The Wolf Of All Streets - Institutional Investors Are Betting Big On Crypto, Here Is Why

Episode Date: October 10, 2024

I am joined by Noelle Acheson, the author of the Crypto is Macro newsletter, who will share her insights into the intersection of cryptocurrencies and the macro landscape.  Noelle Acheson: https://x.com/noelleinmadrid Subscribe to the Crypto is Macro newsletter: https://www.cryptoismacro.com/ ►►THERE ARE NO BOTS IN THE COMMENT SECTION ON ROUNDTABLE (SIGN UP) 👉https://roundtable.rtb.io/shortUrl/HIAzSBY ►► JOIN THE FREE WOLF DEN NEWSLETTER, DELIVERED EVERY WEEKDAY! 👉https://thewolfden.substack.com/   ►► The Arch Public Unleash algorithmic trading. Discover how algorithms used by hedge-funds are now accessible to traders looking for unparalleled insights and opportunities!  👉https://thearchpublic.com/  ►►TRADING ALPHA READY TO TRADE LIKE THE PROS? THE BEST TRADERS IN CRYPTO ARE RELYING ON THESE INDICATORS TO MAKE TRADES. Use code '10OFF' for a 10% discount. 👉https://tradingalpha.io/?via=scottmelker  Follow Scott Melker: Twitter: https://x.com/scottmelker Web: https://www.thewolfofallstreets.com/ Spotify: https://spoti.fi/30N5FDe   Apple podcast: https://apple.co/3FASB2c   #Bitcoin #Crypto #Investments The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

If there's ever been any doubt as to whether institutional investors are interested in crypto, we have some data here that shows that they're here and they are here in a very big way. That's one thing we're going to discuss today. But obviously, since we have macro expert Noel Ashton here, we're going to talk about CPI, macro, and everything that's happening in markets, including Bitcoin. You guys do not want to miss this one. Let's go.

What is up, everybody? I'm Scott Melker, also known as the Wolf of All Streets. Before we get started, please subscribe to the channel and hit that like button. Many of you asking already in the comments. I know you guys were concerned and I appreciate it. We got very, very lucky here. The storm went mostly south of us. We're far enough inland that we basically just got quite a bit of rain and very little wind somehow. So Helene, which was absolutely nowhere near us, went up the Gulf and obviously to the Big Bend of Florida, caused tons of damage in our town. And then the hurricane that was coming directly at us originally as a Category 5 effectively didn't do much. But I think people waiting to see what happened where it actually did make land, I think there were pretty big surprises that on the east coast of Florida, there were a ton of tornadoes in South Florida where the storm wasn't really supposed to hit at all.

So our family's still all here, hoping obviously that when they head back to the Tampa Bay area that they find their houses intact and not too much damage. But for my part, all of us safe, we prepared and wasn't much. So just a bunch of rain. And clearly, we still have power and internet. And here I am. So thank you guys all for checking in and ask me about that. Now let's move on to the actual topics at hand. Good morning, Noel. How are you? Very well, Scott. And I'm so relieved to hear that you and your family and friends are safe, at least and praying for that the damage to their homes is very limited.

Appreciate it. We're hoping the same. It's kind of hard to know until they actually drive back down there and check. So I think a lot of suspense and there is some pretty bad reports from the areas where they are. So we're just keeping our fingers crossed. I appreciate the concern. Thank you. So obviously, moving on here, institutional investors are betting big on crypto. Here's why I was shocked when I saw this article. Almost half of traditional hedge funds are dabbling in crypto. That's up from 29% last year. And many traditional hedge funds are active in crypto derivatives. So this is a huge number. We're not talking about crypto hedge funds. We're talking about traditional hedge funds that are at least dabbling in the crypto market in one way or another.

Does this number surprise you as much as it surprises me? It did, actually. Yes, I'm surprised it had grown so much because let's face it, the market has been somewhat tepid over the past. God, I forget even how long now. When last did we have a round that we all got excited about, right? You know, we made those highs in March and it's been a while. Yeah. So yeah, I am surprised, but it's good news. And in a way, I guess we shouldn't be so surprised. I was checking out the volumes this morning, liquidity, because one thing hedge funds bring is extra liquidity. They've got very big pockets, especially the traditional ones. That's the big key here. These are traditional ones. They have big pockets and more hedge fund involvement does bring more liquidity.

