The Breakdown - Top 5 Things That Happened in Crypto in October

Starting point is 00:00:00 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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Monday, November 1st, and today we are doing something fun. We're going to do a quick recap of the top five things that happened in crypto in October. it was an extremely, extremely busy month, and I wanted to do this for posterity so that we can look back and see what was happening in what I think will be seen as an incredibly important transitional time. So first up, we have an honorable mention, which is the purchase of the Wu

Starting point is 00:00:52 Tang secret one-off album Once Upon a Time in Shaolin by Pleaser Dow. The backstory here is that in 2015, the legendary Wu-Tang clan released a record called Once Upon a Time in Shaolin. However, they only cut one copy of the record. At the time, they wrote, the music industry is in crisis. The intrinsic value of music has been reduced to zero. Contemporary art is worth millions by virtue of its exclusivity. By adopting a 400-year-old Renaissance-style approach to music, offering it as a commissioned commodity and allowing it to take a similar trajectory from creation to exhibition to sale, we hope to inspire and intensify urgent debates about the future of music. Now, the interesting thing about this is that it wasn't just

Starting point is 00:01:36 that only one copy was available via auction, but also that there was an 88-year restriction on the commercialization of the album. Unfortunately, the person who won that auction was none other than Farma Bro and soon-to-be convict Martin Shikrelli. When he was convicted by the U.S. government, part of that conviction was that they sold assets to repay his debts. One of those assets, you guessed it, the Wu-Tang album. Earlier this summer, news broke that someone had purchased it from the Department of Justice, but we didn't know who until this month, when we found out that it was Pleaser Dow. Pleaser Dow is a collective that is focused on buying objects that they believe will represent significant parts of future culture and finding new ways to allow people

Starting point is 00:02:22 to engage with them. But why it matters and why I'm giving it an honorable mention is that it does convey at least some amount of legitimacy on DAOs. This is an official U.S. government transaction that involves a DAO, which has to be seen as a first. It validates Pleaser Dow as both an artistic and a commercial force, and certainly I feel like it will inspire a lot more action to come. Our sense of the possible is shaped by what we see around us, so to see a DAO interacting and engaging, not just with digital culture, but with culture in general, has to be seen as something that will be a precedent for many to come. why is it in this honorable mention slot? Ultimately, this is a relatively discreet thing that

Starting point is 00:03:02 may or may not have implications for the future. It is still so early in the land of Dow's. In fact, there are probably other things from this month that are closer to a true top five than this, but I think it's so unique that it warrants a mention. But with that, let's get into the quote-unquote real list. And at number five, we have the new Bitcoin all-time high. So what happened? Well, on this one, I don't think. I'm going to have to give you too many details that you don't already know. On October 20th, Bitcoin hit a new all-time high that has been canonized as 66,977, although it went over 67,000 on some exchanges. Why does this matter? Well, Bitcoin isn't known as a roller coaster for no good

Starting point is 00:03:46 reason. We are used to big moves up, followed by big moves down. I think in many ways in the modern era, the biggest psychological barrier that we faced for a very long time was the 20,000 or so all-time high that had been held for three years all the way till the end of 2020. That number of 20,000, even though that was a little bit higher than the quote-unquote official number, was such a marker of what we had to get back to to be seen as legitimate to come out of this long winter that we were in for 2018 and 2019. Now, by the end of 2020, it was clear that we were running up and it was likely that we were going to break through that big psychological mark. And when it broke, the only question was how high we'd run.

Starting point is 00:04:29 Remember, in January, February, this thing was a freight train. The institutional narrative was in full swing. Tesla had followed micro-strategy and square to buy into the whole Bitcoin Treasury thing. There were banks and financial institutions announcing new types of involvement it seemed like every week, and we were just going up. Now, as it turns out, a lot of that was not news. spot demand from these new partnerships, but in fact leverage that was betting on those partnerships, and when the narrative started to shift, it hit hard.

Starting point is 00:04:59 In April and May, we started to see that change. Elon again was involved in that when he walked back Tesla's commitment to Bitcoin by saying that they would no longer accept Bitcoin for Tesla's because of environmental concerns. Then you had China, which started with all sorts of reiterations of their previous bands, but then culminated with the actual out-and-out Bitcoin mining ban that came from the Vice Premier level by the end of the month. These two things together really stopped the momentum dead and in fact shifted us the other direction. Liquidations from leveraged market players made everything seem even more intense and we got all the way back down under 30,000 for a time

