The Breakdown - What the Walz VP Pick Says About the Dem Approach to Crypto

Episode Date: August 8, 2024

Kamala Harris has chosen her VP candidate: Minnesota Governor Tim Walz. NLW explores Walz history (or lack thereof) with crypto. Plus a continued update on the market meltdown. 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 Wednesday, August 7th, and today we are checking in on the greatly rumored Democratic crypto pivot. 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 in the show notes or go to Bit.L.Y. All right, friends, well, Kamala Harris has selected her running mate, and it is Minnesota Governor Tim Walts. Of course, us from our crypto perspective, the very first question that many people asked was, what does this guy think about crypto? Well, unfortunately, or maybe

fortunately, relative to the Democratic Party right now, Wals has basically zero track record on crypto policy with no public statements discussing the issue. He accepted and later returned a small donation from FTX engineering director Nasad Singh during the 2022 election cycle, but that's also true for a huge cross-section of political figures. Other than that, Walls signed a bill to require limits and fraud protection on Bitcoin ATMs, which frankly could be common-sense policy more than a sign of hostility. Anything else said about Walls when it comes to crypto would simply be guesses at this stage. He is on the progressive side of the party and received an immediate endorsement from Senator Elizabeth Warren, but the Democratic Party has also

been in a consolidate-the-rank sort of move, so this isn't surprising either. Cody Carbone, the chief policy officer at the Digital Chamber said, Walls has been somewhat of a blank slate on cryptocurrency, like his running mate. We're hopeful that VP Harris's reported interest in being more crypto-forward will also be affirmed by her new running mate. This campaign has a lot of ground to make up compared to Republicans, and we hope private outreach soon turns to public support. Now, as for the rest of the Harris campaign, the crypto industry is still waiting for the crypto pivot to materialize. A second roundtable with industry figures was scheduled for Monday, but was scuttled at the last minute as market turmoil demanded the attention of policymakers.

Harris herself wasn't scheduled to attend, but National Economic Council Director and former Fed Governor Lail Brainer had intended to be present. Another set of tea leaves is the appointment of David Plouf to the Harris campaign. Plouf had previously served on the Binance Global Advisory Board, as well as acting as a global strategic advisor for crypto-on-ran provider Alchemy Pay. He was a key advisor on both successful Obama campaigns as well as the 2016 Clinton campaign. To be completely transparent, it is a little difficult with revolving door appointments to know if they have a genuine affinity for the crypto industry, or if they represent crypto firms attempting to curry favor with the government or both, but I think that most would suggest the appointment

of a crypto-literate, at least, advisor, is unlikely to be a bad thing. And again, we did kind of say that about Gensler as well, so who the hell knows? Ploof's prior statements on crypto policy have been thoughtful and demonstrated an understanding of the current problem. During a 2023 interview with Kondeski said, on the government side, there has to be a sense of, okay, let's not fit this new thing into old rules. How do we fashion new rules? But those rules, have to protect the public. There has to be transparency. There has to be accountability. The other recent crypto-related campaign appointment was former Treasury Undersecretary for Terrorism and Financial Intelligence, Brian Nelson. Nelson was the face of much of the crypto-antaterrorism

efforts over the past two years. Many on crypto-Twitter were quick to mark Nelson as an anti-crypto zealot. Others had more moderate views, with Avichal Garg of Electric Capital writing, he's moderate and open to conversations, not a hardcore Warrenite, incremental positive progress. Nelson, for his part, has made multiple appearances at crypto conferences and seemingly is engaged with the industry. He also acknowledged that the size of the crypto-terrorism funding problem was overstated in the media during a congressional hearing earlier this year. This statement helped to unravel Senator Warren's narrative and earn the respect of pro-crypto-countercropro-counter. Cody Carbone again commented he's kept a pretty open mind about crypto and his policy team has gone above and beyond to engage

with the industry. He's deeply concerned about illicit finance usage, but hasn't painted crypto as poison like others. Now, over on the industry side, a new group has sprung up to represent Democrats in crypto. Called crypto advocates for Harris, the group has organized a virtual town hall to be held next Wednesday. The event currently has over 200 people signed up, but is quite low on details. It's simply called on attendees to, quote, come meet the crypto industry leaders, policy professionals, and enthusiasts who are organizing on behalf of the Harris for president campaign. The group's Twitter account billed Mark Cuban as one of the industry heavyweights, quote-unquote, that would be speaking. Pro-Crypto Democrats, Wiley Nicol, Richie Torres, Yadira,

Caravio, and Don Davis will also be making an appearance. It's unclear at this stage whether the meeting will feature representatives of the Harris campaign. Sheila Warren, CEO of the Crypto Council and one of the organizers wrote, so happy to see efforts like this. Crypto is the ultimate big tent, no matter what some parts of the community tell you. I'll be on and you should join two, whether you're pro-crypto and pro-Harris, one or the other, or just following along in general bewilderment at the latest twist and turns in all of this. Others were less optimistic about seeing real change out of the Democrats, with finance lawyer Scott Johnson sub-tweeting the Harris for crypto account, Lambs for Wolf vibes. I hear the wolf is considering going vegan.

