$1.8B Crypto Wipeout: Why Gold is Stable & Bitcoin is Under Stress | Cory Klippsten

A recent deleveraging event in the crypto derivatives market saw approximately $1.8 billion in leveraged positions liquidated. This event disproportionately affected Ethereum traders, who lost over $500 million, compared to Bitcoin traders who lost about $280 million. This sharp divergence highlights critical questions about market structure, risk, and the decoupling of crypto from traditional finance.

The discussion emphasizes that Bitcoin and other digital assets are fundamentally different. Bitcoin is viewed as a decentralized store of value, akin to digital gold, while other cryptocurrencies often have management teams and roadmaps, functioning more like tech companies with associated digital assets. This distinction is crucial for understanding market dynamics and risk.

For long-term investors, a strategy of dollar-cost averaging is recommended as a way to mitigate the emotional volatility often associated with trading. This disciplined approach helps investors avoid panic selling during price downturns, focusing instead on accumulating assets over time for sustained growth.

• Crypto Market Deleveraging: Approximately $1.8 billion in leveraged crypto derivative positions were liquidated in the past 72 hours, with Ethereum traders losing over $500 million and Bitcoin traders losing about $280 million.
• Bitcoin vs. Altcoins Distinction: There's a clear differentiation between Bitcoin as a decentralized asset and other cryptocurrencies that function more like tech companies with management teams and roadmaps.
• Long-Term Investment Strategy: Dollar-cost averaging and recurring purchases are recommended as a discipline to counteract human psychology and avoid panic selling during market volatility.
• Corporate Treasuries and Financial Arbitrage: The rise of Bitcoin treasury companies is driven by financial arbitrage, where well-run public companies can raise capital at a lower cost to acquire Bitcoin, with the expectation of future appreciation.
• Central Bank Digital Currencies (CBDCs): CBDCs are viewed as dystopian and a tool for state control, a direct contrast to Bitcoin's ethos, with potential to further destabilize fiat currencies like the Euro.
• Bitcoin and Gold Coexistence: Bitcoin and gold are seen as complementary assets in a portfolio, with gold providing stability and Bitcoin offering growth and seizure resistance, though Bitcoin is expected to eventually surpass gold in market cap.
• Cyclical Market Dynamics: Despite new institutional structures, Bitcoin's four-year cycles, influenced by halving events, are expected to continue, with diminishing amplitude over time.

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Crypto Market Shakeout [0:15]

• Over the past 72 hours, approximately $1.8 billion in leveraged crypto derivative positions were liquidated.
• Ethereum traders saw over $500 million in losses, while Bitcoin traders lost about $280 million.
• This event tested an asset class that is still up over 75% in the last year.
• The impact was not evenly distributed, highlighting potential market structure issues.

The crypto derivatives market experienced a significant deleveraging event, leading to substantial liquidations. This demonstrates the inherent volatility and risk within leveraged positions, particularly impacting Ethereum more severely than Bitcoin.

"Over the past 72 hours, a significant deleveraging event has unfolded, testing an asset class that, to be fair, is still up over 75% in the last year."

Bitcoin vs. Other Digital Assets [2:22]

• Other digital assets are viewed as fundamentally different from Bitcoin, often resembling tech companies with management teams and roadmaps.
• Bitcoin is characterized as decentralized, while other assets have a management structure.
• The rise of ETFs and companies like Micro Strategy has led to Bitcoin being increasingly referred to as distinct from the broader "crypto" space.

The distinction between Bitcoin as a decentralized store of value and other digital assets as more akin to tech companies is a critical point. This separation helps explain varying market behaviors and investor perceptions.

"Uh I just think they're completely separate asset classes even though some people still refer to the whole thing as crypto."

Long-Term Investor Strategy [3:16]

• The firm's model focuses on high-net-worth individuals and families seeking to accumulate assets for the long term, viewing Bitcoin as a balance sheet asset or long-term savings.
• Their brokerage model emphasizes a long-term holding strategy rather than active trading.
• Dollar-cost averaging is encouraged as a method to make small, recurring buys over time, protecting average investors from market chaos.
• This strategy aims to counteract typical human psychology that leads to fear and panic selling during price crashes.

For long-term investors, a disciplined approach like dollar-cost averaging is advocated to navigate market volatility. This strategy helps mitigate emotional decision-making and promotes consistent accumulation.

"So it's kind of an asset for their balance sheet or long-term savings."

Market Expectations and Macro Landscape [6:11]

• There's significant nervousness in the market, with options expiring soon showing traders betting on extreme price movements in both directions.
• This nervousness stems from uncertainty about the balance between monetary policy (rate cuts) and economic realities.
• The current market, despite reaching all-time highs in many asset classes, feels fragile due to underlying economic pressures like loan delinquencies.
• The speaker suggests that the current market strength may be partly due to dollar devaluation, as the US dollar index has fallen significantly.

