Insight
December 6, 2024
Bitcoin hit a significant milestone this week, breaking through $100,000 for the first time and setting a new all-time high. For those who have been in the industry for some time, this feat seemed unimaginable in the early days. It was only two years ago that the entire industry was ailing in the wake of the collapse of foundational institutions, such as Genesis, FTX, BlockFi, Celsius, Three Arrows, Voyager, as well as the LUNA/UST digital assets. Bitcoin had fallen to under $15.5K at its lowest point, well below the previous cycle’s high, something it had never done before.
It was dark days for the bitcoin and crypto industry for a while. Heavy-handed dealings from securities regulators and harsh treatment from banking overseers were par for the course in the wake of the industry’s collapse, unfortunate but not surprising. Regulators often operate with a hindsight bias, focused on preventing the thing that just happened, rather than forward-looking, preventing the thing that might happen in the future.
But then the regional banking crisis happened, and we were all reminded of why Bitcoin was created in the first place – to store and transfer value without the need for a trusted intermediary, like a bank. While the use case for Bitcoin in jurisdictions without functioning banking systems or profligate central banks and governments is obvious, it had been 15 years since Americans were reminded of the fragility of fractional reserve banking. Against that backdrop, bitcoin rose tentatively, once again emerging from the ashes of the previous crash.
The recovery wasn’t even though. In the early summer following the regional banking crisis, the SEC sued two of the largest digital asset exchanges, Coinbase and Binance, casting a pall once again over the industry. While Binance had long played coy with regulators, seemingly operating everywhere yet avowing domicile and registration to nowhere, Coinbase had long tried to play by rules, but either found there were no rules to play by or that no one was willing to outline them.
BlackRock’s filing for a spot bitcoin ETF came shortly after the lawsuits by the SEC. While it would ultimately take a Grayscale court victory over the SEC at the end of August before ETFs could be given the go-ahead, BlackRock’s presence certainly buoyed the industry’s prospects. Much of the fall and early winter of 2023 was dedicated to the process of launching the ETFs and getting documents and procedures in order.
By the time the bitcoin ETFs launched on January 11th bitcoin was already up 2x off the November 2022 low. Strong initial demand for the ETFs would propel it to a new all-time high in early March, to just over $73K. But then bitcoin entered a lull period. Inflows into the ETFs flipped to outflows driven by the Grayscale Bitcoin Trust. Big sellers such as the US government, the German government, and Mt Gox played a tug of war with big buyers, MicroStrategy, and its army of corporates. But for much of the next 6 months, bitcoin was rangebound, bouncing between $55K and $75K.
That isn’t to say not much happened in the industry, a lot did. Trump embraced crypto, Congress voted to overturn SAB 121, Biden vetoed the overturn, and then ultimately dropped out of the Presidential race. Harris made some vague overtures to the industry, but no details ever came forth.
Then there was the election itself, which promised to be close based on polling numbers, but was anything but close in the end. Crypto may or may not have been the deciding factor for voters, but it was definitely a factor from the financial perspective. Crypto PACs ran roughshod over politicians that opposed the industry, winning race after race. After all the years of trying to comply when there were no rules to comply with, the industry entirely upended the game by simply replacing the players on the board.
What is the significance of $100,000 anyway? In some sense, it’s nothing, an arbitrarily large and round number. In another sense, it’s everything, the sum of all the education, lobbying, technical development, ecosystem building, legal battles, political wrangling, and everything else that has gone into this asset by the individuals and organizations supporting it. Even if all you did was tell some aunts and uncles about Bitcoin over Thanksgiving, you did your part.
To revisit the question first raised during the industry's 2017 peak: "Have we *earned* it?"
The answer is clear:
Bitcoin rocketed up another 4.6% on the week, breaking through $100K and setting a new all-time high of $104,000.00 (precisely) on Coinbase. The move higher wasn’t without its volatility, however. Before the $100K parties could conclude, bitcoin fell to nearly $92K. We think a couple of things were at play.
First and foremost is leverage and liquidations of both long and short positions. As bitcoin rose through $100K we saw a couple of things: $84M in short perp liquidations, a gap up in perp funding rates that went to over 200% annualized temporarily, and a rise in perp open interest (2% in BTC terms). Spot bitcoin trading on Binance also traded at a $300 premium to bitcoin trading on Coinbase (normalizing for USD/USDT prices). Perps on Binance traded at a $900 premium to spot on Binance, reinforcing the view that this move was very leverage trading driven.
As bitcoin fell back down and bitcoin touched $92K, we saw a reversal of those trends. Long liquidations were much larger during the fall, hitting $300M. Perp funding rates fell to a more subdued level of 10% annualized as open interest fell 5% in BTC terms. Spot bitcoin trading on Coinbase traded at a whopping $1400 premium over Binance, while perps on Binance traded at a $600 discount to spot on Binance. Again, the price action seems to be the result of leveraged traders.
Bitcoin’s price has now stabilized in the wake of this volatility and now sits again above $100K, but without the liquidity-driven theatrics that made the first move less sustainable. Our expectation is that this is a more stable base price from which to build upon the momentum that bitcoin has already enjoyed.
Regulation and Taxation:
Nic Carter's Thread on FOIAed Letters to Banks from the FDIC - X
U.S. FDIC Told U.S. Banks to Lay Off Crypto, Letters Obtained by Coinbase Reveal - CoinDesk
Trump Picks Paul Atkins to Run the S.E.C. - NYT
Crypto Execs Embrace Trump's Pick for SEC Chair as Change from Gensler's Approach - The Block
Trump Admin Eyes CFTC To Lead Digital Asset Regulation - Fox Business
Donald Trump Names David Sacks as White House AI and Crypto Czar - Bloomberg
Investing:
Bitcoin at $100K: The Financial World Reacts - CoinDesk
Crypto Markets Have Benefited from a Positive Environment Since U.S. Election: Citi - CoinDesk
What Fed's Powell Said About Crypto That May Have Aided Bitcoin Rally To $100,000 - CNBC
Companies:
Semler Scientific Announces Updated BTC and ATM Activity; Purchased Additional 303 BTC; Now Holds 1,873 BTC; BTC Yield of 78.7% - Semler Scientific
Chainalysis Permanently Parts Ways with Its Founding CEO - Techcrunch
Coinbase CEO Says He Will Not Work with Law Firms That Hire Crypto-Hostile Former SEC Staff - The Block
USDC Stablecoin Issuer Circle Makes Layoffs, Seeks AI-Led Boost - Bloomberg
Dec 11 - Nov CPI reading
Dec 18 - FOMC rate decision
Dec 27 - CME expiry
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