The Breakdown - Travis Kling on the BTC Bump and Safe Haven Status

Episode Date: January 8, 2020

The conversation about whether bitcoin is a safe haven asset continues in the wake of Iranian missile strikes, which saw the price of BTC both surge and retrace in parallel with crude and gold. To help explain what’s going on, we feature comments from Ikigai Asset Management’s Travis Kling.  Also in today’s episode, we look at newly published priorities from the SEC around crypto including investor suitability, trading practices, and compliance program effectiveness. We also discuss former Bakkt CEO and now Georgia Senator Kelly Loeffler’s appointment to the committee that oversees the CFTC. Is it a conflict of interest, something good for the crypto industry, or both?

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDisc. Welcome back to The Breakdown. What's going on, guys? It is Wednesday, January 8th, and today we are going to be starting by looking at this ongoing question about whether Bitcoin is a safe haven asset with some new evidence from last night during the retaliatory strikes from Iran. and that will feature comments from Travis Kling, who's an investor at Aikai and who has actually joined us on the show before to talk about whether Bitcoin is or is starting to act like a safe haven asset. Next, from there, we're going to be looking at the SEC, who has just published a set of priorities, including a set of priorities for crypto in 2020. And third and finally, we're going to be looking

at a recent senatorial appointment, one of the first crypto-native people to be appointed to the Senate and their new role on a committee that oversees the CFTC. And we're going to talk about whether there might be a conflict of interest or whether it's actually good for the industry. So that's where we're going for today. And first, let's dive into this question of Bitcoin as a safe haven asset. Ever since the middle of last year or so, there's been this ongoing and kind of background conversation around whether Bitcoin is a safe haven asset or whether it might start to act more like a safe haven asset as the world gets more unstable. So a safe haven asset being akin to gold, as opposed to a risk asset, which is something like traditional venture capital. And there's a wide

variety of perspectives on this in the industry. There are folks who are very sure that it is still a risk asset. There are folks who are pretty convinced that it's starting to show behavior like a safe haven asset. And there's a lot of perspectives in between. This question has gotten another context and sort of accelerated again around the Iran situation with the U.S. So people started to ask this again last week as we saw Trump take military action against Iran. And now last night, we saw Iran respond and bomb U.S. interests in Iraq. And as that was happening, the price of Bitcoin went up. Bitcoin peaked between 8,400 and 8,500. Now, it's withdrawn slightly since then, but there's no doubt that over the course of the evening last night, the Bitcoin price increased

pretty significantly and continued to as the news started to sink in. Now, interestingly, Travis Kling, who's an investor at Aikai Asset Management, had tweeted out a chart on January 6th about the price of gold, crude, and Bitcoin. So it showed all three prices in a single chart, from a few weeks before the Soleimani assassination headlines up to now. And you can see very distinctly that all three of these assets are growing in pretty close tandem, right? And there seems to be some indication that all three of these assets are having a similar response to the increased instability, the questions around whether there's going to be more conflicts, what Iran's going to do next.

And then he updated that chart last night to show just how at the point at which the Iran missile attack headline started to come in, all of those assets, again, similarly went up. And by the time the evening had ended, he was actually starting to watch all of them retrace a little bit in kind of correlated fashion. So I thought it would be interesting. Rather than me try to give my analysis of this, have Travis come on and actually explain it for himself. So I talked to Travis last night about this particular set of correlations and what it might mean for Bitcoin as a safe haven asset. What's up? Nathaniel and crypto Twitter.

On January 3rd, I posted a chart on 15-minute intervals of gold versus. crude versus BTC when the Soleimani assassination headlines first hit and crude and gold spiked on that news. Bitcoin spiked shortly thereafter. They both kind of continued to move up over the next several days, although crude gave back some portion of its initial gains. And then just last night, I posted an update to that chart showing crude and gold. and Bitcoin all spiking in totally real time on the Iran missile attack headlines. First thing I want to say is I don't want to make light of the seriousness of the underlying situation.

