I have something on permanent record that I can point to in the future. This is a huge strategic mistake. There is no price where it makes sense for the U.S. to sell any Bitcoin it has under its control. They have no idea what they own and it shows. Remember this post when they inevitably try to justify a new version of Executive Order 6102 to reclaim the Bitcoin they sold off

due to their ignorance about the true significance of this technology. Alex Fanovic of Nansen is confused, commenting, why would the U.S. government ever sell Bitcoin? They can just print the money instead. Mandrick is happy for the buying opportunity, tweeting, I hope the USG dumps all their Bitcoin on Coinbase, give the plebs an opportunity to stack cheap sats, while assuring the government will have to buy back higher at a later date. Yes, please. One notable thing about this round of government selling is the relatively small impact on

price. Bitcoin plunged by 3% as the news broke, but had recovered more than half of the drawdown by the evening. In August, when the government sold 10,000 Bitcoin, price dropped by 4%, even though this was a much smaller size in dollar terms. And that's to say nothing of the utter bloodbath that came as the German government sold around $3 billion worth of Bitcoin back in July. Perhaps the market is starting to internalize that the government's size is not size. Bitcoin analyst Chui wrote, before you freak out about 10,000 Bitcoin being added to exchange for the government to dump, remember one company bought 15,000 Bitcoin just this past week. That company is, of course, Micro Strategy, who confirmed the purchase of $1.5 billion worth of Bitcoin

over the past week. They secured 15,400 BTC at an average price close to $96,000. Micro Strategy now holds $38 billion worth of Bitcoin in total, around 1.9% of the total supply. The company appears to have sold around half of their $21 billion equity shelf offering, which began at the end of October and was intended to last three years. They bearer. begun on the intended debt issuance with just $3 billion of the $21 billion issued. This is the fourth week in a row where Micro Strategy has bought billions in Bitcoin. And strangely enough, the market reaction is starting to dampen. The announcement served the price around 2%, which quickly retraced when the government moved

their Bitcoin. There also wasn't a lot of evidence that Micro Strategy drove the market higher during last week. Price action was choppy, but ended in a round trip to around $98,000. Perhaps this was caused by Micro Strategy dialing back their voracious buying habit. last week's purchase was less than one-third of the size of the $5.4 billion buy from the week prior, or maybe the market is simply getting used to Micro Strategy as a large and predictable buyer. There's clearly enough liquidity to support the purchases and the announcements are no longer a narrative focus.

Micro Strategy purchases are now part of the weekly cycle. Every week, the network produces 450 BTC and Block rewards, and Michael Saylor buys 30 to 60 times that much. Even Micro Strategy stock is no longer reacting, with the shares trading slightly down on the day. Content producer Rajat Sony confirmed that hunch tweeting, Retail investors seem to be getting bored of micro strategy. Views on a YouTube video I posted 49 days ago talking about micro strategy versus Bitcoin dropped

over the last few days. A trader going by Noah wrote, Volume on MSTR was anemic today. There's an implicit opportunity cost and upside expectation of recent retail buyers. It needs to start outperforming the market soon or there will be an unwind. Even the Tradfi analysts have simmered down no longer obsessed with how Microstrategy is doomed to failure. And while the idea that a billion-dollar Bitcoin buy no longer moves the needle is strange, it's probably a good thing for the company.

Sailor can get back to quietly selling debt and stacking sats just like he's done for the past few years. Today's episode is brought to you by Bitkey, the hardware wallet built for Bitcoin. Made by the team behind Square and Cash App, Bitkey makes securely managing your Bitcoin absurdly simple. BitKee is integrated with partners like Cash App, Coinbase, Robinhood, and Blockchain.com, so you can easily compare prices across exchanges before you buy or sell. And their app works like the money apps you already use because simplicity is the best form of security.