You wouldn't have known that, though, from the general commentary, but just checking volumes, and sure enough, volumes, spot volumes, which is, I guess, the crudest proxy you could have, they're higher than last year, which is very good news because when you get higher volumes slash liquidity, you do get more, even bigger players coming into the market, which further reinforces liquidity in volumes, which brings in even bigger players coming into the market, which further reinforces liquidity and volumes, which brings in more bigger players into the market. And it's a virtuous

cycle. The market for last year was kind of small for the big players. It just wasn't really that interesting or even it was riskier because of its size. When it gets to a certain size, that does lower the risk barrier, liquidity being the main one. And that's a good thing for everybody, whatever their motives may be. Of course. And we have some actual data that supports sort of what you're saying. Bitcoin's recent drawdowns are shallow and consistent with past full cycles. As much as people want to believe we're into a new bear market, anything can happen. But in March, I was very openly saying I expect six to eight months of extremely boring and choppy price action because that's what happens after halvings. That's what happens with Bitcoin in those same cycles ahead of elections. And history does not need

to repeat, but if it's going to, we're exactly where we should be. And as we've discussed, we've still had much more shallow drawdowns. In the 20s, low 30%, not the mid 40s and 50% in this period that we've seen in the past. And even with all of that selling, they point out the fact that you just did, which is that there's still a lot of demand and there's still a lot of volume. So in this case, in this cycle, it seems like there's actually a lot more trading keeping the prices in this choppy range than there was in the past. And the amount of trading is actually much more significant than the direction of the trading. Obviously, we'd like it to be up only, but that's just not how hedge funds work. Hedge funds are as likely to go short as they are to take long positions. And so the fact that hedge funds are coming in does not mean that we're heading up from here. It does mean the market

is getting healthier. And that is longer term, a very good sign. Right. So does that mean that we can expect or anticipate that since we're still in the bullish trend, as far as what we've seen in the past, that we can still have hope for higher prices coming into Q4? Oh, for sure. And one thing liquidity does, while hedge funds will go short and long without any discrimination, there are many very large, long-only funds that have yet to take positions. They're probably waiting for more liquidity. They're probably waiting for more derivative options as well. And so when the spot BTC ETF options start trading, that's another very big piece of the puzzle. Once they start coming in, then that's a whole different type of paradigm. Starting to see signs of it already, if you watch the CVD data

like I do, but starting to see signs of that. But hedge funds themselves, just as likely to go short as to go long. That's what they do. That's fine. It's liquidity. That's the missing piece at the moment. Oh, and also hedge fund demand does tend to, we've seen this in previous cycles, it does tend to encourage the development of even more sophisticated market infrastructure services, which again will entice the bigger players to step in. You have to remember that for big players, crypto is a tiny market. It's just not really worth their size. It's not worth setting up the analyst teams for. It's not worth doing the homework on. Once it hits a certain benchmark in size, then it starts to get worth it given its volatility.

Interestingly, a big part of that liquidity is obviously the Fed rate cuts, right? We saw the 50-bit rate cut and at the time, an expectation that if they're going 50, we're going to see more 50s, right? Maybe in November and that we're going to start this aggressive rate cycle, rate cutting cycle. Now we have CPI numbers coming in today and they're actually pretty interesting to parse, especially in context of something that you wrote recently. So I want to first bring up the data. CPI comes in higher than expected. Did the Fed cut too fast? This is the question we're seeing, right? So if you guys weren't paying attention, CPI year over year came in actual 2.4%. It was 2.5% before and the expectation was 2.3%. So everybody focusing on the fact that it missed expectations, which in my mind sometimes are a bit arbitrary and capricious to use the judge's words against the SEC, but you still have a

downtrend. We went from 2.5% down to 2.4%. So inflation is still coming down. But people freaking out and saying that when they look at this, since it's higher than expected, now the Fed might not cut again, therefore no more liquidity, therefore bad for markets, therefore panic. And you just wrote about this. Does inflation deserve a bit more attention? This is in your newsletter right here. So how are you sort of viewing this through the lens of what you wrote and what

the numbers came in as? You know, this is all the articles. The USA Today, inflation slowed again in September. CPI report shows, will the Fed keep cutting rates? Inflation slowed, but it's come down. So it's kind of an interesting headline. Slowing but sticky. And at the core in the month on month was slightly higher than the consensus expectation.

