The Breakdown - What Georgia’s Elections Mean for Bitcoin

Episode Date: January 7, 2021

Today on the Brief: ShapeShift goes full DEX Neil Young and the changing business of music China stocks delisted from NYSE Our main discussion: What are the implications of Georgia’s runoff elections for bitcoin and markets as a whole?  In this episode, NLW discusses: The immediate response of Crypto Twitter to the victory for Dems Why Kelly Loeffler was a disappointing industry rep in the Senate  Which stocks are going up on the news and why Why a Democrat Senate majority is driving up inflation expectations Why discussions of UBI and digital dollars and more in play than ever  Why bitcoin stands to be supercharged by the coming macro environment Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

As Chimoth put it, choose your own adventure. Dems win Georgia. Senate passes two-k stimulus. Asets keep inflating. Or, Republicans win Georgia, Fed continues to pump money into stock and bond markets. Assets keep inflating. The second counterpoint comes from the one and only Max Kaiser, who said, Without Bitcoin, I would be forced to care about U.S. politics. Thanks, Satoshi, that's not the case. 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 nexor.io and stacks2.com and produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, January 6th, and today we are discussing what Georgia's

runoff elections mean for Bitcoin and for markets as a whole. First up, however, let's do the brief. First on the brief today, ShapeShift goes full. Dex. So ShapeShift has been around since 2014. It was founded by Eric Voorhees, who as most of you probably know, is an outspoken libertarian. In late 2018, however, the company added KYC, as Vorhe said, as a protective step to de-risk the company amid uncertain and changing global regulations. He also later said that KYC implementation lost the platform around 95% of its users. So this is a pretty significant deal. Now, the company is taking a new approach to getting around KYC, which is that it's going fully decentralized. So effectively, it will be phasing out centralized trading

activity and accordingly KYC in an attempt to be 100% dex-based. As part of that, it's integrated with multiple decentralized exchanges, including uniswap, balancer, curve, bank, or Khyber, etc. And the press release really makes clear the goal. Quote, because Shapeshift is no longer acting as any form of financial intermediary or counterparty, this new frictionless user experience frees users from having to provide personal private information. Vorhe's added to that, Shapeshift's original model was designed to protect users, providing instant liquidity without requiring them to trust a custodian. We had to be the counterparty, the market maker, to provide that service at scale.

The decentralized protocols are now providing a superior service so we're embracing this evolution and helping our customers easily connect with them. It'll be interesting to see whether this actually solves their K-Y-C issues or if it just gives them more credible legal legs to stand on in future fights. It also, for me, begs the question of what's coming in terms of regulations for Defi. Next up, a fun little one for the brief Neil Young and the Sale of Music Rights. As you guys know, I've been paying attention to the second-order effects of the pandemic for almost a year now since we first started paying attention to this. One of the most interesting

has been changing considerations around the business of music. Investors have been on an absolute tear to scoop the songbooks of legendary artists. These rights are seen as a super solid long-term investment because there's now a big set of data via things like Spotify and other channels to help investors understand how they're likely to make money over time. Now this clarity around the upside of the combines with three other factors to make this a trend. First is just the idea that investors in general are having to move farther out on the risk curve, so investing in some new fund that's buying classic rock catalogs makes more sense than it might have five years ago. A second really big one is that musicians have lost their major source of revenue in touring, so they're looking to make up

for that, and this is one of the ways, one of the assets they have to do it. A third is anticipation of changes in upcoming tax structure, which obviously gets into the issues we're going to discuss in our main conversation about Dems seeming to sweep to a majority in the Senate. The biggest recent news in this area was a nine-figure deal for Bob Dylan's catalog. This was widely seen as a way for Dylan to be taxed just once on it at today's favorable rates and be able to design the rest of his financial life for him and his family. The latest news, just from today, is that Neil Young has sold half of his catalog for an undisclosed amount. I think on the one hand, this makes total sense for artists who want some

clarity and ability to plan for their future. On the other, it is kind of depressing to see culture commercialized to this level. Obviously, culture has a relationship with commerce that is going to be there forever, and it's a constant give and take, and commercialization can make art go to more people, so it's not an outright dismissal, but it is hard to see they am having to joke about not turning Neil Young's heart of gold into burger of gold in this Bloomberg article about the shift. Last up on the brief today, China delistings. This honestly deserves an entire episode, which it probably will, given that I'm not even getting into where TF Jack Ma is at the moment. But anyways, long story short, here's what happened.

