The Breakdown - What the Crypto Town Hall Told Us About the Democrat Pivot

Episode Date: August 16, 2024

A recent crypto themed town hall was meant to assure crypto democrats that a future potential Harris administration wouldn't be as hostile as the Biden White House to the industry. Did it succeed? 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 Thursday, August 15th, and today we are talking about the Crypto for Harris event. Was it a real thing or not so much? Before 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 in the show notes or go to bit.L.Y. down pod. All right, friends, well, last night, the Crypto4 Harris account slash campaign held their virtual town hall. Many people were using this as a proxy to better understand how serious

this thing was. Of course, the big meta question that's been floating around in the realm of crypto politics recently is whether there's anything real to this idea that there is more democratic openness and the potential for a reset of a relationship with the industry. Many are very skeptical. Basically, the argument there is that if you're in power now and you're you're not doing anything about it, then isn't this all just lip service? Aren't you just asking for them to put you back in power without consideration of the power that you already have? So let's talk about what happened. The event did feature numerous pro-crypto lawmakers. Disappointingly for many, no one directly linked to the Harris campaign was there. Perhaps the closest the event came to a worthy headline

moment with Senate Majority Leader Chuck Schumer stating his intention to include crypto legislation on his agenda for the remainder of the year. He said, quote, my goal is to get something passed out of the Senate and into law by the end of the year. And I believe believe we can make that happen. I think we should strike a balance for crypto between promoting innovation and providing common sense guardrails. Schumer had already signaled moderate support for the crypto industry by voting for the repeal of SAB-121. His view was largely that crypto isn't going away, so lawmakers can't afford to, quote, stick our heads in the sand and do nothing. At one point, Schumer seemed to take a indirect swipe at Elizabeth Warren, stating,

sadly, there are a lot of members in Congress nowadays who built their political brands around creating spectacle and sensationalism instead of putting in the hard work of legislation. Of course, he could have been talking about any number of other people, but that's the way that a lot of folks took it. The rest of the event kind of seemed to fall flat with the crypto community, who were looking for signs that the Harris campaign is changing course and unfortunately didn't really find that. Investor William Mogiar tweeted, hearing a lot of lip service from the crypto for Harris Town Hall participants, but no one has been saying what really needed to be said, which is, sorry we messed up the last three and a half years with Gary Gensler, and this is how we will change that. No one is admitting the past three and a half years have been disastrous for crypto. Where is the reset really? For the Bitcoiners out there, the event was even more disappointing.

The event had a distinct blockchain-not-Bitcoin vibe. With one speaker stating, blockchain technology is the big game changer. Bitcoin was only mentioned once, and it was only when Mark Cuban said that, quote, "...supporting crypto isn't about increasing the bags of elite Bitcoin maxis. It's about egalitarianism. It's about the opportunity for the unbanked and others to participate

and have the opportunity to create wealth. He later clarified on Twitter that this wasn't intended as a knock on Bitcoiners, but rather an attack on the Trump platform. Cuban wrote, My point tonight is that the door is wide open to reach all the non-Bitcoin crypto owners. Some were left with the sense that many of the speakers didn't quite understand the issues that are important to the community. Crypto was framed as being about an industry with jobs and companies, or as an incremental

innovation, rather than being about a new asset class to invest and save in. Troy Cross, a fellow at the Bitcoin Policy Institute wrote, I hate the crypto industry framing. People still don't understand what Satoshi did. They don't get it. Bitcoin is a monetary union. It's the people's money. Companies built around it or on top it, or they buy it, or they mine it. It's not about them, it's about us. Even for the people deeply involved in the industry side of

crypto, the town hall fell flat. Jake Brookman, the CEO of Coin Fund, provided an excellent summary from a nonpartisan point of view. He noted, I didn't see anyone representing actual crypto-focused investors, the people who focused their entire day and fund, and last five years or more on this industry. Investors and founders the bread and butter of any industry. In short, it satisfied the Harris prong but not the crypto prong and crypto for Harris as far as I can see it. Brookman also took issue with a lack of reflection on the past few years, adding, no one really mentioned the unmitigated disaster to law-abiding entrepreneurs that has been the SEC policy this period. No one mentioned the veto despite Chuck Schumer opening the discussion.