Again, more or less the same as the August 3rd, but still higher than the consensus expectation. And that's the key here. It's sticky, but we've always known that the last mile was going to be sticky. Powell himself has alluded to this many times. I do think the Fed cut too fast at the last FOMC meeting. I was thinking 25 basis points would be sensible. I'm not unhappy, obviously, that they did so. And it makes a lot of sense to get the 50 basis points out of the way before the election

and then take a pause in November. A pause in November is eminently sensible. One, to digest the additional data that's coming in, as we're seeing with this and as we will see with the next employment report but also to see who wins the election because that does matter for the inflation outlook very much and and a very key point here around the election time which is uh the action is two is the day before the FOMC meeting starts two days before we get the statement there's going to be a lot of market volatility why would the Fed want to add to that with yet another cut that is somewhat contentious? We saw with the FOMC meeting minutes, the minutes of the meeting yesterday, it was pretty

divided. We even had the first dissent in, God, I forget how long, like a decade or something like that, the last decision. A dissent is a pretty big deal coming from the governor. And so it's a divided Fed. We're going to see a lot of arguments probably at the next meeting. And I think Powell will have to concede the next one to those that think that perhaps 50 was too much and

the next one should be sat down. So the market got that wrong. The market has adjusted and I think there's more adjustments coming because the market now seems to be pricing in 25 basis points when there's absolutely no reason to as we are seeing not just from the employment data, but from the CPI data as well. So Powell's not dumb. Why do you think that he cut 50 at You're seeing not just from the employment data, but from the CPI data as well. So Powell's not dumb.

Why do you think that he cut 50 at that time? Was it employment? I mean, were they scared that unemployment was going to skyrocket? I mean, now we have this fear that we could still see unemployment rising and inflation not coming down as fast as they want, which is somewhat a nightmare scenario for the Fed with the tools that they have. I think the rationale was, and I buy this, it's actually very smart, was to send a signal, send a signal that we are heading down and then we can do it slowly. He's been repeating that word a lot recently, slowly. Another thing that's very overlooked, and this is something that I'm old

enough to remember the pre-2008 cycles when interest rates were high and that was absolutely fine. We sure managed to build up a lot of leverage with much higher interest rates were high, and that was absolutely fine. We sure managed to build up a lot of leverage with much higher interest rates anyways. There's no reason why we can't do it again. There's no reason rates are going to be going down to anything like we used to have before. And Powell himself is hinting at this, Scott. I don't know if you noticed in his last press conference, he's always so entertaining. I mean, whoever thought Fed press conferences would be entertaining, but they really are. Beyond the color of the tie he chooses, but they're really entertaining. And this time he used a phrase, which is now my favorite phrase of all. It's, we will know it by its works. And that sounds very

mystic, very Gandalf-like, if you like. But he's talking about the neutral rate of inflation. The neutral rate of inflation is the target. And here's the thing. Nobody knows what that is. We will know it by its works. It's when inflation and unemployment are in balance, when we can all live happily ever after. And we don't know what that is. But there are many, many signs, many reasons to believe it's a lot higher than in between the two crises, the great financial crisis and the pandemic. It's a lot higher because of demographics, but even more so, it's a lot higher because of the government debt. That's a whole wonky thing we can get into another time, but basically we don't know where the neutral rate is, it's not where it was, it's higher, therefore rates are not coming down as much as the bond market has been expecting and the stock market and risk assets such as crypto are going to have to adjust their expectations as well. Not having a target is a bit scary. And the fact they've always kind of had a number and they said, well, certainly for inflation, 2%, 2%, 2%, right? We're very close to that. It's actually kind of funny if you think about it in context of where we were a year, a year and a half ago,

