This episode is sponsored by NYDIG.

On today’s episode, NLW looks at why bitcoin could be poised to grab more mindshare this fall, including:

  • Coming regulatory pressure on DeFi and stablecoins
  • Regulatory clearance for bitcoin (and a bitcoin futures exchange-traded fund)
  • Fundamentals and the great hashrate migration out of China
  • Adoption and proof points on Twitter and in El Salvador
  • Historical cyclical patterns

“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: TRAVELARIUM/iStock/Getty Images Plus, modified by CoinDesk.


What’s going on guys? It is Thursday, September 30 and today we are talking about why this fall, aka this autumn, could be bitcoin season. So, one quick correction before I get into this. Yesterday, most of the times that I was referring to Kraken’s settlement with the CFTC, I said the correct number of $1.25 million. But, at one point in the show, I said that their settlement was $125 million, which obviously would have been a much bigger deal. Just wanted to make it clear that it was a $1.25 million settlement.

Alright, let’s talk about why this fall could be bitcoin season and to get into the conversation, let’s talk about how the crypto industry uses the word “season” in general. This refers to a sort of cyclicality that has been present, historically, in the crypto industry. Basically, the idea is that as part of the market cycle, a bitcoin rally tends to then move into what people have called “alt season.” The idea here is that people who have made a bunch of money in bitcoin then recycle their profits into alts, which they view at that part of the cycle as having a bigger opportunity to grow more over some period of time. Those old cycles always encourage a sort of mania. And then eventually they pop and people who are wanting to stay in the crypto industry retreat to some safer assets, specifically bitcoin. We languish in obscurity for a while, and then eventually the cycle starts again. Now, of course, there are lots and lots of debates about the supercycle and whether a supercycle, or at least just a breaking of the traditional four year cycle based around Bitcoin halvings, has remade how we should think about cycles going forward.

I’ve done a bunch of shows, just go look up “supercycle” and you will find them. I tend to be more in the “we’ve broken the cycle” camp than not, but even if you don’t want to go so far as to call what we’re in now a supercycle, I think that it’s very apparent from the last year and a half. That cycle theory is a lot blurrier. I think you can make a pretty compelling argument that 2020 actually saw two separate bull cycles start. Now these cycles were commingling, and there were many shared participants, but they were ultimately two circles in a Venn diagram rather than the same circle. On the one hand was the bitcoin bull market, and this is more of the traditional cycle type of argument. In the wake of the market crash after COVID-19 shutdowns, Bitcoin was extremely resilient. That plus the crazy experimental monetary policies of central banks around the world got the attention of hedge funders like Paul Tudor Jones and his “Great Monetary Inflation” thesis, Stanley Druckenmiller, Bill Miller, etc, etc. Obviously, that also led to Michael Saylor, and his MicroStrategy purchase, and the entire idea of bitcoin as a treasury asset that started to make it into the institutional world as well.

That whole cycle crescendoed coming into March, April and May of last year, and since then, we’ve been fighting a never ending tidal wave, it seems, of FUD, right? We’ve had China FUD, regulatory FUD, Tether FUD, always Tether FUD somehow, etc, etc, etc. But that’s been kind of the bitcoin side of the story. However, even as those hedge funds were starting to get really excited about bitcoin, and how bitcoin might be a hedge against rampant government printing and whatever was to come next, we were also in the midst of “DeFi Summer,” where at the beginning of the summer 2020, there was less than a billion dollars in value locked in DeFi. That grew and grew and grew and grew until here, a year later, we have more than $80 billion locked in DeFi on Ethereum alone, the big explosive months were really those summer months. And I think you can make an argument that it was in fact the proceeds from DeFi Summer that helped fuel the first phase of the NFT boom that happened towards the end of the year, and then had its own crescendo in around March of this year, 2021. Now, like I said, these things are blurry, there’s commingling, there were plenty of DeFi investors who were also loading up on bitcoin, there was probably plenty of bitcoin profit that went into NFTs, at least from the traders. And I think in general, it’s worth asking about zero-sum thinking as it relates to crypto markets.

