The Breakdown - Why Crypto Narratives Are Finally Making Sense to TradFi

Episode Date: March 17, 2024

Bitcoin as digital gold. Ethereum as all that tokenization stuff. The rest of it as degeneracy and gambling. NLW explores how narratives are clicking in the post Bitcoin ETF era. Today's Show Brought To You By Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet 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 Sunday, March 17th, and that means it's time for Long Read Sunday. 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. slash breakdown pod. All right, friends, another week, another LRS, and this week we are exploring the theme of the new Bitcoin world. The world has changed. Maybe not for us and how we understood it,

but certainly for some others. We start today with a piece by Daniel Kuhn called Greater Fools or Watching, Bitcoin is here to stay, elites admit. Daniel writes, the Financial Times, perhaps the arch critic of cryptocurrencies over the past decade, has conceded that Bitcoin might just have a purpose. It's just the latest data point that there is a great shift happening in how people view crypto, from ex-president Donald Trump to Larry Fink. They may not fully grasp what's going on, who does, but they sense it's important. Rockefeller International Chair Rashir Sharma wrote, The Bitcoin Bulls have been proved mostly right about its prospects as a long-term investment. That opinion piece was titled, Once dismissed as fanatics, the Bitcoin Bulls must be feeling vindicated.

Noting that Bitcoin has traditionally behaved like penny stocks that tend to pump and then dump, he said that the fact that the bubble burst and quickly recovered, quote, suggests that something real and sustainable is going on. Sharma added, There was an old Wall Street saying for moments like this, only the fools are dancing, but the bigger fools are watching. True, this is not the official position of the UK-based paper or its editorial board, just a contributing writer.

But it still stands out as something significant for the FT in particular to publish. For years, it hasn't published opinion pieces like this. Many of the paper's reporters and editors have been staunch critics of crypto, and take any opportunity to write negative articles or post self-satisfied statements when things go awry in crypto, which is often. Nowhere is this more apparent than on Alphaville, the FTs' Aridite Daily Markets blog, which could be read as standing for the general but unofficial view of the paper. Here is a sampling of headlines Alphaville published over the past four years pertaining to crypto.

Little evidence that a spot Bitcoin ETF would expand the market. Boy, did they get that one wrong. Let crypto burn. Charming. How stablecoins are destabilizing crypto? a tether crisis thinkpiece. Why Bitcoin is worse than a Madoff-style Ponzi scheme. Madoff was pretty bad. Oh no, now Deloitte with the crypto nonsense. God forbid companies take an interest in ascendant technology. And finally, the Crypto Buffett lunch has been postponed.

Lucky Warren Buffett. They may have gotten this one right. Notably, former Alphaville editor Isabella Kaminska had a change of heart on Bitcoin in 2020 and ultimately quit the FT two years later for a number of reasons. She wrote at the time, part of me has always thought of the crypto market as a type of honey trap, for the worst irrational exuberance emerging from the quantitative easing and Zerp era. While the growing appreciation for Bitcoin among the tastemakers and power brokers of the world doesn't necessarily translate to support for crypto across the board,

a point of view that could be considered as Bitcoin maximalism light, it does open the doors to more people thinking more seriously about blockchain technology. In other words, crypto is becoming destigmatized. Time will tell how far this will filter up within elite circles. It likely hangs on Bitcoin's continued success. but I can't imagine a day where the default position isn't to sneer, jeer, or steer clear of Bitcoin, and instead view it as part of the financial furniture. Enter Donald Trump, who called crypto a scam in 2021, but told CNBC this weekend,

he has been having fun with crypto and called Bitcoin a, quote, additional form of currency. These are not the first positive comments Trump has made as his presidential campaign ramps up, suggesting he no longer sees crypto as a threat towards his America-first agenda, or considers it cut from the same populist cloth. Further, even if people aren't out-and-out Bitcoin or crypto supporters, the number of people willing to criticize the industry appears to be dwindling. There are a number of factors influencing this shift, including the successful launch of spot Bitcoin exchange traded funds in the U.S.