that now we're panicking at 2.4. Yeah. Did you see Thailand? 2.4 seems like pretty good news when you're up in the eights, right? Definitely. And you also have to wonder that is that anything to do with monetary liquidity when financial conditions are looser than when the Fed started hiking rates in 2022? So my thesis is that the inflation doesn't have much to do with monetary policies at all, but that monetary policy does impact the economy. And that is very key, especially with signs of slowing on the horizon and with an election coming up. But did you see Thailand this week? They're now officially talking about raising the inflation target to a lot higher than 2% because it's very inconvenient and we'd like to lower rates now, please. Yeah, 2% always seems kind of arbitrary to a lot of

people, right? It's just like we pick a number and that becomes the target and that's it. 2% is fine, guys. It's fine. Exactly. It is the price of things, 2% every year. Now we do. Exactly. It's hilarious.

But also for credibility's sake, you can't go changing it because once you start changing it, you can just keep on changing it, right? Which is why Thailand's move kind of just wreaked a desperation and you thought, it's not going to be the last time

we hear a government suggest this. Yeah. You add another newsletter here that's great talking about Bitcoin being speech. I know it's not really on the news, but it's something worth discussing. And also you talk about in this newsletter, what weak jobs market, which we just alluded to, right? Because we haven't really talked about it, you and I, obviously, but there was this notion that unemployment was rising fast that all of a sudden we had this smashing jobs report last week that showed the jobs were strong anyways. You know, we'll probably see it revised.

But I think, you know, more interesting. You can touch on that and then we'll click quickly maybe and then we'll get into the Bitcoin part. The reason I was writing about maybe inflation wants a bit of attention here is that we sort of collectively agreed a month or so ago, especially after the Jackson Hole meetings, that, all right, we're done with inflation. We're kind of bored of that now. Let's move on to obsessing about employment. Inflation is coming down to target. That's been repeated again and again. Unemployment is the concern. This has been reinforced by many Fed speakers over the past few weeks. Unemployment, unemployment, employment. Suddenly, my point was,

no, inflation could attract our attention, could get our attention again. As we are seeing today, inflation has not yet finished its piece. It still is going to be causing a lot of headaches in central bank meeting rooms over the next couple of months. Inflation is not done. So I thought the interesting part there at the end, as I said, is Bitcoin speech. This is something, as you said in the newsletter, that you basically got around to reading a recent paper from NYDIG founder Ross Stevens, and it was titled Bitcoin's Protection Under the First Amendment. And I'll just read this. The main argument is that Bitcoin is speech as it runs on communication, nodes broadcast transactions to the network, miners help reach consensus on the ledger state, and ecosystem participants signal support or

the lack of it for protocol change. Therefore, since Bitcoin is speech, any attempt to ban it or curtail its development is an attack right to free speech. It's a really interesting take. It is a really interesting take. And I do have to say that Ross is one of the most thoughtful writers in our ecosystem. And I am an absolute, I'm a huge fan. However, I disagreed with this take. Bitcoin is not speech. It is a technology. It is a tool. I don't think it is speech any more than paper is speech or the radio or even the internet. They are channels or technologies on which speech can be recorded and transmitted, but they themselves are not speech. And no one's talking about protecting paper.

But Ross does surface some interesting arguments in his piece, which I recommend everyone go and read. It's on the internet, free access. And he brings up a lot of previous court cases that indirectly do support both his view and my dissent on his view. For instance, one that made an extra tax on ink illegal on the grounds that it just might curtail speech.

If ink is illegal, it's harder to print on paper and that might curtail speech. And you can extend that argument to why is it harder for Bitcoin miners to get access to electricity than it would be for an AI center to get access to electricity? Is that curtailing the speech that Bitcoin may or may not be, depending where you fall on this debate? Either way, my point is, no, I don't think Bitcoin is speech, it's a technology, and let's just treat it as such. Let's develop technology-neutral regulation and treat Bitcoin as a channel on which speech can be transmitted, as well as speculative value, as well as resistance money, as well as whatever you want Bitcoin to be. Ross, if i can ask one other one other fascinating

analogy he draws in the u.s it is illegal to sleep in the park unless you are doing so for political reasons such as during the occupying movement that's legal so if it is legal to transmit money for whatever reason then bitcoin should that case, be protected as a transmission for political reasons, if we are using it for dissent money. But most people aren't. And I will always, as you know, Scott, push back on the assumption that Bitcoin can just be one thing. Bitcoin is many, many things for some people. It is a dissent statement for some people. It is speech for other people. It is just buy and hold or even speculation. Yeah, it's a cell phone network.

