← The Wolf Of All Streets
The Wolf Of All Streets
Nation-States Ready To Buy Bitcoin?
00:26:58
Nation-States Ready To Buy Bitcoin?
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- [00:01]
Scott Melker
Will this finally be the year that nation states adopt bitcoin? Fidelity certainly think 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 year 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, we're going to 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, let's go. That's dope. What is up everybody? I'm Scott Melker, also known as the Wolf of Allstreets. 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, you know, regulatory things but not the heavy hitting stories that we've been having over the past month.
- [01:21]
NLW
Yeah, it's a lot of postscript and Prelude right now, you know, kind of clean up from, from the past, you know, anticipation for the future and weirdly I think that even flows over into to macro. You know, we've got a lot happening based on very little information which always sort of reflects a, a tensing, you know, more than than actual reality. So it's been been pretty interesting, although certainly quiet, relatively speaking.
- [01:46]
Scott Melker
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 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 think that unemployment 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, you know, 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.
- [03:17]
NLW
Yeah, I mean, I think that the, the, 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, you know, that this will be a, you know, know a moment like 1998 where we cut and then instantly hike things back up and later looked back at that, you know, mini cutting cycle as a, as a mistake. I think that it's, again, there's so little 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. It's very hard and has been very hard for years to, 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, 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, and it's all very muddled and mixed. And you know, to your point about markets hating uncertainty, we're just seeing, I think, the, the impact of that now. It seems like the bonds markets are a little bit more certain and they have sense that they're right, the Fed is wrong and they're, they're, you know, reflecting that and how things are going.
- [04:34]
Scott Melker
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 Massive disconnect and argument as to what's coming. But I think it's indisputable that this week, as a result of all of this, we have seen bitcoin largely correlate to what's happening specifically in the Nasdaq, but to markets as a whole. And so there's been these times when bitcoin has performed exceptionally well, when other things are kind of sideways, are going down. But this week we have all these stories. Bitcoin gives up gains. Bitcoin slips below 93K, Bitcoin ETFs after seeing record inflows, seeing 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. It was a very strange period.
- [05:43]
NLW
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. 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, 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, b. Based on this uncertainty and what's coming, where it's. It's on the. 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, when markets are open in that way for. For years now, just like, 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. 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. From December's meeting and during the press conference after the meeting in December, 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, 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. 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's. 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, you know, as a Fed that's trying to, you know, 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. You know, like, that would not be kind of a great way to start that, that relationship. But it was notable, I think, that in those Fed minutes that that's. That definitely a big piece of what's going on.
- [08:44]
Scott Melker
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 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.
- [09:18]
NLW
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 carrying from 97 to 93,000 is incredibly little. Unless you're just chilling on crypto Twitter and bellyaching. For the average bitcoiner that's not even the blink of an eye, right. For the average investor it's a much bigger deal. Right. There's, you know, there's potential implications there, there's liquidations, you know, but it would be interesting to see kind of like, you know, the correlation that, that would be really interesting is when the, the move gets to a size that actually has, you know, the, the, the hardcore long term holders, you know, sit up and take notice and we're not even close to in that zone yet.
- [10:00]
Scott Melker
Yeah, we're, we're six, 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. But that said, I mean come into 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 too. 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. Even on a risk adjusted basis, Sharpe ratio MSTR finished first and Bitcoin was third. Two of the top three assets in 2024 were Bitcoin related. Are you paying attention? Pretty crazy.
- [10:50]
NLW
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 close 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 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 long for wrong for a very long time.
- [11:21]
Scott Melker
I guess the question then remains, will they both be two of the top three performing assets in 2025? I think, you know, 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 to become literally the number one performing asset in the world.
- [11:54]
NLW
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. Will talk with conviction as though they know, but it's just. There's no precedent. Right. I mean, I kind of think about Sailor like that, that. That meme or that. 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 gonna get some weird scenarios and just people aren't gonna know what to do. A lot of people have decided it. I'm along for the ride. Excuse my language.
- [12:44]
Scott Melker
Dude, better Bilbo than Smeagol.
- [12:48]
NLW
Yeah, you know, like, well, that turn, that. That turns very quickly. That's the concern.
- [12:53]
Scott Melker
I mean, he was a Smeagol. Gollum was a fight. Former Hobbit.
- [12:57]
NLW
Yeah, I mean, listen, we're starting, you're starting to see that conversation to torture this analogy a little bit farther where, you know, now MicroStrategy has such a big stack that people are. 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. Maybe that's up from. From. From where it was. So you're still talking about, you know, doubling the size. But there is. I mean, like, again, Sailor has an insatiable appetite. There's no his. 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. On a never ending. And so there could be a moment at which, you know, bitcoin is start 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 the. 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, for the first time we're actually starting to actively see that conversation, I think, you know, at least in the halls of crypto.
- [14:16]
Scott Melker
Twitter and I'm like the biggest Lord of the Rings nerd ever. My entire like childhood room was Lord of the Rings stuff. So you're bringing. That really made my day. As long as the Balrog doesn't come out of Kaza Doom to end, you know, bitcoin will be all right 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 Graywell, obviously lead counselor for Coinbase. Letters show that Operation choke point 2.0 wasn't just some crypto conspiracy theory. FDIC is still hiding behind 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.