Probably as expected, finalization of the Harris ticket kicked off another firestorm across crypto Twitter. Bankless co-host Ryan Sean Adams acted as the lightning rod for this round, tweeting, The official Democrat ticket was announced. Kamala Harris and Tim Walts. Neither have taken a public position on crypto. This is an opportunity for them, but the window is closing fast. At this point, we need to see words in action. Silence is complicity. Trader Dennis and Bertram responded, it's also possible they aren't convinced it's important, so rather than complicity, maybe they are ignoring it. Wayne Vaughn on the other end of the spectrum wrote, Kamala Harris has been the VP for the last four years,

and she's directly responsible for the Biden-Harris anti-cryptop policies. Bowen Belmer writes, neither have taken a public position on crypto. My brother in Christ, I love bankless and have been a listener since 2020, but this is patently false. Kamala is the current VP. The last four years have been an ongoing public opinion on crypto from their camp. I'm by no means pro-Trump, but come on now with this take.

We haven't even seen silence, which I agree is complicity. We've seen legitimate action taken against our industry over and over again. So for now, that is all the information we have. Perhaps we will get more info soon. Right now at the moment, the much-desired Democrat CryptoPivot remains highly theoretical and a thing for the future at best. 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 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.com.

There will be links to register for the conference, and again, you can use code breakdown 10 to get 10% off. Now let's follow up on some of the financial market news, wrapping up from the last couple of days where that's been the entire focus. With the price crash quickly fading into memory, we now have the ability to start digging into the data to see how different traders reacted to the drawdown. This could give some hints about where we are in the cycle and how much enthusiasm is left to pile into the Bitcoin trade. Bitcoin whales took full advantage of the temporary discount and bought the dip. Wallets with between 1,000 and 10,000 Bitcoin added to their holdings as prices fell. Whale accumulation has been ongoing for the past month, but stepped up another gear over the past few days to

reach cyclical highs. During the previous cycle, whale accumulation peaked during the January 2021 drawdown just before the run to all-time highs. Crypto Quant CEO Kiyung-Ju thinks this is more than just run-of-the-mill accumulation, tweeting, I'm pretty sure something is happening behind the scenes. Over 400,000 Bitcoin have moved to permanent holder addresses over the past 30 days, and it's clearly accumulation. Spelling out what he is thinking, Zhu added, so here's what's going to happen. Within a year, some entities, whether their tradfai institutions, companies, governments, or others, will announce that they've acquired Bitcoin in Q3, 2024, and retail investors will regret not buying it because they were worried about the German government selling, Mount Gawks, or whatever

macroeconomic stuff was going on. On the flip side, short-term Bitcoin holders were visibly shaken by the recent moves. On-chain data showed them shifting a huge amount of Bitcoin onto exchanges. Onchain analyst checkmatey wrote, short-term holders puked out so many coins on Monday they locked in losses at a similar scale to when FTX collapsed. Futures open interest nuked a mammoth 10 billion in total value. The long liquidations and margin calls have completely cleared the leveraged books. Very few stops and liquidation levels survived. More constructive conditions than most folks realized, to be honest. Overall, centralized exchanges experienced 168 million in net outflows on Monday, suggesting the capitulation from short-term holders was outweighed by higher conviction buying. Trading volume

hit a new all-time high of $1.14 billion for the day, much, much higher than the three-month average of $300 million. On the ETF side, ETF flows have been clearly negative, with heavy outflows for the past three trading days for Bitcoin products. Over half a billion dollars has been redeemed from the fund since Friday. Outflows have fallen slightly each day but remain highly elevated with 148 million fleeing on Tuesday. Somewhat lost in the shuffle over the weekend was news that could signal another wave of institutional adoption. Morgan Stanley has approved Bitcoin ETFs for a wider range of their wealth management clients beginning from Wednesday. Clients will need to have a minimum net worth of $1.5 million to access the products, with only the BlackRock and Fidelity