The market is characterized by a high degree of nervousness, with participants placing bets on extreme price outcomes. This anxiety is fueled by conflicting signals regarding monetary policy and underlying economic weaknesses, creating a fragile environment despite record highs in some assets.

"I mean, look, I I think that people are nervous. I think that people can't figure out where the balance of power is going to be between uh opening up the money spigot, cutting interest rates, and trying to basically pump asset prices through the midterms."

Institutional Demand and Bitcoin Treasury Companies [8:11]

• While ETF flows may see a slowdown during sideways market movements, a pickup is expected in the fall, and the speaker remains bullish on the Bitcoin bull market continuing.
• The demand from Bitcoin treasury companies is seen as a continuing factor, with Micro Strategy actively purchasing.
• The financing options for these companies have been affected by the collapse of their stock premiums relative to their Net Asset Value.
• International companies in Japan and the UK are providing Bitcoin exposure where US options are limited.

Despite a temporary slowdown in ETF flows, institutional demand, particularly from Bitcoin treasury companies, is expected to remain strong. Challenges in financing have emerged for some companies, leading to consolidation and a focus on reaching sufficient scale to leverage.

"Uh I expect that to pick up in the fall. I mean, I I really don't think that we're done with this Bitcoin bull market."

The Arbitrage of Bitcoin Equities [10:40]

• The model of public companies leveraging capital markets to acquire Bitcoin at a lower weighted average cost of capital than Bitcoin's expected future returns is seen as a sustainable arbitrage.
• This strategy is expected to lead to consolidation within the Bitcoin treasury company space, with larger, scaled entities emerging.
• Companies that reach a certain scale, around 7,000 coins or $750 million Net Asset Value, can begin to issue preferred stock and leverage their positions effectively.

The financial arbitrage in acquiring Bitcoin through public companies is considered a foundational element that is likely to persist. This will drive consolidation and a race to achieve scale and leverage within the sector.

"So that's not going anywhere. Uh I do have a long-term thesis by the way that I think you know 10 years from now most of the companies that stack a lot of Bitcoin will be companies that otherwise would be private equity targets."

Volatility as a Feature, Not a Bug [15:14]

• Volatility is seen as a desirable feature for some, particularly those in options trading, but not for long-term savers.
• It's considered an inevitable consequence of Bitcoin's perfectly scarce asset nature undergoing unfettered price discovery.
• The journey to Bitcoin becoming a significant global store of value will not be a straight line, leading to inherent price fluctuations.

Volatility in Bitcoin is viewed as an intrinsic characteristic driven by its scarcity and the ongoing process of price discovery, rather than a flaw. While not ideal for all investors, it's an unavoidable aspect of its adoption trajectory.

"So, look, it's it's desirable for some people, usually people that have uh that are long options in some way because obviously uh volatility is kind of the biggest driver of value in an options contract according to Black Scholes."

Monetary Policy and Market Fear [16:50]

• There is significant pressure to lower interest rates, likely to continue despite potentially hot inflation numbers.
• This is driven by a desire to support the middle class with lower borrowing costs and to benefit asset owners by maintaining high asset prices.
• The market fears a Fed that is either too hawkish, fighting inflation too aggressively, or too dovish, indicating fundamental economic weakness.

The prevailing market sentiment leans towards the expectation of continued rate cuts, driven by both popular demand and the desire to support asset prices. This creates a dynamic where the market scrutinizes the Fed's actions for signs of either inflationary persistence or economic fragility.

"And I think that's probably what's going to happen despite a hot inflation number that may come out one month or the next month."

Bitcoin's Cyclical Models and Maturation [18:02]

• The speaker expresses skepticism about new institutional structures rendering old cyclical models obsolete until proven otherwise.
• The four-year halving cycles are seen as having a procyclical dynamic that influences price movements.
• Research shows a diminishing effect of halvings over time, with a reduction in the multiplier effect from trough to peak across cycles (550x, 110x, 22x).
• The trend of decreasing price multipliers has been broken, suggesting a potential dampening of future cycles.

The long-standing four-year cycles in Bitcoin's price are expected to persist, even with the introduction of new institutional frameworks. While the magnitude of price increases in each cycle has diminished, the underlying cyclical dynamic driven by halvings remains a significant factor.

"So, it ain't different until we see proof that it is. So until until I see a year where you know we don't see a new all-time high in uh in you know late 131 17 215 uh you know it's it's hard to it's hard to believe that we're done with those."

