Empire Newsletter: Why bitcoin fell after Biden’s exit

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A bitcoin boom?

Yesterday, we received some (un)expected news in a typical Sunday news dump.  

After a few weeks of the Washington DC rumor mill swirling around Joe Biden — whether or not he should move forward with his candidacy — the President announced that he’s not going to seek reelection in November. 

Bitcoin’s immediate reaction was negative, shedding roughly 2.5%. But it didn’t stay that way, we’re up slightly on the day, and still ahead by around 8% over the last week. ETH saw a similar response, though it’s now hovering around $3,400.

“This is [net or net-negative] for BTC, short term, as Trump was hoping Biden would stay in the race, as he would be an easy opponent to beat in November,” Rich Rosenblum, co-CEO of GSR told me. He added that Trump’s expectations were clear in his choice of vice president. 

“Trump would not have chosen a partner leaning so right if he thought he’d have a competitive race,” Rosenblum said. 

But politics isn’t the only driving factor for the price action we saw. 

“The fact that Biden stepped down and a younger candidate can step in is a negative for Trump. This is why BTC initially sold off. Then an hour later, Elon showcased ‘laser eyes’, in his new X profile photo, which is what buoyed the price of BTC back up to $67,500… A reduction in probability that the next President of the United States will be a bitcoiner was equally offset by more open conviction for BTC from the richest and arguably most influential man in the world, Elon Musk,” he continued.

Keep in mind that we have BTC Nashville later this week. We know for sure that the former president will be in attendance, speak on stage, and reportedly host a fundraising event. Rosenblum believes that Musk’s laser eyes could be a sign that he, too, plans to attend the event. Musk becoming more crypto-oriented could be a “very bullish development.”

“Elon is not only the #1 KOL, he is also one of the world’s greatest technologists, who can be influential in driving use cases for BTC and crypto more broadly. His comments about DOGE being the currency on Mars has caused massive swings historically. If he has more serious web3 ideas, like enabling more functionality for crypto on X, this could be even more powerful than his political influence,” Rosenblum said.

We’ve got a busy week ahead, and the political narrative looks to take center stage once again. Though it also looks like we’ll finally see the ether ETFs launch with the SEC’s approval. 

“It is important to notice that ETH punches well above its weight in terms of liquidity and could have more potential to absorb such flows than some expect,” FalconX said in a research note.

”The long-term impact of a broader investor audience getting exposure to crypto use cases beyond digital gold and the policy shift that underpinned the approval is likely to bring tailwinds to ETH and the broader industry for a long time,” David Lawant, head of research at the firm, continued.

He also noted that bitcoin tends to correlate with smaller cap equities so far this year, not so much with larger cap equities. 

The chart shows 90-day correlations of bitcoin’s daily returns versus IWM, QQQ and SPY. 

The “consistent widening” in that correlation gap could indicate that bitcoin may be able to take advantage of ”the current rotation out of megacap tech into names that could benefit from a more abundant liquidity environment.”

There’s one other unknown to keep an eye on, which goes back to the political narrative: who potential presidential candidate Kamala Harris picks for her VP. She’s been endorsed by Biden, but that’s not to say she’s officially going to take the Democratic candidacy. 

Polymarket, however, is already picking out her potential running mates. And the odds have been in their favor so far. 

We’ve got a lot to look forward to, and things are really starting to get interesting for crypto. We’ll have to wait and see what kind of impact that’ll have on the market. 

Right now, there’s lots of noise.

— Katherine Ross

Data Center

• BTC rose slightly to break above $68,000 for the first time in almost six weeks following President Biden’s announcement. It has since retraced to $67,400.
• Latest Polymarket odds : Trump 63%; Harris 28.9%.
• For once, a memecoin isn’t leading the pack : layer-1 TIA is up 12% over the past day, followed closely by AVAX and WIF, each with 10.5%.
• WIF is still the best performer in the top-100 over the week, with a 56.5% bounce.
• The Ethereum validator queue is at its busiest since the first week of June: 6,296 waiting to join compared to only 41 exiting.

600 days of summer

Bitcoin has now been in a bull market for almost 20 months. Time to take stock.

At least, that’s how long it’s been since bitcoin bottomed out following the FTX debacle. It hasn’t risen in a straight line — and even looked pretty sketchy for the first eight months of 2023 — but the general trajectory has been up ever since Sam Bankman-Fried’s arrest. 

There’s some debate over whether there’s been a proper altcoin season in this bull market. The issue being that there’s no real definition for “altcoin season” (see my previous attempts here and here ).

