The Wolf Of All Streets - Nation-States Ready To Buy Bitcoin?

Starting point is 00:00:00 Will this finally be the year that nation states adopt Bitcoin? Fidelity certainly thinks so. They also seem to think that we will see more corporations adding Bitcoin, more sovereign wealth funds adding Bitcoin, more endowments and pensions adding Bitcoin. Leading many to believe that 2025 will be the biggest year in the history of our beloved asset class. But if that's the case, then why are prices down? NLW and I are going to unpack this and all of the news that's driving prices this week in Bitcoin and crypto. It is the Friday Five, people. Let's go.

Starting point is 00:00:58 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. Most of these weeks, we've had a ton of news. We were obviously off last week. Well, it's been a little bit slower this time. Now I think we have a little more macro to discuss, a few regulatory things, but not the heavy hitting stories that we've been having over the past month. Yeah, it's a lot of postscript and prelude right now, you know, kind of clean up from the past, you know, anticipation for the future. And weirdly, I think that even flows over into macro. You know, we've got a lot happening based on very little information, which always sort of reflects a tensing, you know, more than actual reality. So it's been pretty interesting, although certainly quiet, relatively speaking. Yeah, I think this is one of those moments when you go back to markets hate uncertainty, right? And we're in this transitional period between obviously Biden and Trump presidencies with a lot of unanswered questions as to what is coming, but also a lot of confusion in data, in my opinion, which is making things a

Starting point is 00:02:05 little more muddled, right? Obviously, we've had quite a few rate cuts and we have yields flying, right? And I don't think many people expected that mortgages would be at multiple year highs after the Fed started its cutting cycle. Adding to it, I mean, if we're just going to kind of take macro and Bitcoin's relationship at this moment as our first topic. Jobs report came out this morning. Report today, US added booming 256,000 jobs in December, unemployment at 4.1%. So the expectation was in the mid hundreds, I think 186,000 was what they were expecting, something like that. And unemployment went from 4.2 to 4.1, which was not necessarily expected. So now we live in this upside down once again, where good news for actual people is bad news for markets, right? You would think that unemployment

Starting point is 00:02:51 going down and more people having jobs would be exciting, but that means that the Fed's less likely to cut rates and will probably pause. And you get 10-year yields going from 4.67 to as high as 4.79 just today. So we've got this massive spread and disconnect between the Fed cutting and what the actual yields are saying is happening. They're saying the Fed is wrong. Yeah. I mean, I think that the looming specter continues to be inflation. It's been inflation for three years, four years now, and it just continues to be. It continues to be the great fear that this will be a moment like 1998 where we cut and then instantly hike things back up and later look back data that this is all being based on. It's really just I think it is exactly what you described. It's the combination of uncertainty going into a new administration, plus just general uncertainty.

Starting point is 00:03:52 It's very hard and has been very hard for years to actually try to get a sense of where the hell this economy is. I mean, you know, when you look back at the election, part of what was a deciding factor was the Democrats trying to say that the economy wasn't as bad as everyone felt it was, and that just not being a winning political argument. But it's not like they were basing it on nothing, right? There's just different ways to look at these numbers, and it's all very muddled and mixed. And to your point about markets hating uncertainty, we're just seeing, I think, the impact of

Starting point is 00:04:23 that. Now, it seems like the bonds markets are a little bit more certain and they have a strong sense that they're right, the Fed is wrong, and they're reflecting that in how things are going. Yeah. I mean, to your point, I think that inflation continues to be the story. Fed officials worried Trump policies may lengthen inflation fight. You now have the Fed likely to pause here. And then you have on the other side, many people saying that we're going into a deflationary depression, right? And not that that hasn't been the case for the last year or two, that there's been this

Starting point is 00:04:54 massive disconnect and argument as to what's coming. But I think it's indisputable that this week, as a result of all this, we have seen Bitcoin largely correlate to what's happening specifically in the NASDAQ, but to markets as a whole, right? And so there's been these times when Bitcoin has performed exceptionally well, when other things are kind of sideways or going down. But this week, I mean, we have all these stories, you know, Bitcoin gives up gains, Bitcoin slips below 93k, Bitcoin ETFs after seeing record inflows and record outflows. But it's just very clear that as these yields have raged, Bitcoin and everything else have finally sort of suffered, which is interesting because we had this period since September where basically the dollar raged, which would usually be bad for risk assets, so to speak, and stocks and Bitcoin went up with it.