It is a gravely serious and sad thing to be happening. And my heart goes out to the soldiers and to the people in that part of the world that are affected by it. I certainly wish none of it was happening. Just from a market's perspective, this is something that I talked about. on a video with Nathaniel last year that I think he's going to post a link to around quant macro funds, CTAs and risk parity types of strategies that are trading Bitcoin alongside other global macro assets and those things are moving in concert with one another. There's also the discretionary

human traders that are watching really big current events unfold and BTC spiking in real time along with gold and crude. And actually just as of very recently the last call it hour, gold and crude are starting to pull back off of their highs and BTC has pulled back some along with them. You can sort of say whatever you want to about correlation and causation and that sort of thing. I think instead of posting commentary about it on Twitter, I just posted the chart and let people decide for themselves.

So the interesting thing for me is that it keeps coming back to this question of is Bitcoin a safe haven asset or is it going up at the same time other safe haven assets are because people are treating it like a safe haven asset? And I do believe there's a distinction between those two things. One is based in historical precedent. One is based on future speculation. At the same time, I do believe that markets are subject to powerful forces of self-fulfilling prophecy. And that to some extent, if every time there's a major event which triggers a spike in the price of safe haven assets, and we see correlation with Bitcoin when that happens, at some point that speculative future looking becomes self-fulfilling prophecy. And we get further and further away

from the idea of it just being a speculation about it being a safe haven asset and more in terms of behavior to suggest that it is behaving as such. Now, again, we're still really early days. I'm hesitant to call it a safe haven asset now. However, it has to be noted that it keeps behaving like one, even if it's just speculators betting that at some point in the future it will be. So interesting stuff and certainly a situation to continue watching. But let's move on for now to our second subject, which is the SEC and their crypto priorities for 2020. Okay, so the SEC has an office called the Office of Compliance Inspections and Examinations, OCE, that each year publishes a list of their examination priorities.

And this year it was interesting because, well, in previous years, this report and these priorities have mentioned digital assets. They tended to do so in very passing fashion, right? Very brief fashion. So in the past, it was a brief mention of initial coin offerings, ICOs, and just sort of a general warning of the risks of digital assets for retail investors. This year, it was much more explicit about what their priorities were. They got, you know, very kind of tangible about that. So Catherine Wu, who is an investor at notation, capital formerly of Masari, who's contributed to the breakdown numerous times. She was on our end of your program. She summed it up as such. She said that the SEC's 2020 priorities in

crypto include one investment suitability. So are people actually investing in things that make sense for them? Are investments actually right for the types of people who are putting in money? Two portfolio management and trading practices. Three safety of client funds and assets. Obviously, this is a huge issue as it relates to investor protections and the frankly, not always great track record of exchanges and other ways that people custody assets. Pricing and valuation, obviously over the course of the last few years, there's been huge concerns around market manipulation, around wash trading, around exchanges basically withholding information to make things look different and to cover up certain bad behaviors

that might be artificially inflating prices. Number five, effectiveness of compliance programs and controls. Basically, they want to make sure that if they're creating compliance programs, that are intended to keep investors safe and to make digital assets a safe space to mess around in, that those things are actually working. And finally, six, supervision of employees outside business activities. You know, in any industry, there's a question about information as it relates to people who have inside information about big news that might change the price of assets and what those employees do with that information. This is the major part of what the SEC does in traditional

markets, so that's a priority for crypto as well. So in a lot of ways, I think that this is largely positive, and here's why. It tends to be worse, I believe, for the crypto space and for digital assets in general, when regulators only pay attention when things go badly. Now, the risk when regulators start to pay much more attention is we get overburden some regulation or over-involved regulators or whatever. But I think that perhaps the biggest challenge from regulatory standpoint in some ways is the fact that regulators have to create new mental models and new actual frameworks for how they regulate, how they think about these digital assets, which really do represent a different category that doesn't fit neatly into boxes. And the only way that that happens

was, frankly, with more time on task, with more spent researching, with more time spent trying to understand. So the fact that we're seeing this six-part list that, frankly, looks both like a traditional set of investor protections, but also seems to recognize some of the unique challenges of this space. I think to me that that signals a seriousness with which they're taking it. Now, all of that said, there have been folks who have basically put a flag in the sand or a line in the sand and said they simply don't believe that the SEC under Jay Clayton will ever be truly friendly to digital assets. And maybe that's the case. You know, maybe this is actually bad news for crypto because it just ends up with more and more of these regulators trying to put it in these

traditional boxes. But I have to be at least a little bit optimistic that being more comprehensive and thoughtful about it ends up benefiting the industry. But I want to turn now to another dimension of regulation, which is congressional oversight. And specifically, a story around one particular congressional officer who is now going to have specific oversight over a different regulatory body, the CFTC. Last year, we found out that Kelly Loeffler, who is or was at the time the CEO of BACT, was being appointed to an open Republican seat for Senate in Georgia. Now, the appointment happened.