Starting point is 00:05:36 over the summer. The question, of course, was, was this just a temporary blip in a larger bull market or was this an unwind to some sort of extended bear market? Ultimately, the new Bitcoin all-time high is on this list because it shows that this was, based on the way that it played out, a break in a bull market rather than an actual shift to a bear market. As that fud finally calmed down, as Elon reached a taunt with Bitcoin, as the great global hash rate migration showed that China leaving the Bitcoin network was not only not bad for it, but potentially actually good in terms of some of those concerns like environmental. The return to this 60,000 level, and of course a new all-time high for a time, showed that we are still firmly in the thick of this particular

Starting point is 00:06:18 bowl cycle. Now, ultimately, though, it did get the lowest slot because prices are always just the story of where things were then, and what matters is going forward, not where we've been. Nighting sponsors this podcast, and they are the go-to Bitcoin Company for banks and credit unions as well as corporate treasuries, fintechs, and hedge funds. Learn more at nightig.com n-L-W. That's nydig.com slash nLW. Fourth on our list of the top five things that happened in October, we had quite the quietly active institutional month. It wasn't really in focus. There was so much price discussion, of course, and so much regulatory discussion, which we'll get into, presumably at some point,

Starting point is 00:07:09 in this top five. But still, every week it seemed like there was something new on the institutional front. There was backed partnering with MasterCard to offer custodial wallets and new types of loyalty programs. There were pension funds from firefighters and teachers that were investing either directly in Bitcoin or in companies in the space. Bank of America, the second biggest bank in the U.S. announced that their research division would begin covering crypto and then promptly called it too big to ignore. U.S. Bank, the fifth biggest bank in the country, announced that they would launch crypto custody with four cryptos to start. These are the sort of big moves from traditional financial institutions that we saw advertised and PR'd to the hilt around February and March, but had been kind of quiet over the summer. Now, that crypto custody by U.S. Bank was powered by Nidig, who was involved in a lot of news this month.

Starting point is 00:08:01 Nidig, of course, appreciate them for sponsoring this show. But in addition to the U.S. bank news, we also saw news that New York's five-star bank in California's Unified Financial Credit Union would be the first U.S. institutions to offer Bitcoin trading through the Q2 digital banking platform, which is offered by Q2 in partnership with NIDIG. This platform effectively is a white label platform that plugs directly into banks, desktop, and mobile apps, so customers of Five Star and Unify will be able to trade Bitcoin right alongside their Fiat banking modules. NIDIG also bought Bottle Pay, a British payment startup focused on lightning for around

Starting point is 00:08:35 $300 million in stock, which has made some excitedly wonder if that means they're going to try to bring lightning connectivity to these traditional financial institutions now. In addition to everything going on with Nidig, we also saw one of the world's biggest asset managers, Pimco, who was traditionally focused on fixed income with their $2.2 trillion of assets under management, tell CNBC that although they already had exposure through CryptoLink's securities, they were planning to increase their exposure to this asset class. On top of all that, Jack Dorsey's Square announced they were likely to do a deep dive into Bitcoin mining, bringing one more legitimate U.S. institutional player to that space.

Starting point is 00:09:13 Finally, Jamie Diamond made some comments about finding Bitcoin worthless that people completely ignored showing you just how far this institutional narrative had come. I think all this matters for a couple reasons. Obviously, this combined with the all-time high puts that institutionally driven narrative right back on the agenda. That was the one that we had leading into this year, leading into the first couple months of this year. On top of that, though, each of these moves has the potential to extend the bull market, or even if not extending the bull market through prices,

Starting point is 00:09:45 bring in new customers and clients and participants into this market in a way that's going to fuel the next bull run whenever that happens. Now somehow, despite all that, I have it at number four, and that's only because while this is a significant story, it's really the story of a renewed narrative after a summer that had pulled us away. For our number three slot, we have a seemingly never-ending list of policy battles. So what happened? Well, the month started off with some amount of stablecoin saber rattling, which really portended what was going to be for the entire month. As I'm recording this, it seems like we're finally going to get this White House Treasury Department report today around stable coins, but this has been background noise for the entire month. Then at the beginning of the month, the SEC subpoenaed circle, presumably around stable coins and their related interest yielding program.