You know, like I always joke when they say that, you know, Bitcoin was used in a transaction for criminals. We should shut down Bitcoin or something like that. And you say every time a drug dealer texts on an iPhone, you don't say take away all iPhones, right? Or kill the cellular networks. Exactly. And it's a whole fascinating debate as well. Do the drug dealers have the right to free speech? They're criminals, but they have a right to text, I guess, right? Because that is communication. It brings us back, if we can step back for a second, Scott, to one of the things I most love about the emergence of crypto technologies, plural, and the adoption of these technologies by so many

different segments of society. And that is the philosophical questions. This gives us a tool with which to ask, gives us tools with which to ask the better questions, such as who has the right to free speech? Is privacy a right? And can we freely transact with those we choose if we're not breaking the law? In which case, why are Bitcoin technologies, such as the miners, why are they penalized for legal use of a resource? Yeah, it's a really interesting debate. And it's kind of lends to the regulatory and legislative environment in the United States in general, right? Nobody's really talking about whether it's free speech or what it is, but we're also not really getting any clarity as to what it is

at all. I don't know if you saw Uyeda's comments on Fox Business yesterday. Mark Uyeda is one of the SEC commissioners. Actually, we have two clips. Let's go ahead and play them because those of you may know there's five SEC commissioners, obviously, two Republicans, two Democrats, and Gary Getz, who's obviously a Democrat and gets the final vote and seems to drive policy. But Uyeda and Peirce are the two Republicans who constantly dissent against every decision with the crypto market. But Peirce has been much more outspoken on social media and on the media in general. Uyeda rarely comes out and speaks. Well, he's clearly had enough. I think that this is interesting to watch these quickly and see what he's willing to now say out loud in front of the whole world.

So here's one or two clips. What is he doing regarding crypto? Well, I think our policies and our approach in the last several years have been just really a disaster for the whole industry. We have been setting this policy through enforcement. We've done nothing to provide guidance on it. And as a result, this has been shaped by the courts. And different courts have ruled different ways. I think what this Wells notice is, and while I won't comment on the specifics of this litigation, what has gone on is part of a broader frustration with the fact that we have not provided interpretive guidance as to what you can and cannot do. And if you are involved in some sort

of securities offering, how you register, how you get regulated as a broker dealer, how you get registered as an exchange. And you say moving forward that the SEC needs to return to rationality by ending this war on crypto and ceasing empowering special interest ESG activists. It's obviously they're talking specifically about the crypto.com suit. We talked about it yesterday, but now every time a company gets a Wells notice, they're immediately ready to sue the SEC. That in itself is awesome, Scott. I mean, that was not the case, say, four years ago, but crypto companies are wealthier, wealthier now. And if I may say, emboldened to do so because there have been some very key wins and bring it on more of it's needed.

I think this clip's even better. I hate to show another one, but it's good stuff. Feel within the organization that there has actually been overreach. Well, I should say I'm one of five commissioners, so I only get one vote. And oftentimes I find myself outvoted on these issues with my colleagues. You know, I think within the agency, our agenda is directed by the chairman, Gary Gensler, and so the staff all follows his lead. You know, the joke we have is we have about 5,000 employees at the SEC. He controls 4,99 four thousand nine hundred ninety five. I control five. Wow. So so is that I mean, what's his motivation? Is this all political or does he actually understand the crypto landscape? Does he actually understand the impact that these regulations around climate change agenda is having? Well, you know, I won't speak for what

Gary thinks is his personal motivations are. He certainly has a perspective. The way I look at it, I've been with the agency for 18 years, done a lot of things involving regulation of securities. And the approach we're taking seems to be the wrong one. That's the gist. But I mean, you know, he's saying all the quiet parts out loud. Nobody's afraid now. We do have to give a moment of appreciation, though, Scott, this is very important, that you live in a country in which public dissent with your boss is allowed and encouraged.