There was some intrigue there. It was apparently it was a governor appointment that Trump was not in agreement with. But for those of us in the crypto industry, it felt like holding aside any other political positions that might be, there was finally a person who was native to this industry in some ways, who was there to speak to the crypto industry's interest in the Senate. So it was widely received as a both positive and momentous bit of news. Now, just yesterday, news broke that Laughler will be serving on the Senate Agricultural Committee. And the Senate Agricultural Committee, among other things, basically defines the remit for this Commodity Futures Trading Commission, the CFTC.

They do things like approved nominations for commissioners and chairman. It reauthorizes the CFTC officially as a federal regulator. So it has the fundamental and core oversight of that body. The CFTC is obviously one of the most important bodies as it comes to crypto regulation. We've seen Crypto Dad Giancarlo, who was sort of a pro-crypto, CFTC chairman replaced by Heath Tarbert, who's also shown signs of being positively engaged with the crypto industry. He came out last year and said that the CFTC officially thinks that ether is at this point a commodity. So obviously the CFTC has a big stake in this, probably as much as the SEC in some ways. And we've now got a person who's from the crypto industry who will have

some role in oversight for the CFTC itself, right, and who has influence in appointments and nominations. Now, the question is here whether there is a conflict of interest, and there's kind of two parts of it. The first is, obviously, when Loeffler took this role as a senator, she had to relinquish her role as the CEO of BACT, but still, obviously she was just working with that company a matter of months ago. So one area of potential conflict of interest has to do with that. Another area of potential conflict of interest has to do with her family. So Loughler is married to a Jeffrey Sprecker, who is the founder, chairman, and CEO of ICE, the Intercontinental Exchange, which is the owner of the New York Stock Exchange, as well as the owner of BACT, the parent of

backed. So there's just been a bunch of questions about whether this is actually a conflict of interest. The Wall Street Journal asked this, and Loughler's response was basically that this, this obviously is on everyone's radar and that she had, quote, worked hard to comply with both the letter in the spirit of the Senate ethics rules and said she will recuse herself if needed on a quote case-by-case basis. So that's their answer, and obviously this is, you know, going forward. So it's more a question now of our conversation. Earlier today, I tweeted out and asked folks whether they thought that this was a, A, conflict of interest, B, thank goodness, someone who understands these things is involved, or C, all of the above, right? So my question for the

crypto-twitter community was, do we think that there is an inherent conflict of interest here, where the business interests are too aligned and that this is part and parcel and reflective of a larger problem of the tight relationship between business and government. Do we think that there is, on the other hand, like value in the fact that a person

who is in this industry or has been in this industry natively and who's built businesses in this industry is now involved in some way in the oversight of it? And I opened up the possibility of it being both at the same time, which is kind of where I tend to fall a little bit. it's hard to not think that there is some inherent conflict of interest, but at the same time, there's something nice about a person who has actual experience in this industry being involved.

Now, the responses were really interesting. I've had something like 60 or 70,000 people who have seen this, hundreds of people who have responded. The most popular response so far, I think, is someone who wrote, D, finally a conflict of interest on our side. So, you know, basically acknowledging that there is almost inherently a conflict of interest here, but at the same time, this is one case where it probably benefits us. Now, of course, we're not talking right now about the larger system and structure of U.S. politics and what it means that there is this tight relationship between business and government. I was asking strictly in the context of the crypto industry. But interesting stuff and certainly will potentially change the texture of

some of the regulatory conversations we have this year. So we'll be fascinating. to watch. Anyways, guys, that is it for today. Slightly shorter episode. Appreciate you hanging out and listening, and I will be back tomorrow with another breakdown. Cheers, guys.