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Get yours today online at Amazon, Best Buy, or Bitkey.world. That's B-I-T-K-E-Y. World. The other big news from Saylor is the release of his Microsoft Bitcoin pitch. The three-minute video was presented ahead of the virtual shareholders meeting next Tuesday when a vote will be held on whether to adopt a Bitcoin Treasury strategy. Saylor said, Microsoft can't afford to miss the next technology wave, and Bitcoin is that wave. Bitcoin represents the greatest digital transformation of the 21st century. It represents digital capital. A large part of the

pitch was that Bitcoin purchases are likely to be more value accretive than stock buybacks. Saylor argued that Microsoft has surrendered hundreds of billions of dollars worth of capital over the past five years pursuing large buyback schemes. He also pointed out numerous challenges faced by the operating company, which wouldn't apply to a Bitcoin investment. Saylor added, if you want to escape that vicious cycle, you're going to need an asset without counterparty risk. He argued that Microsoft could add $4.9 trillion in enterprise value by 2034, by converting their cash flows, dividends, buybacks, and debt into Bitcoin. By comparing a Bitcoin purchase to stock buybacks in bond investments, Saylor really drew a fine point on the issue. Microsoft announced

$60 billion in stock buybacks in September, and the stock is basically flat since then. Saylor also argued that Microsoft's bond portfolio has lost 5% of its value over the last four years. That period was an outlier for Treasury bond performance, but it demonstrates the problem. Closing the presentation, Sailor urged Microsoft to, quote, do the right thing for the world, adopt Bitcoin. The response to the brief but comprehensive video was resoundingly positive. Preston Pish wrote, brilliant compression here, Michael, and we all know what that means. Will Microsoft voting members apply enough energy and effort to decompress the masterpiece you've dropped off at the front door? Time will tell.

Luke Broil's of Blockware tweeted, 58 slides in 191 seconds or 3.2 seconds per slide. sad that the time preference of one of the largest technology companies in the world only has three minutes to discuss the potential benefit of the unmistakably most controversial new technology and money of the last decade. He would think shareholders who apparently care about both technology and money would demand more than three minutes. Pulling back the curtain at a separate event yesterday, Saylor explained the process that went into making the video. He said he recorded the speech 21 times, trying to jam everything into the tight time constraint. Sailor unpacked what he was thinking while recording the speech, commenting, This is not really a presentation just for Microsoft. This is a presentation for every company on

Earth. It wouldn't be any different if I was talking to Google or Apple or meta, if I was talking to IBM or Disney, or any of the 2000 zombie companies in the Russell 2000. The idea starts with this observation. Great companies are defined by catching the wave, whether it's the personal computer wave or the internet wave or cloud or AI. Characteristically, what happens is there are some people who notice the wave. Then you have everybody else who just dismisses it and refuses to accept it's even happening. Right now, the wave is digital capital. Most people don't even know it's a wave. They don't even know digital capital exists. They dispute it's happening. The choice ultimately will come down to shareholders at next Tuesday's meeting. The board has urged

shareholders to vote against it, and it seems super unlikely that the vote will pass. But then again, we don't know how BlackRock or Fidelity will register their proxy votes, which could represent up to 8.5% of the shares. Going a little under the radar at the moment is the second largest Bitcoin holding company Marathon Digital. The Bitcoin miner has really leaned into their Bitcoin acquisition plan so far this cycle, building a $3.3 billion stack. On Monday, Marathon announced the $700 million convertible debt offering to finance their next tranche of Bitcoin purchases. The convertible debt will be issued at zero interest rates with the 2031 maturity date.

The company said that around $50 million would be used to retire old debt with the remainder free to buy Bitcoin. The issuance is already oversubscribed and will be upsized to $850 million, with an option to extend to a billion if the demand is there. This is the second round of convertible debt issued by Marathon in the past few weeks. The last round closed at a billion dollars, also vastly oversubscribed. At this point, Marathon's mining business feels like an afterthought, even though it's the largest in the U.S. They mined around 86 million worth of Bitcoin in November.