ETFs on offer. More importantly, wealth advisors will be allowed to suggest a Bitcoin allocation for the first time. A source said that the product, will only be sold to investors with a high-risk tolerance, and the intention to invest in speculative assets. This is the first major wirehouse to approve the ETFs, so we don't really know how large the impact will be. Many in the industry think that this will be the moment that truly demonstrates the power of the ETFs. Hasib Koreshi of Dragonfly Capital, for example, tweeted this is huge. Currently, all of the private wealth advisors are reverse inquiry only, meaning they are not allowed to market the Bitcoin ETF to their clients. That's only now

changed. Expect to see some chunkier inflows in the second half of the year. Morgan Stanley isn't the only new institution coming on board. Yesterday, Capula Management disclosed that they had bought almost 500 million worth of Bitcoin ETFs spread across the fidelity in BlackRock products. Capula is the fourth largest hedge fund in Europe and manages over $30 billion in investor assets. The purchase occurred sometime in the second quarter. We've seen a few other institutions by Bitcoin ETFs in size since the beginning of the year. The most notable one was Millennium Management, which disclosed around $2 billion in Bitcoin

ETF holdings in May. Millennium is a strategic fund that has a large market-making operation. For this reason, the Bitcoin holdings were chalked up to being inventory for those operations rather than a buy-and-hold investment. Capula seems like an entirely different kind of entity. According to their website, they operate absolute return, enhanced fixed income, macro, and crisis alpha strategies. However, Flowhorse tempered the expectations that this was a directional positioning, tweeted, Capula does fixed income in relative value. This is 100% a basis trade, meaning that in their estimation, Capula is probably short Bitcoin futures against this new position. Really the question on the mind of every Bitcoin trader is whether the bull market is still intact

or if this drawdown is signaling a trend change lower. Rich Rosenblum, co-CEO of Marketmaker GSR, thinks that instability in the Middle East could make markets a little jittery to end the year. His view is that at some point the Fed will need to intervene, but that probably isn't happening soon. His view on Bitcoin was, quote, the lower it goes, the higher it's going to go. David Luant, the head of research at Falcon X fuels, there are many cross currents impacting markets over the short term, making it difficult to know which is in the driver's seat.

Over the longer term, he viewed this uncertainty as a reason to own Bitcoin, stating, as these cracks become more visible, I think that the Bitcoin investment case starts to become clear. Analystic CryptoQuant believe that Bitcoin market is now at a critical stage in the recovery. They wrote, Bitcoin prices are again hovering at key support levels with risks of this correction extending further according to valuation metrics. Their analysis hinges on an on-chain metric called market value to realize value, which compares the current market price to the average accumulation price for holders.

MVRV is now below its one-year moving average, which is a level that has previously signaled further price declines. CryptoQuant's report noted that this support level was breached during crashes in March 2020, May 2021, and the start of the bear market in November 2021. Analysts wrote, Investors should be monitoring these valuation metrics to assess the possibility of a price bounce or further correction. They believe that prices could go as low as 40,000 if further support levels are breached. Still, one of the more popular takes is that this price crash bears a lot of similarities to the major drawdowns that set the stage for previous bull markets. We, of course, had the COVID crash in 2020, but 2016 also featured peak fear around the Bitfinex hack.

The 2013 Bull Run was preempted by the arrest of Ross Ulbricht and the shutdown of the Silk Road. Veteran trader Peter Brandt tweeted a chart of previous cycles, adding, The Bitcoin decline since halving is now similar to that of the 2015-2017-having bull market cycle. Ultimately, though, the cycle is really hard to understand right now. Since early this year, analysts have pointed to a pre-having all-time high as evidence that the cycle was shifted forward by the launch of the Bitcoin ETFs. However, we never saw a clean breakout into price discovery territory, which would be a first for a Bitcoin cycle. For now, it seems that conviction is being maintained that there's still a lot of

tailwinds for Bitcoin. Alistair Milne tweeted, there are people out there trying to convince you that in an election year, in a fiscally easing global environment post-having, with US ETFs for both Bitcoin and Ethereum, with the SEC backing off and politicians courting Bitcoiners, with Mount Cox distributing after 10 plus years, with Germany and others finished selling with gold near all-time highs, that Bitcoin's bull run has finished? I am here to tell you those people don't have a damn clue. what they're talking about. For now, friends, that is going to do it for today's breakdown. Appreciate you listening as always. And until next time, be safe and take care of each other. Peace.