The Breakdown - What Janet Yellen as Treasury Secretary Means for Bitcoin and Markets

Episode Date: November 28, 2020

On this edition of The Breakdown weekly recap, NLW looks at what was an absolutely action-packed holiday week.  He discusses: Bitcoin’s price action  The Dow’s 30,000 psychological milestone  Eth 2.0 cleared for Beacon chain launch  The implications of Janet Yellen’s nomination for Treasury secretary

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 crypto.com and nexo.io and produced and distributed by CoinDest. What's going on, guys? It is Saturday, November 28th, or at least for you guys, it's Saturday, November 28th. For me, it's Tuesday, November 24th. Now, normally this would mean I probably would be. shouldn't do a weekly recap, being it's four days before the end of the week, and originally I wasn't going to. However, two things happened. The first is that there has been a lot of news in just the first 48 hours or so of the week, so it honestly seemed justified. Second, I had a

really excellent interview have to cancel because of a family emergency, so here we are. So without any further ado, let's do the weekly recap. First up, after nearly three years of holding in conviction, Bitcoin finally smashed through its previous all-time high. At least, I hope that has happened. It does feel, however, recording this again on Tuesday that the all-too psychologically important milestone is just around the corner. The interesting thing to me in some ways is what will happen right after?

Will we have a quick temporary course correction and drawdown? This has happened in the past, and I could see it happening again. But really, maybe it might be more around what people's reactions around things, Thanksgiving will be. Having reached or come near the all-time highs, will Thanksgiving conversations lead people to FOMO in? Or will people try to be clever and wait until there's some sort of retracement? I really don't know, so it's going to be fascinating to see what happens in the short term. But for now, let's shift to some news that did, in fact, happen before I recorded this show. First up, Janet Yellen appears to be Joe Biden's pick for Treasury Secretary, as reported by

the Wall Street Journal on Monday. So let's discuss what this means. First, holding aside whatever you think of her policies, Yelen has had a badass, glass-breaking career by any stretch of the imagination. She was the chair of the White House Council of Economic Advisors under Clinton and was ultimately the Federal Reserve Chair from 2014 to 2018. Assuming she is confirmed as Treasury Secretary, she will be the first person to have held all three of those roles. Crypto people might recognize her as the woman at the forefront of the famous hearing where someone held up a sign that said, buy Bitcoin. And when it comes to Yellen coming in now, she makes sense in the context of the prevailing and shifting conventional wisdom around debt and deficits. In September, she said

that Congress needed to spend more to fight unemployment as well as to help keep small businesses afloat, saying, quote, there is a huge amount of suffering out there. The economy needs the spending. Basically, Yellen is Biden's choice to oversee an economic recovery where the modus operandi is to be short-term, very less concerned about the debt and about inflation. Another quote from Yellen, This is not a good time to have fiscal policy switch from being accommodative to creating a drag. That's what happened last decade, and it retarded the recovery. Basically, she thinks that low inflation, in terms of the way that we measure it, has increased

the need for as well as lowered the risks of aggressive monetary income. and fiscal policy. Now let's get some of the reactions out there. The left seems to be okay with this. Elizabeth Warren tweeted, Janet Yellen would be an outstanding choice for Treasury Secretary. She is smart, tough, and principled. As one of the most successful Fed chairs ever, she has stood up to Wall Street banks, including holding Wells Fargo accountable for cheating working families. Robert Reich said two cheers for Janet Yellen at Treasury. She's not Senator Warren, but she's not from the street. In fact, at the Fed, she came down hard on Wells Fargo, and understands the huge toll stagnant wages, systemic racism, and widening inequality have taken

on our economy and society. It seems like from behind the scenes that while many on the progressive left wanted Warren to be in this position, Biden very early on said that wasn't a chance and Yellen was one of the people that that wing of the party was okay with, at least in part because they can likely get her confirmed by the Senate. This episode is brought to you by crypto.com, the crypto super app that lets you buy, earn, Spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the Crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the Crypto.com metal card, which pays you up to 8% cashback instantly on all purchases.

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Tavi Costa, who's been on this show, says, it doesn't get any better than this. Janet Yellen is back, Fed's balance sheet turning up again, negative yielding bonds at new highs, and in the meantime, the headlines are calling for the end of the bull market in gold. It's time to accumulate before the breakout. So, of course, Tavi is arguing here that inflation hedges are likely to be even more relevant in the context of Yellen as Treasury Secretary, and he thinks the market is mispricing that. pomp took this into the Bitcoin context, saying that she was about to create the ultimate Bitcoin tailwind. In his pomp letter, he argued that she was much more likely to focus on the reduce

unemployment side of the Fed's mandate. Quote, essentially Janet Yellen is likely to be Bitcoin's greatest ally over the coming four to eight years. She has never seen an opportunity to print money that she didn't like. She's never seen a situation of high inflation that scared her. Given that we are living during a period of high unemployment due to the coronavirus, it would be my expectation that Janet Yellen will begin pulling out every tool of monetary stimulus to get unemployment lower. Bitcoin will benefit from the fear of high inflation, regardless of whether it actually occurs or not. When people think high levels of inflation are coming, they will move their capital to be positioned in inflation hedge assets.

If the inflation comes great, if the inflation never happens, the capital flows will drive asset prices higher anyways. The concept is counterintuitive, but we have seen it play out numerous times in the past. Janet Yellen will solidify the narrative that higher inflation is coming. She will drive home the point that monetary stimulus bombs are always right around the corner. This will be an even stronger tailwind for Bitcoin in the coming 12 months. But next up on today's weekly recap, let's connect the dots between Yellen and the Dow, because whatever Bitcoiners think, the Dow seem to like it. On Tuesday, the Dow hit 30,000 for the first time ever, and there are a few factors that might have been driving.

it. One that's possible is vaccine optimism. Obviously, we got another dose of good news on vaccine trials on Monday, but like I said, that news was Monday, and the Dow hit 30,000 on Tuesday. More likely, it was some combination of two factors. The first is Yellen. Why would Wall Street like her? She's a known quantity. Mike Mayo, the senior banking analyst at Wells Fargo, said she's not pro-bank or anti-bank. She's pro-growth. She's pro-employment. She's an economic recovery specialist, and she is a known quantity to Wall Street. We know her. Clearly, however, stimulus optimism is a part of this as well. Wall Street has wanted more economic injection into the market, and they're more likely to get it with a Yellen Treasury Secretary. A second factor that's very likely driving the Dow up to record highs,

however, is that President Trump has finally allowed the Biden transition to begin the first step in acknowledging the reality that he will no longer be president come inauguration day next year. That ends the last big question of instability hanging over the market from a U.S. political perspective, and so markets are clearly excited about that. Last up on the weekly recap today, something that probably deserves its own show, but we need to at least make mention of it here is ETH2. So on Monday night, the amount needed to be staked to trigger the first phase of the transition to ETH2 was reached. What's being called the biggest update in Ethereum's history will have

officially begin on December 1st. And I actually wanted to leave this one on a question for you guys. In general, the way that I see the breakdown is as a macro slash future of finance slash future of power show. And I believe that Bitcoin is a key part of any discussion of macro, the future of finance, which is why it has such a huge amount of airtime. Other parts of the crypto space get in when they bridge into that reality. I think Ethereum in the world of smart contracts likely do, but it's also a little bit more technical. So I'm interested in your level of interest in covering that set of topics as well. Let me know in the comments on YouTube or on Twitter. And either way, I hope you're having a great holiday weekend. Until tomorrow, guys,

be safe and take care of each other. Peace.