There’s some for whom the questions of bitcoin versus everything else are highly philosophical. And I think those have always been super coherent to me. If what you’re interested in is the hardest money, the soundest money, the most decentralized money, the most untamable with money of course, you’re going to prioritize bitcoin. Like I said, this is a value judgment. It’s a goal prioritization. That makes sense. But there was also some part of the frustration at least that you see on Twitter from Bitcoiners that has to do with the presumption that there is a little limited pool of attention and time. And that all the other things in crypto take away from that. I’m kind of of two minds about this. I think in the context of any shorter period, there is perhaps a bit of that, there is at any given time, X amount of participants and X amount of attention, they have an X amount of resources they have, and that can flow more or less to bitcoin based on where in the cycle we are and what else people are interested in or making money from. In the long run, I think that we are in a much more of a “rising tide lifts all boats” situation, which again, can be frustrating if you’re a Bitcoinerr who’s really only interested in that super sound, hard money goal. But either way, I think net net over the course of 10 years, everything that even sort of resembles crypto is going to be massively, massively huger than it is now, capturing a massively bigger share of global attention, having a massively bigger percentage of populations invested, etc, etc, etc.

Anyways, that’s all set up to this idea of this fall being Bitcoin season. And so we’re back to that first category where, in the context of any given moment, call at any given quarter, any given six month period, there’s going to be within this larger crypto milieu things that have more or less attention on them. Although bitcoin’s institutional fall was brewing last summer, for example, the attention in this industry was squarely focused on DeFI, you get what I’m saying? So, why then might Bitcoin be uniquely positioned to claim more narrative share this fall? There’s a bunch of reasons. The first is what seems like there is going to be increasing regulatory pressure on stablecoins and DeFi. Anyone who’s been reading the tea leaves of coming regulatory animosity has got to have seen that almost all of the attention is focused not on bitcoin, but in these other categories. There is a ton on stablecoins and that has been the case since last year when Brian Brooks, the former Coinbase lawyer, and then acting comptroller of the Office of the Comptroller of the Currency, made it so much easier for banks to interact with stablecoins. That raised the ire of Democrats who countered with the Stable Act, and these concerns and questions around stablecoins have been ever present throughout the national discourse this year.

DeFi has also started to find its way more and more into the conversation. You saw Dan Berkovitz, the soon to be former CFTC Commissioner’s speech about DeFi, and you got to think, as he becomes General Counsel of the SEC that that interest is going to extend. Gary Gensler has also talked about DeFi in his frequently claimed things as decentralized in name only dyno. So, if there is some big focus, or regulatory pressure, on stablecoins and DeFi this fall, how might that impact bitcoin? Well, one depending on how severe the pressure on stablecoins is, if you actually saw something like the Treasury being able to approve or deny certain stablecoins, it could theoretically elevate bitcoin and eth, to be fair, as a transactional and reference currency, a role that in particular Bitcoin used to have but which was supplanted by stablecoins. Remember, in the 2017 run-up, part of the reason that bitcoin got so high is that people were buying bitcoin to enter into ICOs. That hasn’t been the case for a few years as people use things like Tether and USDC.

This, to be fair, is a pretty outside possibility. I don’t think we’re going straight to the Treasury getting to control stablecoins entirely, at least not without a hell of a fight. But it’s worth at least noting, I think more realistic possibilities are that pressure on DeFi could stem the tide of emergent institutional interest in the space or at least put a pause on it. From all accounts, institutions that have now gotten into bitcoin are also looking at whether they should be in on Ethereum because of DeFi, or even looking at assets like Solana, or even looking at DeFi assets specifically, it’s not hard to imagine a lot of compliance and risk management sides of the house saying, “while there is this sort of regulatory pressure, let’s not delve any deeper for now.” Overall, it just seems pretty clear to me that DeFi is going to go through a gut check period. An example of this today is that 1inch, the popular decentralized exchange, or DEX, aggregator, has started to geo-fence users from the U.S. Users in the U.S. get a pop-up now that says “it looks like you’re trying to use the 1inch dap from a restricted territory, or are using a VPN that shows your location as a restricted territory. We respect your privacy, but please change your VPN settings to correspond with your real location.” 1inch has said that their Terms of Use have actually restricted us users since April, but that these sort of notifications are just coming online on a technical level to match the terms. The organization said: “The 1inch network is in the process of collecting the Series B funding round that has now grown to $175 million, instead of $70 million as was planned before. A significant part of those funds will be used for the development and launch of the 1inch Pro product which is specifically designed for the U.S. market, and for global institutional investors in accordance with all the regulatory requirements.”