The 907 Bitcoin was a 27% increase from the previous month and a new record. However, the stock received several downgrades last week. Analyst pointed to the core business posting a $125 million net loss last quarter, alongside the traditional view that convertible notes are a sign of trouble. In their downgrade note, Compass Point said they don't anticipate further upside from the core business. The stock is up 65% over the past month, but still below year-to-date highs. It's trading at a 2.5x multiple to the Bitcoin Treasury, assuming all the facilities, equipment and land they own are worth nothing.

This all suggests that the street isn't really valuing the rapid pace of Bitcoin accumulation, which is more than doubled in the past five months. Or they are concerned about ballooning debt burden. Either way, Marathon has not been rewarded for doubling down on a Bitcoin Treasury strategy in the same way that Micro Strategy has. Lastly today, Enron, one of the most famous corporate frauds in history, back. And apparently they are trying their hand at crypto. On the 23rd anniversary of their bankruptcy filing, Enron relaunched with a slick new website and announcement video. The company said they were

ready to atone for their misdeeds and would dedicate themselves to, quote, solving the global energy crisis. The website claimed the company was looking to advancements in decentralized technology and intends to latch on to permissionless innovation to reshape the energy sector. This, of course, led the crypto community to ask about the token, with Enron responding that they haven't launched anything yet. The denizens of Pump. Fun, of course, filled the void, firing off a dozen Enron tokens within the hour. The entire presentation was constructed out of generic stock images and draped in corporate gibberish, making it vaguely believable as a genuine relaunch. It also wouldn't be out of the ordinary for a dead brand name to be revived to promote a token.

Thoughts of Long Island blockchain or Radio Shack immediately come to mind from previous cycles. The parody was almost perfectly balanced and gathered various levels of credible reporting from the press. However, on closer inspection, the parody was obvious. It turns out the trademark had been purchased in 2020 for $275 by an LLC called the College Company. The co-founders of that firm were made famous by the mock conspiracy theory Birds Aren't Real, which supposes that pigeons are actually elaborate robotic spy gadgets. The website even noted it was First Amendment protected parity and that it, quote, represents performance art and is for entertainment purposes only. It's unclear whether the new version of Enron intends to launch a meme coin, or if they're simply trying to sell

some merch, available in abundance from the website with a huge markup. However, the site does feature a countdown time are set to expire next Monday. With the teaser line, we have something very special to introduce. They also seem to have put up some capital behind the plan with billboards showing up in Houston. Some on the more serious side of financial commentary were not very impressed. Demetri Kofenis of Hidden Forces tweeted, someone bought Enron because they knew that resurrecting a brand associated with one of the largest scams of its time will pump really hard as a shi-coin. This is what financial nihilism and casino capitalism look like. Others were nostalgic for a time when the real financial crime happened on stock exchanges.

with crypto lawyer Stephen Pally writing, as an Enron shareholder who got wiped out by the bankruptcy, I am here to say that I would absolutely repeat my mistake and buy a pile of Enron tokens. Blockworks co-founder Jason Yanowitz tweeted, Enron is back and they're launching a token. Now two generations can get rugged by Enron. Hirsch added,

My grandpa lost money on Enron and now I will lose money on Enron. Another take is that this is a signal of where we are in the cycle. Bitcoin Policy Institute fellow Matthew Pines wrote, Enron is back, Hunter is Pardon, Ripple is worth more than BlackRock and you're bearish anon? Bloomberg's Matt Levine extended that take to the state of modern capital markets in general, writing, in 2001 or 2011, fraud was a bad thing. If you were launching a new company and someone offered to sell you Enron's name and logo on a website, you would say no thank you. That name and logo and website were bad. They would not help you raise

money or get customers. Nobody wanted to invest in Enron, what with it being synonymous with willful corporate fraud and corruption. In 2024, things are different. Standards are lower and people are up for a bit more fun. If you launched Enron Corp on the stock exchange today, even without a business, the stock would go up because that is funny. Or, as Elon Musk might say, the most entertaining outcome, especially if ironic, is the most likely. That's going to do it for today's breakdown. Appreciate you listening, as always. Until next time, be safe and take care of each other. Peace.