Or the lack of clarity, or failures like FTX or choke point, or the overall dubious and still reverberating failure of the U.S. to support innovation under the current Harris administration. In other words, a lack of self-awareness and acknowledgement of the reality of the crypto founder. We'll just move forward and happily, quote, make this a bipartisan issue, even though Harris-backed policies made it partisan in the first place. To the extent this event was trying to move the needle for undecided voters in the industry, it seemed perhaps not to have been all that effective. For the people who needed to see tangible evidence of change from the top, a list of established

pro-cropo-democrats moving through their talking points added almost zero new information. Many of the Democrat lawmakers chose to send a pre-recorded message rather than show up, although to his credit Chuck Schumer did speak live. Oh, for all, the event promised nothing to the end. industry, and on that promise it seemed to deliver. The real conclusion, which is basically what I've been saying recently, is that crypto remains a very peripheral issue for the Harris campaign. I don't believe that they're working hard to win the single-issue crypto vote. I think that everything about that campaign is just about consolidating the Democrat base, and ultimately that's where we

stand. Hello, friends, before we get back to the rest of the show, I want to implore you to join me at Permissionless. Permissionless is the conference for Cryptonatives by CryptoNatives, and the reason it's so important this year is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the United States remains the beating heart of crypto. Today, the tide is turning. Policymakers have pivoted from fighting crypto to embracing it. Literally now we are in a major political party's platform, which will lead ultimately to the creation of new financial products, new applications, and ultimately new adoption. Permissionless is the conference for those using and building on-chain products. It's home to

the power users, the devs, and the builders, and perhaps more. More importantly, I will be there. The location is Salt Lake City. The dates are October 9th to the 11th, and tickets are just $499. If you want to get 10% off, use Code Breakdown 10. Go to the Blockworks website, blockworks.co. There will be links to register for the conference, and again, you can use Code Breakdown 10 to get 10% off.

Moving over to the macro for a moment. CPI inflation for July came in slightly below expectations, but is now at its lowest points since March 2021. Headline CPI came in at 2.9% on an annualized basis, increasing by 0.2% for the month after a surprise 0.1% decrease for June. Core CPI, which excludes food and energy, recorded a 0.2% increase for the month to reach 3.2% on an annualized basis. There was, by and large, only one take, that this seals the deal for Fed rate cuts in September. Seema Shah, chief global strategist at Principal Asset Management said, Today's CPI print removes any lingering inflation obstacles that may have been preventing

the Fed from starting the rate cutting cycle in September. Yet the numbers also suggest limited urgency for a 50-basis point cut. And while headline CPI inflation is still at 2.9% on an annualized basis, the trend is much cooler using other metrics. Looking, for example, at just the last three months, headline CPI is running at a 0.4% pace. Estimates of core PCE, which is the Fed's preferred inflation gauge, are even cooler. On a three-month basis, this metric is around 1.3%, while the 12-month figure is 2.9%.

We're not quite to the Fed's 2% target, but everything is pointing in the right direction. Former Council of Economic Advisors Chairman Jason Furman said that these were the lowest estimates of PCE he had seen during this inflation wave. He commented, This gives the Fed permission to do whatever they need to do for the employment side of the mandate. If the next jobs report is weak, expect 50 basis points. Otherwise, they will probably go at 25. The biggest remaining area of concern is shelter inflation, which is still running at 5.1%. Shelter was responsible for 90% of CPI price increases this month. Vehicle insurance, electricity, and medical care also remain quite high.

These areas were all running extremely hot in the first quarter, so are likely to reflect a one-time price adjustment rather than persistent inflation. Ed Yardini of Yardini research said, We're there if you take out shelter. We're at 1.9%. Mission accomplished in my view. And so, with the inflation crisis basically over, Fed officials are now. turning their attention to the employment mandate. Unemployment has risen for four consecutive months.