Starting point is 00:05:40 It was a very strange period. Yeah. I mean, I think that the one thing that I'd love to see an analysis on, and if anyone has this point to point me to it is how correlation changes in sort of periods that you could call uncertain before things happen as opposed to correlation when the thing that people were fearing has happened. Right. Because I think that you see more correlation with Bitcoin. I mean, this is my sense. You see more correlation with Bitcoin and traditional assets in those moments where investors are kind of just like trying to get on the right side of whatever they think is happening, as opposed to after the thing has happened and Bitcoin can go back to, you know, for a lot of people not being a risk asset,

Starting point is 00:06:22 but being a risk off asset, right? It has these very weird properties where it can look like both, you know, in very short windows of time. And I think we're in one of those periods, again, being, you know, based on this uncertainty and what's coming, where it's on the risk on side of its spectrum, you know, as opposed to the risk off. I also think that we have to be ready for there to be stronger correlations at least some part of the time, given just the infiltrate, you know, how much of wall street is now markets are open in that way for, for years now, just like,

Starting point is 00:06:52 you know, it's just dramatic now compared to where it was a few years ago, but this, you know, the correlation has been increasing just proportional to how many people, you know, from outside the crypto industry are, are involved. Um. One thing that's really notable, kind of going back to this inflation and Trump policy thing is when the, so the Fed released its minutes this week from December's meeting. And during the press conference after the meeting in December,

Starting point is 00:07:17 they had very much tried to tamp down the idea of specific political, like specific analysis of anticipated policies, right? They were basically saying that their position was that there's naturally, with any administrative change, an uncertainty. And so their certainty has gone down because we know now that there's going to be a different administration. And so that was sort of reflecting the change in their anticipation of how many rate cuts we were going to see next year, right? But it wasn't a specific analysis that policies that Trump had been talking about were going to be inflationary. Well, when we got the minutes,

Starting point is 00:07:52 it was very clear that there was a much deeper political analysis that was starting around a lot of these things. Now, maybe not so far as to exactly map out, you know, particular promises or campaign promises that Trump had made in terms of their inflationary impact. But it's very clear that the specific policies that are being aired are what are a big piece of what's worrying the Fed, not just the general, you know, general transition and uncertainty in transition that they kind of tried to make it seem. Now, I think that was probably pretty obvious. And I also think that, you know, you have to kind of say what they said before. You can't, as a Fed that's trying to desperately cling to its independence, come out and be like, we think that some of this stuff is insane and it's definitely going to rocket inflation to the moon. That would not be kind of a great way to start that relationship. But it was notable, I think, that in those Fed minutes that that's definitely a big piece of what's going on. Absolutely. And as for just the correlation piece to sort of wrap up this macro, I'm still a big fan of the Bitcoin as a largely uncorrelated asset over time. But it's hard to dispute that

Starting point is 00:08:53 when job numbers come out and you see yields fly and stocks dump and Bitcoin goes from 95 to 93 in the same exact two or three minute that it does now react more significantly to these macro movers, even if only in the very short term and temporarily. And we all know that all correlations kind of go to one when there's doubt and things go down. And I think that is what happened this week. I'd also love to see a correlation map of like kind of correlation, but weighted by how big the move is in terms of how much Bitcoiners care. So for example, like the amount of caring from 97 to 93,000 is incredibly little unless you're just chilling on crypto Twitter and bellyaching. For the average Bitcoiner, that's

Starting point is 00:09:39 not even the blink of an eye, right? For the average investor, it's a much bigger deal, right? There's potential implications there, there's liquidations. But it would be interesting to see kind of like, the correlation that would be really interesting is when the move gets to a size that actually has the hardcore long-term holders sit up and take notice. And we're not even close to in that zone yet. Yeah. I think peak to trough, we went 16% from 108K down to sort of the bottom of this retracement, which is about half of the average retracement of a previous cycle in a real bull market correction. But you'd still think that it was a full panic.

Starting point is 00:10:14 But that said, I mean, coming to 2025 here, which gives us the ability to look back on 2024 and see how we actually performed relative to other markets. And here we have this to me was story two. You pointed this one out, of course. Despite the recent pullback, MicroStrategy finished 2024 as the best performing major asset in the world with Bitcoin as number three.

