The Breakdown - Trump Pledges No CBDCs

Episode Date: January 20, 2024

CBDCs have officially hit the big time as a political issue with presumptive Republican nominee Donald Trump hammering the topic at a New Hampshire campaign event. Some see the fingerprints of former candidate Vivek Ramaswamy. 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 Friday, January 19th, and today we're talking about some interesting announcements from former president and potential future president Donald Trump. 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 of the show notes or go to bit.ly slash breakdown pod. So, like I said, we are kicking off today with a Trump segment. Because on Wednesday night, former President Trump promised to ban the creation of a U.S. Central Bank digital currency during a campaign speech in New Hampshire.

Ahead of Tuesday's primary vote, Trump said, Tonight, I'm making a promise to protect Americans from government tyranny. As your president, I will never allow the creation of a central bank digital currency. For context, for those of you who aren't paying attention to American politics, After winning the Iowa caucus last week, Trump is seen as basically a shoe-in to win the Republican presidential nomination. During this speech in New Hampshire, Trump explained his concerns about CBDCs saying, this would be a dangerous threat to freedom, and I will stop it from coming to America. Such a currency would give a federal government absolute control over your money. They could take

your money and you wouldn't even know it was gone. Trump also addressed recent concerns about politically motivated financial control, stating, we're also going to play strong protections to stop banks and regulators to trying to debank you for your political beliefs. They want to debank you. They want to take away your rights. They want to take away your country. Trump was joined on stage by pro-crypto candidate Vivek Ramoswamy, who dropped out of the primary race on Monday night. Vivik took to Twitter to amplify the message tweeting, Strong new promise tonight. I am confident he will keep it. Speaking with Fox News later in the evening, Vivek said that he had a backstage conversation about opposition to his CBDC, stating that Trump was very amenable. Indeed, some suggested that this

Vevac's policy being channeled through Trump. Adding some credence to that idea, the former president appeared to be surprised at the crowd's reaction when he addressed the topic, stating, I didn't know you know so much. New Hampshire, very smart people, very current. You know what they're doing. Now, while the Federal Reserve has remained adamant

that they will not issue a CBDC without an express direction from Congress, the topic continues to be controversial in policy circles. The topic featured in the early stages of the Ron DeSantis campaign and continues to be a pillar of RFK Jr.'s Independent push. Still, Wednesday night's speech, might have been the moment which thrust CBDCs into the mainstream political spotlight,

and the question is, will it do so as a culture at war issue? DC investor wrote, Agree or disagree with him on various issues, but it is good to see a prominent politician speak plainly about the dangerous and illiberal black hole which is CBDCs. Do not create governmental systems you would not want your worst enemy to have control over. Caitlin Long, the CEO of Custodia Bank, said, I make no political endorsements.

As I've repeatedly said before, though, a CBDC is a hill I will die on. I support the coalition of people that work to oppose the CBDC from both major political parties in the US, as well as independence. Freddie New, the head of policy at Bitcoin Policy UK, wrote, Interesting development, Trump comes out against CBDCs. Candidate identities aside, politicians everywhere should note that he thinks opposing these instruments of tyranny and repression is a vote winner and should ask themselves why. Now, Matthew Pines pointed out the risk here given the U.S.'s fractured system writing, because of intense effective polarization in the U.S., many Democrats will feel a reflexive urge to now support a CBDC, even though it's a massive policy and normative error.

I prefer Trump came out against other forms of government tyranny as well. Now, what this brings up for some is whether Trump is shifting to an overall pro-cryptop position. First of all, we're hearing about CBDCs. Second of all, Trump has had a successful NFT collection with two different issuances, which demonstrates at least some level to the openness of the financial opportunity of crypto. But then again, during his presidency, we saw the crackdown on Facebook's Libra project, and a last-minute attempt to ban self-hosted wallets as his term expired. You'll remember that famous tweet when he said,

I am no fan of Bitcoin and Crypto. At the same time, as I stated all the way back then and have said ever since, even that tweet felt like it was written by, or was basically just the voice of then Treasury Secretary Stephen Mnuchin, with Trump himself largely ambivalent to the industry. If that's the case, it's worth noting that Mnuchin hasn't been seen anywhere near the Trump campaign, and reporting suggests he is not seeking to return as a member of the administration. Whatever the case, this is an interesting new dynamic in the space and shows how much the