Basically, this DEX aggregator, this decentralized exchange aggregator, is now being forced to balkanize their product into the version for U.S. investors, and presumably U.S. accredited investors, and the version for the rest of the world. 1inch is certainly not the only decentralized exchange that has gone through this. In July, Uniswap Labs also started to restrict access to certain tokens through the interface for the Uniswap protocol that it maintains, and it did so citing the “evolving regulatory landscape.” This gets into an important technical distinction that may become relevant legally, which is the line between interfaces and protocols. You can see this in the note that Uniswap put up when they made this change: “To continue to innovate and provide this tool for the Uniswap community, we monitor the evolving regulatory landscape. Today, consistent with actions taken by other DeFi interfaces, we’ve taken the decision to restrict access to certain tokens through These tokens have always represented a very small portion of overall volume on the uniswap protocol and importantly, the uniswap protocol, unlike the interface, is a set of autonomous, decentralized and immutable smart contracts. It provides unrestricted access to anyone with an internet connection. Similarly, this action has no impact on the uniswap interface code, which remains open source or the many other portals or locally run instances used to access the uniswap protocol.”

Now, of course, how much this separation will actually carry water legally is the big question. And this isn’t really to FUD DeFi, it’s just to say that it’s going to go through this hard period where it has to actually fight these battles, and it’ll come out in some way, shape or form on the other side. However, I think that it feels pretty clear that as this happens, it will highlight the trade-off that bitcoin made in terms of decentralization.

Which brings me to my second point about why this fall could be bitcoin season. It’s not just that regulatory pressure won’t come at bitcoin the same way, it’s that bitcoin will, in many cases, or at least from a narrative perspective from regulators, be held up as the type of thing that is okay. We only need to look at how Gary Gensler, the chair of the SEC, has been talking about bitcoin and bitcoin futures as an example of this. So, let’s pop back to August when Gensler spoke at the Aspen Security Conference, there were a couple notable parts of this appearance. First, he agreed with former SEC Chairman Jay Clayton, that basically all digital assets, or at least very many of them were securities because “you see, generally folks buying these tokens are anticipating profits, and there’s a small group of entrepreneurs and technologists standing up and nurturing the products. I believe we have a crypto market where many tokens may be unregistered securities without required disclosures or market oversight.”

It was a big slap in the face to everyone who hoped for something different when he agreed with Clayton’s previous dismissive statement about the whole of the crypto industry outside of Bitcoin. He also said: “Make no mistake: it doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.” That statement was notable because “stable value token” was a new term that he invented seemingly to give the SEC the ability to regulate stablecoins, as was pointed out by numerous members of Congress, including Tom Emmer. But, the point that I’m trying to make, at least for this show, is we have to also look at how he spoke about bitcoin. He said: “Next, I want to turn to investment vehicles providing exposure to crypto assets. Such investment vehicles already exist, with the largest among them, having been around for eight years and worth more than $20 billion. Also, there are a number of mutual funds that invest in bitcoin futures on the Chicago Mercantile Exchange, CME. I anticipate that there will be filings with regard to exchange traded funds, ETFs, under the Investment Company Act, the Investment Company Act provides significant investor protections. Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME traded Bitcoin futures.”

In other words, he’s basically saying that bitcoin futures are likely going to clear the SEC’s muster. Now, this wasn’t all sunshine and rainbows even for bitcoiners. At the time, a lot of people said after that speech that it probably meant that a spot bitcoin ETF was not getting approved this year. Steven McClurg, the Chief Investment Officer for Valkyrie, which has an active application with the SEC for a Bitcoin ETF currently said, “I think his comments are pretty clear that a pure spot Bitcoin ETF isn’t coming soon, and that futures products would potentially be considered. I think it’s certainly going to direct our conversations and our product roadmap.” He continued though, “it’s a really bizarre world where you can launch a bitcoin ETF in Canada, U.S. people can buy it through their brokerages, and you can create a U.S. ETF that includes Canadian ETFs, but a bitcoin ETF isn’t available in the U.S.

Either way, Gensler reaffirmed this position in prepared statements for the Financial Times conference yesterday. Here’s what CoinDesk wrote about it: “U.S. SEC Chairman Gary Gensler reiterated his support Wednesday for a narrow class of Bitcoin exchange traded funds that would invest in futures contracts instead of the crypto itself. Gensler signaled out bitcoin ETFs, which invest in futures contracts that trade on the Chicago Mercantile Exchange and register under the Investment Company Act of 1940. The so-called 40 act ‘provides significant investor protections,’ he said in prepared remarks for Financial Times conference: ‘I look forward to staff’s review of such filings.’” From what we’ve seen before, there is far, far less appetite for this sort of bitcoin futures ETF than there is for spot bitcoin ETFs. And you need to only look at the example of Canada to see that clearly. But still, I think in narrative terms, I think in terms of stories, I think in terms of media, imagine if we have a situation in the fall where stablecoins are under threat of basically nationalization via the Treasury Department, where leaders of DeFi protocols are being dragged in front of Congress in the Senate, but the SEC’s cleared a Bitcoin futures ETF, it’s hard not to see how that makes for a dramatic narrative shift, especially among those who aren’t paying that much attention, people for whom this is an interesting new asset class that potentially represents a small allocation in their portfolio.