- [15:21]
NLW
Well, so there's two parts of the story. So we got the first letters from, you know, 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, you know, release is to protect confidential information that relates to clients or whatever. But it seemed 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, you know, slapped the FDIC upside the head and said be prepared to defend legally every single redaction and re release these things with the, you know, with actually a thoughtful redaction. And so that's the drop that we recently got, you know, over the last week. And sure enough, it turns out that, you know, those redactions weren't covering up specific, you know, private information. They were covering up very specific programs that the FDIC didn't want banks to understand, undertake. There was this flourishing, it appears, of product development around crypto assets, Bitcoin, all sorts of different kind of pieces of the spectrum. You had everything from stable coins to bitcoin accounts to, you know, 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, the new drop was about. So, you know, look, it's, it's as close to the smoking gun I think, as we're going to get or we need is, is this drop. And there's continued, you know, there's a ton of chatter now about the FDIC continuing to try to, to cover things up. So it's, it's just a mess. It is as bad as, as sort of the most skeptical people in crypto feared, but it's finally, you know, finally coming out.
- [17:15]
Scott Melker
It's going to be far more difficult for them to cover things up as they lose the heads of the anti crypto army at each of these sort of agencies, including the Fed, where Barr, Michael Barr 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 choke point 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, he's basically the devil.
- [17:48]
NLW
Yeah, yeah. When he got that role, there was some amount of optimism because he had had some experience with the crypto industry, but obviously that association with chokepoint 2.0, you know, tarnished that pretty significantly. You know, there's for, for, for us in the crypto sector, there's, 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, 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 where that seems to be 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.
- [18:42]
Scott Melker
Yeah, we really have this situation when talking about what 2025 is going to look like, I guess for 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.
- [18:59]
NLW
Yeah, 100%. I mean, it's very hard. But you know what? I'm not even gonna go so far because that is a big caveat right now as we sit here, half of Los Angeles gone. I think I'm not so much for predicting no black swans.
- [19:15]
Scott Melker
Insane. And the next story here, obviously, 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. Look fishier than you would like.
- [19:57]
NLW
Yeah, I mean, we talked about sort of a different version of this before. You know, 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, you know, let the door hit us on the way out and, you know, we'll find out. Depending on what they actually do. It sets up, you know, a fight with the, with the incoming administration. Ultimately. You know, I tweeted this the other day. I think FUD around short term government selling is just simply the stupidest FUD that that exists. It's just, it's not that it's a non thing, it's just ultimately it's a non thing, you know, and so, yeah, look, it's. It's not that it doesn't have an effect. It's just that it's. It's so obviously a short term effect that has nothing to do with the trajectory of, of the industry. Also, I think that at this point, we still haven't internalized how much more ability to absorb cell pressure bitcoin is now than it was a couple of Years ago.
- [20:54]
Scott Melker
It's absorbed a million since September. Right. There's been a million bitcoins sold since September. And in that time, price went from the 50s to the hundreds.
- [21:03]
NLW
Yeah, exactly.
- [21:04]
Scott Melker
This is 60 something thousand Bitcoin. Carry the zero, do the three. And my math says bitcoin can still go up when there's a lot of bitcoin being sold.
- [21:13]
NLW
Yep, exactly.
- [21:15]
Scott Melker
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 Battleborn was waiting to see if these bitcoin would be deemed their possession or the possession of the government. The really bigger question when you dig into these things is how would the government ever have claim to bitcoin 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. Razzle 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.
- [22:20]
NLW
I know, it's very weird.
- [22:21]
Scott Melker
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? Because that's exactly the same thing.
- [22:31]
NLW
Yeah, yeah, I agree. I feel like that's why I think that to the extent that there is something, you know, the. 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. There's a lot of room for very successful legal challenge around Bitfinex is. Is the short of it.
- [22:53]
Scott Melker
That's right. So if you. If they sell off 70,000 here and another hundred thousand 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 finality sort of pointing to that idea here, but more about rising inflation. Inflation and currency debasement, all the reasons bitcoiners believe that government should adopt it. But Fidelity saying that 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 that did happen. It counts. Yeah.
- [23:45]
NLW
I mean, look, 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. You know, 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. I don't know that I think that we're likely to see sort of this game theory explode this cycle, although that certainly it's, it's well within the realm of possibilities. But it's going to happen at some point and it's just a matter of kind of which set of dominoes drive it to actually start.
- [24:32]
Scott Melker
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 hundred 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 hundred days, 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.
- [25:09]
NLW
Yeah, we'll see. I'm. I'm gonna go out on a limb and say my, my prediction is that I actually think those things are way less priced in than people think. I think that are priced in from the crypto folks 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 versus is an active kind of like wing wind underneath its wings. What I would anticipate is, I think that you're right, that if we see nothing 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. Be the recovery narrative where it's like, no, we never thought that. And we'll be right back to where we are.
- [26:01]
Scott Melker
So, yeah, I think that's. 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.
- [26:09]
NLW
Absolutely.
- [26:10]
Scott Melker
That's 100% 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.
- [26:18]
NLW
Yeah, exactly.
- [26:20]
Scott Melker
All right, guys, give NLW Follow. Check out the breakdown as my favorite podcast in the space, the only one that I listen to, being honest. And we'll 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.
- [26:41]
NLW
Let's go.