Last week, the New York Stock Exchange said it would delist shares of Chinese companies, a set of Chinese companies, to comply with a new executive order from the Trump administration. This order was trying to prevent American companies and individuals from investing in firms that aid the Chinese military. But then, on Monday, the New York Stock Exchange said they were reversing the decision, and frankly, they said that without a lot of explanation. Apparently, Treasury Secretary Stephen Mnuchin got up in the NYSE's grill about it, and then today it said that is in fact delisting them for real. So China Telecom, China Mobile, and China Unicom, all telcos, will be delisted from the New York

Stock Exchange. The NYSE said that their second reversal, i.e., this final decision to delist, came when the OFAC, the Office of Foreign Assets Control, told them that as of January 11th, people in the U.S. would not be allowed to engage in transactions with these companies anymore. This is obviously an example of the continued escalation of market tensions between the U.S. and China. And I've said it before. When it comes to this question of whether we're already in a Cold War, the biggest counterpoint

is the depth of our economic interconnection. And so to me, it's no surprise that that interconnection itself is the first. first thing being targeted and unwound. Many investors want to be a part of the next bull run. Others seek to build their dream home, finally launch that startup or fund their education. Try Nexos instant crypto credit lines and borrow against any major cryptocurrency

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digital gold. Attendees can expect to hear talks from Albert Wenger, Laura Shin, Mani-Bali, Haidaeufique, OKCoyne, Peter Smith, blockchain.com, and others, as well as surprise announcements, app launches, panels on important crypto topics, a music. guest, limited edition swag, collectible NFTs, and more. Register for the Stacks 2.0 main net event here, stacks2.com. That's stacks followed by the number 2.com. With that, let's shift to our main discussion, Georgia, and what Georgia's runoff elections mean for markets in general and Bitcoin specifically.

So what happened? Well, there were two runoff elections in Georgia yesterday for the Senate. One of them has been decided pretty officially with the Democrat Raphael Arnock winning, and the other appears also to be heading towards the Dems as well. If this goes through, it will create a 50-50 split in the Senate, which of course would mean that Vice President Kamala Harris would be the deciding vote. Technically then, Dems will be the majority party. So let's talk reactions. First, as you might imagine, there was much discussion of taxes. With some thinking that this for sure means those big increases in capital gains that Dems have

been looking at. Others think that 50-50 is hardly a mandate and it might make it much harder to push substantive tax changes and other types of changes through. Next, let's talk about Kelly Leffler for a second. Kelly is the senator that just lost to Warnock. She was appointed in December 2019 after the other Republican senator resigned for health reasons. Kelly is relevant to the Bitcoin community because she was previously the CEO of BACT. BACT was an exchange slash crypto, play that had the backing of ICE, the Intercontinental Exchange, which owns the New York Stock Exchange and is led by her husband Jeffrey Sprecker. When backed launched, it was heralded as a huge signal slash vote of confidence for the whole space. Now, they've evolved quite a bit. They've become more

of a platform for all digital assets, loyalty points, etc. And in some ways, they've been relatively quiet, although that's only so far. But the expectation was that Leffler would be a champion for Bitcoin and crypto in the Senate. Frankly, that didn't really have. happen. Pretty much she spent her short political life aggressively towing the Trump party line, trying to aggratiate herself into the establishment, or fighting accusations of insider trading after, on January 24th, after attending a private briefing on coronavirus, she and her husband started selling stocks aggressively and also buying remote collaboration software stock, which wasn't really a good look. All in all, she was a pretty terrible and in fact,

frankly non-existent voice for advocacy on our space, and you might not like all his takes, but I think Bloomberg's Joe Wisenthal nailed this one. He said, Leffler for Loomis is a pretty good trade, in my opinion, for Bitcoin Americans. Cynthia Loomis, of course, is the incoming Wyoming senator who got into Bitcoin in the 300s and speaks extremely eloquently on it and is clearly going to make the larger set of issues that Bitcoin is a part of an important piece of what she represents in the Senate. Now let's go to what markets are saying. First, in traditional markets, it's a seemingly strange melange of stocks that are doing well. Again, Joe Wisenthal put it this way. Big winners today are

marijuana stocks, solar stocks, oil stocks, bank stocks, and steel stocks. Classic Democrat basket. You also see the financial select sector ETF ripping suggesting the financial assets like this. So what's the common denominator? In his market's newsletter this morning, Joe argued that effectively, when the economy is growing slowly, people look to things farther out on the risk curve, i.e., this would explain why there's been so much interest in tech stocks. When growth heats up, they can look to things that actually have clear real-world economic implications, things like oil, banks, and steel. The idea here is that the expectation of Dem control is, quote, sustained fiscal firepower and aggressive public investment. Now, there are plenty of things