Starting point is 00:10:35 Even on a risk adjusted basis, sharp ratio, MSCR finished first and Bitcoin was third. Two of the top three assets in 2024 were Bitcoin related. Are you paying attention? Pretty crazy. Yeah. I mean, the funny thing is, the short answer is yes, people are paying attention now. That's why this happened. The second thing is, it's been fascinating to see how many holdouts there still are who are desperately clinging to the, you know, Bitcoin is kind of a Ponzi scheme narrative. You see it crop up every once in a while in an op-ed or a

Starting point is 00:11:11 Twitter piece. And it's just like, boy, you know, how long can you be wrong? But, you know, people prove themselves, you know, able to be wrong for a very long time. I guess the question then remains, will they both be two of the top three performing assets in 2025? I think a lot of people still have concerns about MicroStrategy, but can't predict the future. And I guess we'll see what happens. But still astounding to see that Saylor, if you especially look back 12 to 18 months, when price was under $30,000, and the whole conversation was he was going to be liquidated and he was the worst investor of all time. And here you have him in one year turning it around

Starting point is 00:11:51 to become literally the number one performing asset in the world. I mean, we are in such uncharted territory that no one can with conviction actually say how this is going to play out. I mean, plenty of people will talk with conviction as though they know, but it's just, there's no precedent, right? I mean, I kind of think about Saylor, like that meme or that section of Lord of the Rings where old Bilbo Baggins, you know, looks at the ring and he says, why shouldn't I put it on? That's basically Saylor with every sort of wacky financialization to like acquire more bitcoin you know like the answer is always yes why shouldn't i do that and when you have someone who's just willing to continue to throttle it you know and see what else can be done to acquire more you're

Starting point is 00:12:38 gonna get some weird scenarios and just people aren't gonna know what to do a lot of people have decided fuck it i'm along for the ride excuse my my language. Dude, better Bilbo than Smeagol. That turns very quickly. That's the concern. I mean, Smeagol Gollum was a former hobbit. You're starting to see that conversation, to torture this analogy a little bit farther, where now MicroStrategy has such a big stack that people are starting to ask, what's the amount where Bitcoiners get very concerned around the percentage of the total supply that they have? The number that I keep seeing thrown around is 4%. Now, there's plenty of room to go. I think they're at 2.1% or something like that now. Maybe that's up from where it was. So you're still talking about doubling the size. But there is, I mean, again,

Starting point is 00:13:32 Saylor has an insatiable appetite. The investment logic for micro strategy is not based on a capping out at some point. You know what I mean? It's based on a never ending. And so there could be a moment at which, you know, Bitcoin is starting to get uncomfortable. Now, I think that the average perspective in Bitcoin is that the game theory of this suggests that between here, you know, between the 2% that they have now and whatever percentage you think is too much, 4%, 5%, whatever, that it gets so much harder to acquire that like, you know, the actual full percentage of supply just decreases so precipitously that it sort of solves itself. But it's fascinating, you know,

Starting point is 00:14:10 for the first time, we're actually starting to actively see that conversation, I think, you know, at least in the halls of crypto Twitter. I'm like the biggest Lord of the Rings nerd ever. My entire like childhood room was Lord of the Rings stuff. So you bringing that to really, that made my day. As long as the Balrog doesn't come out of Kaza doom to end, you know, Bitcoin will be all right.

Starting point is 00:14:31 Anyways, Scott, you're showing your nerdiness. FDIC asked financial institutions to pause crypto related activity, according to letters obtained through Coinbase lawsuit. This of course is an update on operation choke point 2.0. Many thought it was a myth. Definitely not. This is Paul Graywall, obviously, lead counsel for Coinbase. Letters show that Operation Chokepoint 2.0 wasn't just some crypto conspiracy theory. FDIC is still hiding behind

Starting point is 00:14:58 way over broad redactions, and they still haven't produced more than a fraction of them. But we finally got the pause letters. No question that the crypto industry was discriminated against by the banking industry. They were cut off. They were basically killed. And this is real. We're seeing it all now and likely to change with the upcoming administration. This is pretty crazy. Well, so there's two parts of the story. So we got the first letters from this FOIA request back a couple months ago now. But they were heavily, heavily redacted, right? So much so that really all you could see was that they had sent out letters nudging people against crypto practice. Now, the whole idea of redactions in this sort of release is to protect confidential information that relates to clients or whatever. But it seemed

Starting point is 00:15:53 to people that there was no way that, I mean, the redaction seemed so heavy handed that it couldn't possibly just be about sensitive information. Well, it turns out that a judge agreed with that and basically slapped the FDIC upside the head and said, be prepared to defend legally every single redaction and re-release these things with actually a thoughtful redaction. And so that's the drop that we recently got over the last week. And sure enough, it turns out that those redactions weren't covering up specific private information. They were covering up very specific programs that the FDIC didn't want banks to undertake. There was this flourishing, it appears, of product development around crypto assets,

