The Breakdown - Welcome to 2022 - The Year of Absolutely Everything

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 nexo.io, Abra, and FTX, and produced and distributed by CoinDesk. What's going on, guys? It is Saturday, January 8th, and that means it's time for the weekly recap. This was a hell of a first week of January 2020. A year that I think we have to say is likely to be the year of absolutely everything. Now, before we get into it, if you're enjoying the breakdown, please go rate it, review it. Join our Discord. The Breakers Discord is at bit.lead slash breakdown pod.

Starting point is 00:00:54 And finally, disclosure, as always, in addition to them being a sponsor, I also work doing marketing with FTX. All right. So, the year of absolutely everything. As you guys know, the weekly recap is always one of two things. It's either a deep dive on something we didn't have a chance to look at yet, or it's a true weekly recap, a hop, skipping a jump across a bunch of different topics that help us get a sense of the week that was,

Starting point is 00:01:20 and this is going to be a true weekly recap. And man, for a show that's all about big picture power shifts, this week sure got them. Let's kick off with the changing tide of monetary policy. monetary policy and the machinations of the Fed are of course an incredibly critical and foundational layer for what happens in the economy writ large. The Fed's actions have a dramatic outsized impact on traditional assets like equities and as the buyers and holders and traders and sellers of those traditional assets have come farther into the crypto space, i.e. there's more overlap in the holding base.

Starting point is 00:01:59 So, too, have the Fed's actions, or perhaps more accurately, their signal of future actions, started to impact crypto markets as well, at least in the short term? We've been living in a shift to the hawkish from a very dovish, accommodative monetary policy, a largely supportive monetary policy coming off the wake of the COVID-19 shutdowns. That policy has included zero-bound interest rates, as well as significant amounts of monthly asset purchases. Now that shift has been clear. In November, we got promised that we'd see the beginning of pullbacks in those asset purchases

Starting point is 00:02:36 with the intent that they would taper off entirely by the middle of next year. In December, that timeline speeded up. And in fact, in December, we also got word that we were likely to see as many as three interest rate hikes in 2022 as well. Still, the markets didn't particularly freak out because what they were worried about after December's meeting was Powell deciding that he was going to become Paul Volker 2.0, that he was going to make it his mission to fight inflation. That wasn't what we heard. Instead, we heard just sort of a pretty rational response to growing inflation,

Starting point is 00:03:08 and so markets settled right into it. However, this week we got the minutes from that meeting, and one of the things that wasn't included in the press conference in December was the notion that in addition to unwinding asset purchases and raising interest rates, the Fed was actually talking about quantitative tightening, or, as they called it in these minutes, balance sheet normalization. That meant actual asset sales into the wider market. Now, this has caused a real headache for pretty much all risk assets this week. And certainly if you're in crypto,

Starting point is 00:03:39 if you're listening to this show, you've been feeling it as well. But still, there are a few different takes on this. There are some folks who are genuinely bearish, who see this as the beginning of a period that however long it lasts is going to be meaningful, and they believe the Fed will follow through with, and it will be a hard time for crypto. There are others who are completely not buying it, who think that the Fed is going to have to flip in the other direction when markets freak out and throw a tantrum. Inequities investors basically put up a big stink.

Starting point is 00:04:09 Finally, there are those who think that this is actually part of the Fed's playbook. Mark Dow, who I referenced on my show earlier this week, was basically saying that this is a way for the Fed to play for time, to have more time to see if, in fact, inflation is transitory, as they argued throughout all of last year. If they have six more months to let supply chain disruptions unwind themselves, that's net better for them than overreacting and potentially causing some recession scenario

Starting point is 00:04:40 because they overcorrected for something that was ultimately a supply demand mismatch. Whatever the case, this sets up the big question for the next year. Is this hawkish turn a true shift? Is the Fed really going to become a fundamentally difficult? different Fed than we've seen and had for years and years now. There are huge ramifications for this. Following through on this type of action could sink certainly crypto and other types of risk assets into a bare market. It could sink the U.S. overall into a recession. And all of this is, of course,

Starting point is 00:05:12 happening in a midterm year in the U.S. So there are serious political ramifications for this. So whatever the case, whatever happens, this will set the tone for a huge amount of economic activity this year. Even if that's annoying, even if you want crypto to be the place that isn't influenced by silly things like Fed policy and Fed machinations, tough luck. Here we are. It's part of the game that you are now a part of. Nexo is a trusted and easy to use crypto platform where you can buy cryptocurrencies at the touch of a button and start earning up to 17% annual interest that is paid out daily. They support all of the major assets on the market and even allow you to swap one asset for another or bar.

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Starting point is 00:07:02 FtXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. You can trade NFTs with no gas on FTXUS, and gas is subsidized when you withdraw off the platform. Help support the breakdown and visit FtX.us today. That's FtX.us. Next up, we have our first instance of geopolitical upheaval coming right out of the gate. Now, many parts of the Kazakhstan story are familiar. You have a republic that had the same leader for 28 years after gaining independence in 1991. In 2019, that leader stepped down to put in place his appointed successor.

Starting point is 00:07:48 Earlier this week, the government released its cap on oil prices, causing fuel prices in the country to soar. What started as a small protest in the western part of the country exploded into something that wasn't just about fuel. It was about broader change. The government claimed outside instigators and antagonists. It called on Russia's support to put down increasingly violent protests. And as a part of all of this, it shut down the internet almost completely. Which brings it to us.