that you could quibble with this argument. I think that there's obviously, more going into tech stocks than just the push-out on the risk curve, although it's a pretty interesting look at why this particular group of stocks is responding so well to what seems like a Democrat majority. But then there's inflation expectations, which are currently at their post-2018 high. We discussed this briefly yesterday. And this, of course, is based on the idea that a Democrat-controlled Senate is going to push through much more direct stimulus, which is going to increase cash in people's hands. But you might say we've already seen so much new money printing, so much cash-loshing around. Why hasn't that hit inflation already? For the sake of this argument,

let's not get into whether the CPI is a really great measure of inflation. That's a whole different thing. We've talked about it before. We'll talk about it again. We've seen inflation in financial assets. We've seen it in things like copper. We've seen it in a number of areas that don't really show up in the CPI, but let's just focus for the sake of it on the CPI itself. Inflation isn't just about the money supply. It's also about the velocity of money, how quickly money exchanges hands, how quickly money moves through society. When money isn't moving, it doesn't matter if it's infinite. It just sits there and it doesn't have the chance to create price pressure like it would if it was moving more quickly. During the pandemic, velocity has been extremely depressed.

People aren't spending as much, one, because there's not as much to spend things on, but two, because they're nervous about the future. Makes a ton of sense, right? But if there really is a ton of pent-up demand, which seems extremely likely, as the vaccine becomes profligate as things open up, as we do return to some semblance of normal, there's many who think that we could expect a serious spending increase. As usual, Nick Carter has a perfect little summary. He says, absolutely no doubt in my mind that core CPI will exceed 5% in the U.S. within 36 months. No one is expecting it. Everyone trained their model of issuance on non-inflationary QE. Handouts are high-velocity issuance and stimulus will be politically impossible to stop. I think that point handouts are

high-velocity issuance is really important. Only a tiny fraction. of that money printing that we saw this year actually made it to the hands of consumers who would go out and buy the things that the CPI tracks. If we get more of that direct stimulus, it seems highly likely that that goes up. Of course, for Bitcoin, BRR means vrum, vrum, and last night, as this was all going down, Bitcoin hit a new all-time high punching up above 35,000. I think there's more going on here, however, than just a vague debate about inflation. At the center of Warnock and the Dems promise to Georgians was the $2,000 check. As Nick put it, stimulus will be politically impossible to stop. A Democratic majority in the Senate means the floodgate

is open to UBI. What's more, UBI and more stimulus also gets into questions of a digital dollar. Remember, the first COVID-19 relief plan from Democrats included a digital dollar proposal to make it easier to distribute aid. But a digital dollar is more than just a mechanism for distribution. Central Bank digital currencies bring the ability for extremely precise, fine-tooth monetary policy that can actually be different for different groups. What's more, in many ways, it makes the distinction between monetary and fiscal policy blurrier than ever. Frankly, this distinction between monetary and fiscal policy between the people who make and carry out monetary and fiscal policy has been under assault for some time now, and the digitization of the main fiat currency

could be an easy mechanism to make this separation of powers not so separate by default. What's more, even before you get into the digital dollar debate, you have implications of a Democratic Senate for existing printing. The Treasury has been trying to rescind certain Fed tools, but a dem majority could get them back. The point is, when it comes to the large, macro context in which Bitcoin plays, the difference between a Democratic majority or not could be as significant as who is in the Oval Office. There are, of course, two big counterpoints. The first is about the course that fiscal and monetary policy are on almost irrespective of party. As Chimoth put it, choose your own adventure. Dems win Georgia. Senate passes two-k stimulus. Assets keep inflating. Or

Republicans win Georgia. Fed continues to pump money into stock and bond markets. Assets keep inflating. The second counterpoint comes from the one and only Max Kaiser, who said, without Bitcoin, I would be forced to care about U.S. politics. Thanks, Satoshi, that's not the case. Regular listeners know I appreciate and respect Max's position. I am, however, interested in what the implications of these big macro changes might be, even if I continue to have high conviction regardless of where Bitcoin goes in the future. So I hope this was a fun episode to help you understand what the implications for this Georgia runoff might be or not, both for Bitcoin and for markets at large. Let me know what you think. Hit me up in the comments on YouTube,

on Twitter, wherever you are listening, consuming, engaging with this content. And until tomorrow, be safe and take care of each other. Peace.