Starting point is 00:16:37 Bitcoin, all sorts of different kind of pieces of the spectrum. You had everything from stable coins to Bitcoin accounts to... Banks were very excitedly developing products in the later stage of developing products, getting ready to bring them to market. And the FDIC was specifically talking about those things. That's what the new drop was about. So, you know, look, it's as close to the smoking gun, I think, as we're going to get or we need is this drop. And there's continued, you know, there's a ton of chatter now about the FDIC continuing to try to cover things up. So it's just a mess. It is as bad as sort of the most skeptical people in crypto feared. But it's finally, you know, finally coming out. It's going to be far more difficult for them to

Starting point is 00:17:17 cover things up as they lose the heads of the anti-crypto army at each of these sort of agencies, including the Fed, where Bar, Michael Bar, to resign early from regulatory job to avoid legal fight with Trump. Some would argue that at least from the Fed side, he was the head of the snake for Operation Chokepoint 2.0. So this is yet another piece of great news likely for the crypto industry on the administrative side. I mean, this guy, if you listen to Caitlin long,

Starting point is 00:17:45 uh, he's basically the devil. Yeah. Yeah. He, when, when he was, when he got that role, there was some amount of optimism cause he had had some experience with the, with the crypto industry, but obviously that association with choke point 2.0, uh, you know, tarnish that pretty significantly, you know, there's a, for, for, for us in the crypto sector, it's obviously basically unmitigated good news. I think there is an interesting conversation happening outside of crypto around how abnormal it is for every single agency head to just swap out at the point of a new administration. Theoretically, these positions are supposed to have some sort of, you know, continuity. That's not just, you know, new, new, new administration comes in, everyone, you know, goes out and replaces it. You know, it's not like white house staffers historically we're in a new paradigm

Starting point is 00:18:32 where that seems to be the, the, the prerogative and, you know, it's not necessarily good nor bad. It just is something different. And so that's, that's kind of going to be an interesting phenomenon to watch going forward. Yeah. We really have this situation when talking about what 2025 is going to look like, I guess, from a price and adoption perspective of as long as we don't get some macro black swan that we talked about at the beginning, like it's nothing but green lights and tailwinds for our industry. Yeah, 100%. I mean, it's very hard. But you know what? I'm not even going to go so far because that is a big caveat right now. As we sit here with half of Los Angeles gone, I think I'm not so much for predicting no black swans. Insane. And the next story here, obviously,

Starting point is 00:19:17 is the Silk Road Bitcoin. The federal government just got the green light to sell 6.5 billion in Bitcoin seized from Silk Road, leading many to unpack what this possibly means, if this is the reason we've already had a correction, if this means another crash is coming, if this means that the Biden administration is conspiring against Trump's strategic Bitcoin reserve, and most of it seemingly bad takes. Honestly, it seems like we're just at a point of extremely awkward timing where the DOJ is following precedent in liquidating assets, Bitcoin or otherwise. But man, right here before the election, it does look fishier than you would like. Yeah. I mean, we talked about sort of a

Starting point is 00:19:58 different version of this before. Occam's Razor, it's hard to tell whether Occam's Razor is they're just clearing out their desks or they're really trying to let the door hit us on the way out. And we'll find out depending on what they actually do. It sets up a fight with the incoming administration. Ultimately, I tweeted this the other day. I think FUD around short-term government selling is just simply the stupidest FUD that exists. It's not that it's a non-thing.

Starting point is 00:20:28 It's just ultimately it's a non-thing. And so, yeah, look, it's not that it doesn't have an effect. It's just that it's so obviously a short-term effect that has nothing to do with the trajectory of the industry. Also, I think that at this point, we still haven't internalized how much more ability to absorb, you know, sell pressure Bitcoin is now than it was a couple of years ago. It's absorbed a million since September, right? There's been a million Bitcoin sold since September. And in that time, price went from the 50s to the 100s. Yeah, exactly. This is 60-something thousand Bitcoin. You know, carry the zero, do the three.