U.S. presidential campaign could intersect with our little industry over here in the months to come. Next, let's move on to a story connecting Tether and Bitcoin. On-chain analysts have picked up a large amount of Bitcoin buying attributed to Tether. In Q4, Tether appears to have bought 8,888 Bitcoin for $380 million. Adding to the meme factor, their cost basis for this purchase was around $42,690. While Tether has never disclosed their Bitcoin addresses, 21 shares research analyst Tom Wan identified their wallets in August of last year. The block said they confirmed this information with an anonymous source. If that information is correct, Tether is the 11th largest Bitcoin holder in the world, with around over 66,000 Bitcoin worth about $2.8 billion. Those numbers line up pretty

closely with publicly disclosed Bitcoin holdings from Tether's reserve attestations, although Tether's fourth quarter attestation is not yet published. Looking at wallet information, last quarter's purchase would be Tether's third largest to date. The largest was in September 2022, when Tether began their policy of investing retained earnings into Bitcoin. They accumulated almost 34,000 Bitcoin that quarter. In Q1 of last year, Tether made their second largest purchase, adding almost 16,000 Bitcoin to reserves. When Tether embarked on this Bitcoin accumulation plan, they said they would allocate up to 15% of profits on a quarterly basis. And I will stress here that they said that they are allocating profits. This is the money that they're making from holding U.S. Treasuries. This is not

what's backing your Tether synthetic dollars? Now, their third quarter profits were reported at $1 billion, implying that the fourth quarter was even more lucrative for the company. To put Tether's Bitcoin purchases in perspective, the firm purchased about a third as much Bitcoin as Micro Strategy in the fourth quarter. Overall, its holdings are now also around a third as large as micro strategy. Travis Kling wrote, you cannot overstate how crucial this is for Bitcoin price discovery. Tether is earning over a billion dollars a quarter in interest and then firing as much of that as they want into BTC. Most powerful entity in crypto by far. Today's episode is brought to you by Cracken. For far too long, the whole financial system has

been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, What if? It invites people in instead of leaving them out. It's on 24-7, 365, and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, BVI, DBA, Cracken.

Moving on, the new Bitcoin ETFs have now wrapped up their first week of trading. While activities surrounding the products has been strong, Bitcoin price action has to some been disappointing. For example, Thursday saw a 4.5% drawdown, taking Bitcoin down to around 41,000 and its lowest price over the past month. Bitcoin is now down more than 13% since the products were launched. The first five trading days have seen more than 3 billion flow into the new funds. BlackRock has led the way, reaching 1 billion in assets under management on Wednesday, with Fidelity crossing that milestone the following day. The problem and the reason that you're seeing that price issue is that these strong inflows

have been partially offset by outflows from the Grayscale Bitcoin Trust. GBT has seen $2.2 billion in outflow since the launch, with no signs of a slowdown this week. ProShare's futures ETF BITO recorded $141 million in Outer, outflows this week after seeing strong inflows on launch day. Overall, the U.S. products have added more than $1 billion in net inflows once you account for GBTC selling. That's almost twice as much as micro strategy added in December all in a single week. Still looking across globally available Bitcoin funds, Coin shares anticipates that this week will have had net outflows of around half a billion dollars. Still, as a group, the Bitcoin ETFs are the second largest

group of commodity products on U.S. exchanges. With $30 billion in AUM, they are larger than the silver ETFs at $11 billion, but fall short of the $95 billion in gold funds. In terms of weekly flows across all ETFs, two of the new Bitcoin products achieved a place in the top five, with a third product cracking the top 10. Volumes on the new ETFs have been staggeringly high. Almost $210 billion worth of trading volume was recorded across the first five days of trading. Volume increased by 34% on Thursday compared to the previous day, indicating that traders were eager to play the higher volatility alongside the drawdown.

Now, taking a look at the BlackRock product in isolation, it enjoyed one of the most successful launches in the history of ETFs, reaching a billion in assets after just four trading days puts it among only a handful of funds to achieve that level of rapid growth. Robert Michnick, the head of digital assets at BlackRock, said, we are excited to see Ibit reach this milestone in his first week, reflecting strong investor demand. This is just the beginning.

We have a long-term commitment focused on providing investors access to an I-share's quality ETF. The head of U.S. iShare's product, Rachel Aguari, said that BlackRock is seeing, quote, interest from both retail and self-directed investors. The firm appears committed to the slow grind of introducing new investors to Bitcoin, with Aguirre adding, we're also focused on these investors who are just now beginning to look at this new asset class, and we're very excited about that. She wouldn't comment on whether a small Bitcoin allocation would be added to BlackRock's range of model portfolios soon, but commented,

what I will say is we're focused on again for our clients, understanding what education needs there are supporting them in their investing journey, and empowering them to make the financial decisions that are right for them. Meanwhile, Robin Hood seems to be satisfied with the activity they've seen around the newly launched ETFs. The products have already cracked the top 20 popular investments on the platform, with Chief Brokerage Officer Steve Quirk saying, the BlackRock one has been the one that's seen the most volume from our standpoint with grayscale right behind it. It's basically our customers saying, we want a low-cost avenue to have this be a component of our portfolio. Grayscale is a sale and it continues to be a sale, whereas

the other ones continue to be largely buys. For people purchasing the new ETFs, one-third have sold other positions to make the allocation. Quirk said they have, quote, basically made this a component of their portfolio. Robin Hood included the ETFs on their first day of trading, ensuring that customers have access in both brokerage and retirement accounts. Johan Kerbat, the general manager of Robin Hood Crypto, said, We believe crypto is the financial framework of the future, and that increased access to Bitcoin via ETFs is a good thing for the industry. Now, one other overhang that could be weighing on Bitcoin's price