Next, let’s talk about fundamentals in terms of how this fall could be bitcoin season, and I’m thinking specifically here of the great hashrate migration. A story that I noticed this morning is that Argo, which is a London based mining firm, is buying 20,000 more miners for its West Texas data center. This is land that they bought in March. Now, at the same time, we’re seeing the Chinese government make it very clear that their bitcoin mining ban is for real. They’ve hired consultants in provinces like Inner Mongolia to go after firms that may be trying to still operate but in a hidden way, and also that they’re serious about their cryptocurrency trading bands. This is hard not to see as an incredible net positive for U.S. institutional investors. All of the Kevin O’Leary’s out there of the world, who are super concerned and super focused on the provenance of their Bitcoin and how it was mined and who it was mined by, are going to be delighted that more and more of this activity is moving, not only away from China, but to the U.S. specifically, it creates incredible fodder for pro-bitcoin policies to be adopted by the government, led by traditional institutional investors.

Speaking of adoption, we have never had a more fertile environment for showing how bitcoin, enabled by Lightning, can perform in real world circumstances outside of just buying and holding. Twitter Tips seems small, but they are normalizing the potential of Lightning in a huge way. And frankly, one thing that I think is under-discussed, is how Lightning doesn’t just solve a technical problem of Bitcoin, but it also solves a psychological problem of Bitcoin. People who have enough bitcoin who are enfranchised enough to use Lightning are also the type who don’t really necessarily want to spend their bitcoin. However, when you’re using Lightning for these micro transactions for small amounts, it makes it feel not absolutely terrible to “spend” your bitcoin, you’re not using it for big purchases that you rather trade your fiat for, but it makes it viable for all of these small, day-to-day things that you otherwise would have no interest in taking your bitcoin out and using it for. So, I think that we’ve barely scratched the surface on the relevance for Lightning being integrated to a social network like Twitter, in terms of proving out technical feasibility, as well as making it feel kind of psychologically okay to “spend” your Bitcoin.

Then there is El Salvador, it’s going to be bumpy. There are tons of politics involved, as I’ve discussed, but the stress test on the Bitcoin network is undeniable. This Monday morning on September 27, through his Twitter account, President Nayib Bukele shared some statistics from the Chivo wallet, which currently has 2,255,936 total users. That’s around 34.7% of the population and Bukele clarified that that’s 2.1 million people actively using the network. He wrote, “it’s not a bank, but in less than three weeks, it now has more users than any bank in El Salvador.” As of that sharing 14,576 transactions were being made per day. Whenever you think about that experiment, if the Bitcoin network continues to perform in that context, it gets harder and harder to say that it’s just for speculation.

Finally, a last factor and why this fall could be bitcoin season is that there’s always a return to bitcoin during cycle tops. And I’m not saying, I’m not predicting, that we’ve hit a cycle top with either DeFi or with NFTs. NFTs seem to be on their own totally unique schedule and cycle that is not clear yet to anyone who’s watching them, I don’t think. They also involve actors who paid literal, no attention to the rest of the crypto industry. So I think that in some ways, you’re going to see more and more bifurcation anyway there. But, it’s still the case that a lot of people have bought a lot of NFTs that are ridiculously overpriced and are going to watch them get cheaper and cheaper and cheaper and less and less liquid. And they’re going to return to their roots in crypto, whether that’s bitcoin or maybe ethereum. And the point too, is that when prices of non-bitcoin crypto assets recede, it’s not just that bitcoin looks better in terms of its price or market profile. It’s that all the arguments that Bitcoiners have made seem to get more credibility. It’s cycle changes where you see bitcoin pick up a lot of converts, who maybe were super excited about some other asset before, who had their hopes or dreams dashed.

Like I said, I’m not saying that that’s the profile that fall, we could still be in double bubble mode, it could still go crazy. I mean, the fact that this much regulatory intrigue in China FUD hasn’t affected prices any more than it has, makes that scenario seem at least pretty plausible to me. What I know is that as you’ve seen, there are so many factors that seem for a return to narrative focus on bitcoin this fall. And I think that’s really healthy. It’s a great reminder of why this is the fundamental underlying asset of this space, and why the trade-offs that it makes that are different than any other asset, even if you like those other assets, are so powerful in the global macro context. Whatever happens, I am looking forward to this fall and I appreciate you hanging out and listening. Until tomorrow guys, be safe, take care of each other. Peace!