Starting point is 00:21:09 And my math says Bitcoin can still go up when there's a lot of Bitcoin being sold. Yeah, exactly. Yeah, and it's honestly just on the kind of conspiracy theory side, I do think that now the DOJ probably has the option to hold this for a few more weeks and see what happens or sell it now. But this is the result of a federal judge effectively clearing out a bankruptcy case where a company called Battle Born was waiting to see if these Bitcoin would be deemed their possession or the possession of the government. The really bigger question, you know, when you dig into these things is how would the government ever have claimed to Bitcoin

Starting point is 00:21:47 in these scenarios in the first place? I mean, one of the others, and we discussed this deeply on Spaces yesterday, obviously, I think about 100,000 more Bitcoin that the government owns is from the Bitfinex hack. So somebody steals 100,000 Bitcoin from Bitfinex she's a bad rapper roswell khan spoiler but and then the government seizes those from the thief and then the bitfinex people who are robbed literally have to fight to prove that that was their bitcoin and it's not the possession of the government i know it's very weird i mean if somebody walks into your house and steals your wife's watch and the police then catch that person, does that watch belong to you or the police?

Starting point is 00:22:29 Because that's exactly the same thing. Yeah, yeah, I agree. I feel like that's why I think that to the extent that there is something, you know, the US government doesn't have all that much more Bitcoin that could go into a strategic reserve if that's something that someone cared about beyond this, because it feels like there's going to be,

Starting point is 00:22:48 there's a lot of room for very successful legal challenge around Bitfinex is the short of it. That's right. So if they sell off 70,000 here and another 100,000 for Bitfinex, or that goes back rightfully to Bitfinex creditors, we have a very small strategic reserve. But I'm not sure if that even matters, to be honest. I think even the statement that the United States has a strategic reserve of Bitcoin would be enough to send the game theory of other nation states adopting it flying, even if it was 10 Bitcoin and there was a loose promise to buy more in the future. And Fidelity sort of pointing to that idea here, but more about rising inflation and currency debasement, all the reasons Bitcoiners believe the government should adopt it. But Fidelity is saying that

Starting point is 00:23:29 nation states, central banks expected to buy Bitcoin in 2025. I think I actually saw, I don't have the story here, but that Bhutan has decided to make Bitcoin, Ethereum and BNB reserve assets. I don't know if you saw that story, but it counts. Yeah. I mean, looks, I think that the, this continues the trend that we've seen of this, this idea, this particular aspect of game theory being taken seriously. And what history has shown us is that when that starts to happen, things move from if to when, when it comes to Bitcoin. We talked about Bitcoin ETFs for a very long time before, but as it started to become more normalized and Wall Street was talking about them, again, it moved from an if to a when. I think that we're undergoing something similar.

Starting point is 00:24:16 I don't know that I think that we're likely to see this game theory explode this cycle, although certainly it's well within the realm of possibilities. But it's going to happen at some point. And it's just a matter of which set of dominoes drive it to actually start. Yeah, I think that about wraps it up for the week. It's going to be a really interesting year no matter what. And we're going to have a lot to talk about. I personally think a lot of it's going to depend on how much action we actually see from the Trump administration in that first 100 days, right? Because I think we've priced in the most possible excitement. We've got every appointment that we want. We have a bill on the floor about adding Bitcoin as a strategic reserve asset. If those things just passively get ignored in the first 100 days,

Starting point is 00:25:00 it could definitely rock the confidence of the market since we're sort of priced to perfection for those things to happen. But my feeling is that some of those things will happen. Yeah, we'll see. I'm going to go out on a limb and say my prediction is that I actually think those things are way less priced in than people think. I think that they're priced in from the crypto folk side. I don't think that the Wall Street investors and the traditional investors are thinking about anything specific when it comes to Trump. They're just looking at him talking positively about Bitcoin and saying, oh, this thing now gets to run rampant with an administration that's not going to get in its way. I think that the price right now reflects not going to get in its way

Starting point is 00:25:36 versus is an active kind of like wind underneath its wings. What I would anticipate is I think that you're right that if we see nothing in it and it kind of passively goes by those first 100 days, which by the way, is my base case, I think there are much bigger fish to fry. I think that there will see a temporary dip because we'll be sad. And then then what I just said will sort of be the recovery narrative where it's like, no, we never thought that and we'll be right back to where we are. So yeah, I think that I think I'm in agreement there. And that's what I was trying to say. I think that I'm just saying that there's a lot more room right now for disappointment. Absolutely. But if we do get what we're looking for, absolutely not priced in if the world's central banks are forced to adopt a Bitcoin standard. Yeah, exactly. All right,

Starting point is 00:26:20 guys, give it LW follow, follow, check The Breakdown as my favorite podcast in the space, the only one that I listen to, being honest. And I will promise to come back on Fridays with more Lord of the Rings references. Daniel, man, thank you very much, as always, for a great Friday show. Guys, we will see you next week. Peace. Bye.

Starting point is 00:26:39 Let's go.

The Wolf Of All Streets - Nation-States Ready To Buy Bitcoin?

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