Starting point is 00:08:21 There are two interesting aspects of this to explore. And the first is sort of broad. What happens when governments shut down the internet? This is a threat vector that many and Bitcoin think about, that many in Bitcoin have potential answers to. But the more that we see state actors actually taking the dramatic impact to turn off the internet, the more that we have to consider it a threat vector that will be more real and realized in the years to come. But of course, when it comes to Bitcoin, Kazakhstan isn't any other place. Kazakhstan, in fact, has the second most hash rate within its borders only behind the U.S.

Starting point is 00:08:58 Those two countries were the biggest beneficiaries of the China Bitcoin mining ban. Many operations that could make the move shifted from China to the U.S. or at least sold their equipment that direction. But others chose the land border into Kazakhstan. And so when the government turned off the internet, Kazakhstan's share of Bitcoin hash rate was currently around 18%. Within hours, the top mining pools were seeing a 10% decrease across the board in their hash rate based on this shutdown.

Starting point is 00:09:26 This situation is going to continue to evolve, but it is hugely significant, obviously relevant, for Bitcoin in the world at large and something to keep an eye on. Another dimension of potential power shifts, let's talk about central bank digital currencies. While this was a smaller theme than I anticipated for 2021, if news serves now, it seems like it's gearing up for a bigger 2022. The Federal Reserve Bank of Boston is outlooking for a director to help lead their projects around central bank digital currencies. The Mexican president's office tweeted that they expect their central bank to have a digital currency in the next two years.

Starting point is 00:10:06 Jamaica finished an eight-month CBDC pilot and is going to roll that right into more action. The Reserve Bank of India published a report, and really this report showed how central bank digital currencies might be functionally for some governments and end run around cryptocurrencies themselves. Pilot version of China's ECNY digital yuan wallet is now live in select regions in that country in about 11 regions, including where the Olympic Games are happening in about a month. And finally, the central banks of Switzerland and France are reporting that their first CBDC test in the wild is a success. Central Bank digital currencies are at the epicenter of these questions of power shifts, both in terms of how governments relate to their citizens, their ability

Starting point is 00:10:49 to surveil financial transactions, but also in terms of the relationship between sovereign and non-sovereign monies. CBDCs are basically government's answer to cryptocurrencies in many. cases. And so how they evolve will have a dramatic impact on what the next generation of digital money actually looks like in practice. Finally, we'll wrap with a couple of potential power shifts in the NFT space. Royal, the NFT company started by entrepreneur and DJ Justin Blow, aka 3LOW, tweeted this week without further ado, were honored to announce hip-hop legend, innovator and entrepreneur Nause, will be the first artist to drop his music on Royal on January 11th. Next Tuesday, you can own a part of the streaming royalties in Ultra Black, the lead single from

Starting point is 00:11:35 Nause's 2021 Grammy Award winning album King's Disease, and Rare, a single from follow-up 2022 Grammy-nominated album King's Disease, too. There is a huge opportunity to revolutionize the music industry. We believe shifting power to artists and democratizing ownership is a powerful step. Sign up at royal.io to join us on this journey and read more on our blog. Now, this could be an episode all on its own. It's obviously a part of the whole NFT space that I'm paying more attention to than many others. And I'm really excited to see Royal in market right out of the gate testing these thesis. It won't be easy. There are a lot of barriers, including potential securities questions that'll come up this year. But still the fact that they're doing it means that we're going to

Starting point is 00:12:19 have those questions played out live, not in theory. A second one, I've talked a couple times about how I think because of how much political activity is likely to take place in the U.S. this year, that we're going to see more integrations of NFTs and DAOs into the political process. Well, one that I missed and that was shared with me by listener Sam Auk comes from Blake Masters. Blake was at Teal Capital and the Teal Foundation and he was the co-author with Peter Teal of 0 to 1. At the end of last month, he tweeted announcing the 0 to 1 origins NFT. only 99 will be minted. Owners get exclusive access to parties with me and Peter,

Starting point is 00:12:59 a private discord group, and more. Own this piece of zero to one history with a $5,800 donation to my U.S. Senate campaign. That's right, Blake Masters is running for U.S. Senate. The way that he frames things is the left wants to do more with more, the right wants to do less with less, but we need to do more with less, and that's the definition of technology.

Starting point is 00:13:19 So basically, the way that this is going to work is that this is effectively a campaign finance contribution. Individuals can contribute $2,900 per election. So this $5,800 is $2,900 for the primary election, and assuming he wins that, $2,900 designated for the general election. He says in the fine print that if he does not win the primary election, anyone who buys this NFT will receive a refund of 50% of their donation, that 2,900 that was slated for the general election.

Starting point is 00:13:48 This is an extremely limited edition, only 99. So the whole idea here was to get 99 true believers, or at least people who were really invested in this campaign. And guess what? It sold out super fast. I think you're going to see an absolute ton of this. And I'm fascinated to watch and see how Blake continues to use this type of approach to NFTs and everything that surrounds them, right? Go back to that tweet. Owners get exclusive access to parties with me and Peter, a private Discord group, and more. Even if you are completely disinterested in those politics, the process is really.

Starting point is 00:14:21 really, really fascinating. Anyways, guys, like I said, my prediction for 2022, this is the year of absolutely everything. It is coming at us already, hard, fast, and nonstop, and I, for one, am thrilled to be here. Thanks again to my sponsors for supporting this show. That's nexo.io, Abra and FTX. And thanks to you guys for listening. I hope wherever you are, you're having a great weekend. And until tomorrow, be safe and take care of each other.

Starting point is 00:14:50 Peace. Thank you.

The Breakdown - Welcome to 2022 - The Year of Absolutely Everything

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