Starting point is 00:10:35 SEC Chair Gensler testified before Congress and had lots to say about the crypto industry. We found out that the White House was thinking about an executive order on crypto. It seems like that's the direction they haven't gone. The Bank of England issued a statement around fears about crypto's potentially negative role on financial stability. The CFTC fined Tether and Bitfinex to the tune of 42.5 million, focused particularly in Tether's case on the claim that it was fully backed by U.S. dollars. The New York Attorney General issued cease and desist letters to Celsius and Nexo around their crypto lending programs. The Treasury Department asked for crypto's help around sanctions. The FDIC, the Federal Deposit Insurance Corporation, said that they wanted to find a way

Starting point is 00:11:14 to get banks to be able to custody and interact with crypto. Hey, a positive one there, right? The acting CFTC chair claimed in testimony during a hearing confirmation that nearly 60% of cryptocurrencies are commodities. If Congress accepts that logic, that will obviously have big implications for who is in charge of regulating cryptos, a job, which, by the way, the CFTC said that they were very interested in doing, even though it seems as though the SEC has been gaining ground in its fight to be the regulator for cryptos as well. And then, of course, there are a few really big ones. In Congress, Patrick McHenry introduced the Clarity for Digital Tokens Act of 2021. This would basically be a legislative enshrining of a proposal similar to SEC Commissioner Hester Perce's

Starting point is 00:11:57 Safe Harbor proposal. In other words, a way for token-based projects to start as something that looks like a security but then have a process to end up as a decentralized commodity without running a foul of the law. Coinbase and Andrews and Horowitz both introduced their own policy frameworks that focused on crypto, importantly showing that the industry is increasing their focus and engagement in this space. And speaking of which, Doe Kwan and Terraform Labs actually sued the SEC this month around due process, relating to subpoenas that were served in September at the Masari Mainnet Conference. So why does that? this matter? Well, it definitely is setting the stage for everything that comes next. We are at a hugely

Starting point is 00:12:39 significant, liminal, in-between period for U.S. crypto regulation, in which something has to give and something has to change. And right now, everyone is competing to have their version of things be the direction that we head, but with no real clarity around what's going to happen. It seems likely that tomorrow's show will be able to focus a little bit on one possible direction as this White House report comes out But this is really, really significant stuff. I think, in fact, that you could probably argue that this deserves to be even higher than this number three slot. What then could possibly be number two and number one? Well, number two, I think, is a little bit of a bet on the future as well as a recognition of the past.

Starting point is 00:13:18 I have as number two on the most significant things that happen in crypto in October, the announcement of Facebook's meta. You may be saying, well, what the hell? This is just Facebook changing its name to get away from scrutiny. it's doing the Google Alphabet thing, and sure, they're putting up $10 billion in a commitment to this space, but it's Facebook. Why does it matter? Well, a couple things. First, I believe that there's another subtext going on of real questions about what Silicon Valley's role in Web 3 is going to be. Silicon Valley ruled Web 1. They created Web 2, but Web 3 is being built everywhere and nowhere all at once. It's being built by different types of collectives that aren't the same

Starting point is 00:13:57 types of corporations that venture capitalists funded in, and I think there are very serious questions about whether Silicon Valley's hold on the future of the internet has been broken. Still, I think that's relatively less significant than the specifics of what role Facebook has. To read Web3 creators, this is an existential threat. Yes, there might be lots of adoption, but a Web 3, a Metaverse, created and owned by an entity, any centralized entity, but certainly Facebook is something that kind of scares people. The reason that I also put this as highly as I did, even though it's so much about the future,

Starting point is 00:14:34 is that I can't ignore how significant it was for Facebook to wade into the crypto space when they announced Libra. In my estimation of years of everyday content creation, no event was more significant in getting the governments of the world engaged in this space than Mark Zuckerberg saying that he wanted to create his own type of money. I don't know that Facebook's Metaverse play will have that sort of impact, at least not as fast, but I can't ignore how big a deal it was when Libra was announced and how many ripple effects it had. Last but certainly not least, number one on the top five things that

Starting point is 00:15:12 happened in crypto in October has to be the launch of the first Bitcoin futures ETF. I have talked so much about this this month, why it matters, why it's significant, the records that it broke, second biggest day one ever for an ETF, fastest ETF to ever get to $1 billion in assets under management, which it did in just two days. But the reason that I'm putting it in this number one slot, even though it really is a part of this extended institutional narrative, is that when we look back,

Starting point is 00:15:42 this is what this month will be remembered for. Sure, there will be a new all-time high. And yes, a lot of the regulatory scramblings that we saw this month will have probably metastasized into burst into real fights, that we look back and see their beginnings on from now. But when we think about October 2021 in the Bitcoin lineage, in the crypto lineage in general, we will be remembering it for the first time that an official Bitcoin product was allowed to trade in U.S. markets in this way. So anyways, guys, I hope you enjoyed this quick look. I'm interested in your takes.

Starting point is 00:16:14 There are probably some very, very different thoughts about this. Let me know if you like this. Let me know if you disagree. And as always, I appreciate you listening. Until tomorrow, guys, be safe. and take care of each other. Peace.

The Breakdown - Top 5 Things That Happened in Crypto in October

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