And that is actually pretty amazing. It's unfortunate it's necessary, but we should be glad that they're allowed to say what they think and that there doesn't seem to be too much of an internal issue on that. I mean, but do you think that with it getting this loud that we can actually see some change regardless of the outcome of the election? Yes, it has to. It would make no sense whatsoever to allow the current freeze to continue. And so we have to remember, it's not just with crypto companies. I speak to institutional investors on Wall Street every now and then, and some tell me that they have never had such a bad relationship with a regulator, and they're trad-fi types.

So he's just not popular across the board, and surely a new administration is going to want to make some outreach to not just crypto, but also Wall Street. It makes a lot of sense. I was digging into this the other day, though. It's not easy to fire him. That would take an act of Congress, and you'd have to prove calls. But he can be demoted to just a commissioner, and he serves at the pleasure of. As a commissioner, he cannot be fired. But as chair, yes, he can. Of course, it would take a certain kind of personality to stick around once it has been publicly made known that you're not wanted. Especially if he's still in a position to be effectively promoted to another agency. He still wants to be the Secretary of the Treasury. I don't know that that would happen.

Which is even more frightening, actually. Yes. Terrifying. Absolutely terrifying. I know we only have two minutes left. There's one more story I have to show. I'm not sure if you saw this as well, but it's so crazy that it's worth discussing. The FBI created a crypto token to bait pump and dump scammers. Did you see this? I did. I skimmed through it this morning and I thought, wait, hang on. Is that entrapment?

But whatever. This is actually kind of hilarious. So we have it from a lawyer here, Carlo, my friend. He says that it seems like entrapment. But at the end, his conclusion as a lawyer was that it appears to fall within the legal boundaries for undercover operations. But what effectively happened here was the FBI created a token. They'd heard that these guys were pumping and dumping effectively. I mean, it's a little more complicated than that, but they have all the messages. These guys are wash trading. They're

market makers. So you create a new token and then you hire these firms to basically buy and sell and create a bunch of volume and make it look like they're inflated, which is, yeah, and then you can dump and send it to zero. But they have bots that basically do this. There have been rumors that this was happening and they basically got, I think, 18 people, four firms for this all across the world, not just the United States, but pretty novel. I don't know how to feel about it. Well, three big takeaways. One, we've known that the arm of the SEC is long, and now we see that the arm of the FBI is also pretty long. You don't need to be domiciled in the US to fall for one of these. But two, if it helps clean up markets, then great. That's needed. Let's face it, it's going to be especially needed for the reputation. That's going to be enough to bring in the institutional players. That's going to bring the liquidity that we were talking about

before, but also three, yet another example of how crypto technologies makes it easier to catch bad guys. Yeah, it does. I just have to look at this. This is literally in the complaint. You can see here that indictments include Telegram and whatsapp chats between the alleged fraudsters along with the memes and gifs what times we live in orange cafe frog saying pump it being used against these guys but i mean they have him dead to rights i mean he literally explains here if you guys look into the case exactly how they were doing it and even says i know that it's wash trading i know people not might not be happy with it but i think it's just the leads you, like when you see what's happening under the hood, you got to be really careful about what you expose yourself to. Indeed. What times we live in. Well, thank you so much, Noelle. I always love

your perspective. Bitcoin 61,000 seems fine, right? I don't think anything is out here, especially on a day where markets are kind of reeling from these inflation numbers, which I'm sure will settle in and be forgotten by tomorrow. Everybody, please, I showed Noelle's newsletter a few times. You should absolutely, it's on Substack. You should absolutely go subscribe to that and follow her on X, always the best and most measured perspective, which is really nice. So thank you so much. Very kind of you, Scott. Thank you so much. Great to talk to you as always. And usually on Thursday, we have Dan from Chart Guys on. He comes on at 930 and shares charts.

But believe it or not, his power is still out in North Carolina from Hurricane Helene. He doesn't have internet from two weeks ago. So just pretty, pretty crazy. That's why he hasn't been here. All right, guys, we will see you tomorrow for the Friday Five. Noelle, thanks once again. Everyone, see you then. Bye. Thanks, Scott.

Bye-bye.