While it's still low in absolute terms, just 4.3%, the trend is alarming to many. Chicago Fed President Ostand Gouldsby said on Wednesday, it feels like on the margin I'm getting more concerned about the employment side of the mandate. He noted that the rise in unemployment could simply be a function of more people entering the labor force. However, he said it could also be, quote, an indicator that we're not settling down at steady state levels, but moving into something that's in the short run worse. If that starts to happen, then our emphasis has to be significantly more on the employment side of the mandate. Goolsby, however, declined a comment on the September fomc meeting directly. He did, however,

point out that Fed officials had previously signaled that multiple rate cuts would be appropriate this year, even with inflation conditions that were, quote, less favorable than the ones we're facing now. He added, if you were going into a recession or you believe that you were going into a recession, that would affect the rate at which you'd be doing the cuts. Conditions are what warrant the size of the cuts. All said and done, we have one more inflation print to come before the September meeting, but the August jobs report might be now the more important factor. Moving over to institutions for a moment. 13F disclosures show another round of institutional adoption for the Bitcoin ETFs.

The filing show positions held by large financial firms at the end of the second quarter. One of the first pension funds to add a Bitcoin allocation using the ETFs was the State of Wisconsin Investment Board. They purchased over $160 million worth in the first quarter. Their position size is largely unchanged, but the fund did sell all of their GPDC shares in order to re-buy using the BlackRock product. The fund also added to their holdings of Coinbase and Marathon Digital. One of the largest new positions was Goldman Sachs, which bought around 400 million worth of Bitcoin ETF shares. More than half of the position was taken in the BlackRock Fund,

making them the third largest holder of iBit shares behind Millennium Management and Kapula management. They also have smaller positions in Fidelity, Grayscale, and four other Bitcoin funds. 13F filings don't include information about short positions or investment strategy, but some think that this position looks more like market-making inventory than a directional investment. If that is the case, then perhaps more interesting is a $188 million position disclosed by Morgan Stanley. The filing notes that these shares are allocated to the Investment Management Division. These funds are held exclusively in the BlackRock Fund. Morgan Stanley recently announced that their financial advisors will be able to sell Bitcoin

investments to their wealth management clients. Previously, the Bitcoin ETFs were only available to clients who specifically requested them and met an extremely high net worth qualification. This position could be clients getting in early by request, or could be the investment bank accumulating inventory and advance of demand. One final tidbit from the filings is that Paul Tudor Jones is back on the market for Bitcoin. His hedge fund Tudor investment corp bought around $30 million worth of the BlackRock fund. Then, of course, there's Vanguard. The incoming CEO of Vanguard, like the old CEO of Vanguard, seems to be no fan of crypto, with the world's second largest

ETF issuer confirming that they will be sitting this one out. During an interview with ETF.com, Salim Ramji said, we will not be launching crypto-etefs. You might remember that Vanguard's outgoing CEO Tim Buckley caused a stir in January when he not only decided not to participate, but actively blocked clients from investing in the Bitcoin ETFs and other crypto-related investments. By May, Buckley had announced his departure and Romji was named the successor. He's the first outside CEO hire in Vanguard's history, coming across from BlackRock where he shepherded the Bitcoin ETF to launch. Many assumed that meant that Vanguard would backflip and try to make up for lost ground on the wildly successful Bitcoin products. That turns out not to be the case,

with Ramji commenting, I'm not going to copy competitors. It's important that a company stay consistent with who they are. Over the years, Vanguard has become a notoriously conservative firm built on the principles of diversification and low-cost investment. If there is an innovation to be made, Ramji seems to be signaling a focus on the needs of an aging client-based, noting, we have been very focused on helping clients accumulate assets, but the industry hasn't done much to help on drawdowns. I want to focus on new products like retirement income and other drawdowns strategies with a range of tools and advice. To me, it sounds less like Ramji is hostile to ETFs, and more that he's trying to build on the strengths that Vanguard already has. Still, we will be

watching to see if there is any change in that policy, but for now, that is going to do it for today's breakdown. Appreciate you guys listening as always, and until next time, be safe and take care of each other. Peace.