is a massive amount of selling from miners. Bitcoin miners sold more than 10,000 Bitcoin on Wednesday worth around 450 million. That's the largest single-day decline in minor reserves in over a year. Minor reserves are now at their lowest level since July 2021. Reserves have now decreased by 22,800 Bitcoin over the past year. At the same time, miners still have a staggeringly large amount left in reserves, owning $1.83 million Bitcoin worth almost $78 billion. CryptoQuant's minor position index has been increasing since Monday, indicating additional

selling pressure coming. Now, it's an open question whether Wednesday's sale was the bulk of the liquidation, or if it will form part of a broader minor capitulation extending into the halving. Alex Adler and analyst at CryptoQuant wrote, Minor Flow, impressive. Okay, we all understand big money has arrived and exit is needed. What will happen in a month and who will be selling Bitcoin to BlackRock and Co? The next question, what will happen to the price with such demand? Now, of course, another question around the SEC and ETFs is whether they would actually

get off their duff and approve an Ethereum ETF next. Well, the first indications are no. The SEC have delayed their decision on Fidelity Spot Ethereum ETF. Although, as Bloomberg ETF analyst James Safart said, the delay was completely expected. Indeed, this would be in line with previous crypto-etefsitions from the SEC, which have delayed approval for as long as possible. Right now, seven asset managers have applications for spot-based Ethereum products. The next deadline for an SEC decision is late next week, when the regulator will almost

certainly delay the application from BlackRock. As we saw with the Bitcoin ETFs, the final deadline is likely the only one that matters. The first in line for a final decision is Van Eck, with the SEC required to approve deny by May 23rd. Many think that the launch of spot Bitcoin ETFs means that Ethereum ETFs are sure to follow. BlackRock CEO Larry Fink refused to address SEC processes directly earlier this week, but did say that he sees, quote, value in having an Ethereum ETF. Analysts have pointed out that Ethereum has checked off all the same boxes of Bitcoin at this point. Ethereum has a large regulated futures market on the CME, and futures-based ETFs are

approved in trading. The logic is that if the SEC denies a spot Ethereum ETF, it could be viewed as acting in an arbitrary and capricious manner by not approving a similar product. Stuart Barton, co-founder at Volatility Share, said, the fact that they are allowing listing of the futures-based ETFs is enough to say they are thinking about either the same way they are thinking about Bitcoin and you can infer from that they're probably thinking it's not a security and not going to regulate it that way. The other side of the argument is that Democrat SEC commissioners seem like they will need a court order in front of them before they approve another crypto ETF. Two commissioners, of course, dissented from the decision on the Bitcoin ETF, while Chair Gensler said clearly that his support of the

approval was, quote, cabin to ETPs holding one non-security commodity, Bitcoin. Lastly, today, Treasury's Assistant Secretary for Financial Institutions, Graham Steele, has called for crypto regulation before it's too late. In an appearance at George Washington University Law School, Steele said, for crypto assets, policymakers have a chance to act before a crisis to adopt higher standards that support responsible innovation. At the same time, it is critical that any legislative proposals don't undermine the already robust regulatory foundations that apply to financial institutions and capital markets. He noted that after each financial crisis, new regulations were adopted, giving the examples ranging from the National Bank Act of 1863

to the Dodd-Frank Act of 2010. Now, of course, the outlines of a U.S. regulatory framework had been proposed across multiple bills introduced last year. But this legislation appears to be on the back burner as Washington shifts focus to this year's election race. Steel referenced his work on the crypto executive order handed down in 2022. The order contemplated a whole-of-government approach and required multiple agencies to prepare reports with regulatory suggestions. For his part of the Treasury, Steele said, our report noted that the U.S. generally has strong investor and consumer protection laws that address many of the risks posed by crypto assets.

Where existing laws and regulations apply, they have to be vigorously enforced so that crypto assets and services and the consumers that use them are subject to the same protections and principles as other financial products and services. At the same time, in something of a narrative shift, Steele acknowledged a multitude of potential use cases for crypto, which would justify not eliminating the end of the end of the issue. industry in its entirety. He said, there are a number of prospective use cases that proponents hold out

as the ways in which these products or services can be very beneficial. Those feel like the areas, at least in our report that we said were the most promising, so it's less about the crypto asset itself. His point was that speculation on random assets shouldn't be the focus of regulation, but rather ensuring that beneficial products can emerge out of the industry with some degree of regulatory clarity. Now, this is a big narrative shift from the Treasury, and something that I am going to be keeping an eye on closely. However, that is going to do it for today's breakdown. I want to say one more big thank you to my sponsor for today's show, Cracken. Go to crackin.com and see what crypto can be. Until next time, be safe and take care of each other. Peace.