Not only did this prove there was intense pent-up demand for Bitcoin exposure, but also that the Securities and Exchange Commission's years of fear-mongering about potential market manipulation was misplaced. More importantly, perhaps, as Sharma's op-ed suggests, it seems like these elite folks are tired of being wrong. There are only so many supposed Bitcoin autopsies that can be written before critics have to examine their own heads. Of course, whether or not people in high places begrudgingly accept that it's not disappearing doesn't matter much. Crypto still has its flaws. The hope is that, with fewer

people trotting out the same tired arguments to be debunked, the quality of industry criticism will rise. Charma himself, while accepting that Bitcoin is a viable investment, still has his reservations. He noted that Bitcoin isn't being used much as a currency and that the idea that it'll become digital gold is still a dream. He's not wrong that Bitcoin isn't commonly being used to buy coffee by anyone but fanatics, but he does contradict himself. He notes 70% of addresses have been inactive for longer than a year because people buy and hold Bitcoin, but that's because buyers treat it as a store of value. Bitcoin may not have gold's market cap today, but what exactly is standing in its way? Just today, with Bitcoin's

market cap crossing $1.4 trillion, it reached parity with silver. Hello, breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, It's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security or self-custody. Ledger features cutting-edge technology in the form of a certified secure chip and a proprietary operating system, but also brings ease of use. This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes.

5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. Nothing is off the table for Bitcoin. It can continue to rally, trade sideways for months, or ratchet back down. It's likely not hitting zero, considering there's a growing group of Bitcoiners willing to buy at any price. People who perhaps a month ago, Sharma would have called the greater fool. Whether you invest or not in Bitcoin, it pays not to bet against it's surprising you. Another great little piece from Daniel there.

Here's what I want to talk about. There are a few unignorable things about Bitcoin at this point. Clechay among Bitcoiners, but in the history of financial bubbles, things that are actually bubbles just don't really come back. I guess you could argue that dot-coms came back in the form of different types of tech stocks, but when you're talking about a single asset, nothing has had this sort of return. So either you're saying that this is a fundamentally different type of bubble, phenomena, or you have to view it as something different. Second, Lindy, do not underestimate how powerful

a thing just continuing to survive when everyone says it's going to die really is. A word that I think you could put around a lot of people's attitudes towards Bitcoin is begrudging. They begrudgingly respect it. They begrudgingly admit that it isn't going away. And they can begrudge all they want. The fact of the matter is, the longer Bitcoin exists, the more likely it is to continue to exist, in part because the more people assume it's just going to continue to exist. Three, there are two layers of additional respect happening when it comes to Bitcoin holders right now. One is the obvious one we've talked about a lot, which is that if last cycle we got some hedge fund mavericks, like Paul Tudor Jones singing Bitcoin's praises, this cycle we have the most

institutional of the institutional in Larry Fink taking on that role. That's just inevitably going to cause people to change their perspective on it. Second, however, going back to that begrudging term, people are finally getting that one of the things that makes Bitcoin completely different than other assets is that there is a group of people who will not sell their Bitcoin for any price. And that group just continues to grow. They set then a really powerful price floor that for as volatile as Bitcoin can be above that floor does provide a wall at some point that can't be breached. It seems to me that more people are finally getting that. But let's talk about narratives and Bitcoin maximalism light for a moment. I actually think that this is immensely

important, this Bitcoin maximalism light idea. It is entirely possible now for people to say, I'm not really interested in any of that other crypto stuff, but sure, the one that stuck around forever, that has a totally pseudonymous founder that people don't know who it is, and that exerts no control over the thing anymore, and which just keeps surviving and being relevant as a store of value, sure, I'll be into that. It sounds really simple because it is simple. It's an incredibly easy narrative for someone to grasp. And frankly, if you're a Wall Streeter or just someone who's not going to spend a bunch of time in this sector, getting exposure to Bitcoin, especially now through these ETFs,

can almost be seen as giving you license to not care about the other stuff. It's a narrative, in other words, that relieves pressure on the entire crypto space by giving people a foothold into it without requiring anything more of them in terms of understanding the rest of it. I think the same type of thing is likely over the long run to happen with Ethereum as well. Not in terms of Ethereum also being lumped in as a store of value like Bitcoin, but as Ethereum being a proxy for all that other crypto stuff, tokenization, etc. If you have Bitcoin as the big Lindy Store-Value thing, and Ethereum as the tokenization thing,

once again, you have exposure to these major, major themes of this long-term growth space without having to really think any more or harder about it. And then, sure, the crazy crypto games around meme coins and things like that, those will always be inaccessible to the mainstream. How they're inaccessible for most people in crypto. But the fact that the narratives are so easy and clean, just don't underestimate how big an impact that could have. Anyways, guys, that is going to do it for today's episode. Big thank you to Ledger for sponsoring this show. Check out the Ledger Bitcoin Nano, where 5% of your purchase will go to

helping Bitcoin development. Until next time, be safe and take care of each other. Peace.