Regulatory Landscape and Industry Maturation [21:14]

• The success of the non-Bitcoin crypto industry in navigating regulatory challenges and professionalizing is acknowledged.
• Many innovations being labeled as "blockchain" or "crypto" are seen as incremental improvements to existing financial IT.
• The speaker welcomes initiatives that increase settlement times, liquidity, and democratic access to financial assets, even if digital assets are the vector.
• The trend of fewer public companies and the burden of being public may be alleviated by the increased opportunities for companies to tell their story and gain participation through digital assets.

The regulatory push towards embracing digital assets is seen as a potential positive for the financial industry, fostering innovation in areas like settlement and liquidity. While some of these initiatives may be rebranded existing technologies, the overall trend towards greater transparency and accessibility is welcomed.

"So kudos to them for succeeding and uh and going legit."

Central Bank Digital Currencies (CBDCs) [25:23]

• The rise of CBDCs, like the digital euro, is viewed as dystopian and a tool for state control and surveillance, diametrically opposed to Bitcoin's ethos.
• The speaker is comforted by the US approach of allowing multiple issuers of digital dollars, contrasting with the potential for a more controlled sovereign CBDC.
• Sovereign CBDCs are seen as a move that could trap citizens in a monitored and censored financial system.
• The launch of a digital euro is predicted to accelerate the collapse of the Euro.

CBDCs are presented as a significant threat to financial freedom, representing a dystopian future of government control and surveillance. The speaker contrasts this with Bitcoin's decentralized nature and expresses concern about the potential implications of widespread CBDC adoption.

"So, look, it's it's neither a threat nor validation. It's completely orthogonal. It's scary. It's dystopian."

Ethereum vs. Bitcoin: A Treasury Asset Debate [28:05]

• The liquidation of leveraged ETH positions, nearly double that of Bitcoin, supports the view that speculation is concentrated outside of Bitcoin.
• Corporate ETH treasury initiatives are viewed as a marketing trend rather than a sustainable strategy, with underlying assets deemed inferior to Bitcoin.
• The speaker argues that assets devaluing against Bitcoin, even with yield-bearing features like Ethereum staking, represent a poor investment.
• Only two altcoins in history have achieved a second all-time high against Bitcoin, and both have since significantly declined in Bitcoin terms.

The speaker strongly dismisses Ethereum as a serious treasury asset compared to Bitcoin. The performance of Ethereum and other altcoins against Bitcoin is highlighted as evidence of their inferiority, making any yield-bearing aspects a deceptive trap.

"So, I think it was just a trend and I think it was probably just Joe Luben uh who kind of controls Ethereum mostly uh seeing the rise of Bitcoin treasury companies as a theme and realizing that it would just kind of leave Ethereum in the dust if he didn't scramble some friends and start some of these things."

Central Bank Adoption of Bitcoin [33:11]

• A report projecting central banks adding Bitcoin to their balance sheets by 2030 as a complement to gold is considered credible, with sovereigns already engaging in mining and seeking Bitcoin price exposure.
• While direct spot Bitcoin purchases by nations are not widely reported, mining and equity investments are occurring.
• The US is not expected to start acquiring Bitcoin soon, with past regulatory alignment with the non-Bitcoin crypto industry being a factor.

The potential for central banks to adopt Bitcoin as a reserve asset is seen as a credible prospect, with some nations already involved in Bitcoin mining and equity investments. Direct spot purchases by nations may be a future development, though not anticipated from the US in the near term.

"Uh I'm not sure how Bitcoin has been weaponized in any way thus far, but uh maybe you can elaborate on that in a sec. But uh you know, you're already seeing quite a few sovereigns stacking Bitcoin."

Long-Term Thesis and Market Signals [37:15]

• The core thesis for Bitcoin remains intact regardless of short-term market movements.
• The speaker anticipates a strong likelihood of an all-time high within the current calendar year, followed by a period of consolidation.
• A shallower bear market than in previous cycles is hoped for.

The speaker maintains a strong conviction in the long-term thesis for Bitcoin, anticipating further price appreciation and a potential all-time high within the current year, followed by a more moderate bear market.

"Look, the thesis doesn't go anywhere regardless of what happens."

Gold and Bitcoin Coexistence [39:17]

• Gold is expected to remain a significant asset, with its price performance serving as a benchmark for Bitcoin.
• Bitcoin is predicted to eventually surpass gold in market capitalization, possibly in the second half of the 2030s.
• For older investors, gold offers a less volatile and more trusted alternative for wealth preservation.
• Both gold and Bitcoin are considered "sound money cousins," addressing similar issues of value preservation and debasement.

Gold and Bitcoin are seen as complementary assets within a portfolio, with gold offering stability and Bitcoin providing growth potential. Both are recognized as forms of sound money, addressing concerns about currency debasement and value preservation.

"Look, man, gold isn't going anywhere anytime soon. And I think we've seen that with the price rise from the, you know, mid to upper thousands up to 3,800."