Regardless, bitcoin’s 300% rally since November 2022 has given loads of cryptocurrencies cover to run wild.

Out of 250 or so top cryptocurrencies by market capitalization, about 20% have beaten bitcoin over the past year (BTC is up around 127% at time of writing).

It’s probably obvious by now that memecoins make up a decent chunk of outperformers. BONK, ORDI, MEME, PEPE, FLOKI, PONKE, TURBO and more have all returned hundreds of percent.

Loads of layer-1 tokens, however, have done just as well. 

Each dot represents a different cryptocurrency, and the ones higher up on the chart started one year ago with higher market caps. Tokens to the right of the orange line outperformed bitcoin, while those in the red zone lost value.

Native cryptocurrencies for networks including TON, THORChain, Injective, Arweave, Celestia, Solana, AIOZ and Mantra have posted multiples, while cryptocurrencies powering Mantra and AIOZ have exploded by thousands of percent. 

There’s even been a wave of DeFi and other kinds of utility tokens. Pendle and Ondo have benefitted from the compelling RWA narrative, as has Maker. 

And for utility tokens: Helium, jasmy, arkham and ethereum name service had all beaten bitcoin, as had livepeer, echelon prime, superverse and origintrail.

Beyond the DeFi standouts, which are tied heavily to the RWA and points metas, there’s no real rhyme to what’s done well, at least at the surface level. Use cases for the layer-1s range from general purpose, like TON and Solana, to decentralized file storage and AI computing in Arweave and AIOZ, to gaming in Ronin.

Market appetite appears broad, as far as the infrastructure-and-memes narratives go. But sentiment doesn’t exactly feel as positive as perhaps it should be, giving hints of vibecession .

Blame it on low volatility at the top end of the table relatively to the previous four or five years.

While this year has seen a few more outliers in terms of daily returns for the top 30 cryptocurrencies than 2023, as tracked by Pepperstone’s Crypto30 index, days in which the index has gone up or down by 10% or more are far fewer than in 2020, 2021 and 2022.

I suppose we should be thankful: 2020, 2021 and 2022 featured some of the worst market crashes in crypto history, including Covid, Terra and FTX.

Going back to that first chart — I was forced to leave out any token that had gone more than 10x in the past year, of which there were at least 10 in the top 250, as they’d make everything else insignificant.

Four out of the top five best performers were memecoins. The Trump-themed MAGA and MOG were neck-and-neck, at over 100x, followed by Solana tokens BONK and POPCAT. 

Although, number-one PAAL AI wouldn’t even fit on the chart below. It’s gone 630x to date, from $0.00004713 to $0.32, or practically zero market cap to $272.4 million. (PAAL AI is an ERC-20 utility token for creating and using AI-powered trading bots.)

Many best performers hit all-time high months after bitcoin’s last price record.

For what it’s worth, a number of cryptocurrencies that have severely underperformed this bull market were either older projects from previous cycles, including WAVES, MOBILE, NEM, ENJIN, XRP and ATOM, among others.

Or, if they were newer, they tended to be airdropped tokens with steep unlock schedules ahead of them, like STRK, DYM, ENA and BLAST.

Does all that constitute an altcoin season? I’d say so, even if it’s less exciting than previous ones.

— David Canellis

The Works

• Crypto IPOs may make more progress under a Trump candidacy and the US crypto market may ‘thrive,’ Bloomberg reported . 
• A crypto rebound may just be temporary, JPMorgan analysts wrote in a note late last week. 
• Bitcoin ETPs saw inflows of $1.27 billion last week, which shows positive momentum is continuing, Coinshares noted . 
• Polymarket bettors are speculating that presidential candidate Kamala Harris may tap North Carolina governor Roy Cooper as the Democratic VP pick.
• Metaplanet, the Japanese firm bullish on bitcoin, continues to add to its stash with another purchase of 20 BTC. (Total stash: 245.992 BTC worth $16.6 million.) 

The Riff

Q: Should we care so much about prices?

It’s nice to think that prices don’t matter. But “being in it for the technology” can only go so far before prices end up front of mind.

Putting aside that token prices and network effects are often tightly correlated, as demonstrated by the growth trajectories of major DePIN projects. 

Even stablecoins — a use case that demands practically zero speculation — are only a thing because they maintain a steady value. Without prices, markets, liquidity and redemption mechanisms, stablecoins wouldn’t exist at all.

Caring about prices isn’t a bad thing. In fact, it’s one of the purest value propositions for the crypto ecosystem: Price discovery for stuff that usually doesn’t carry a price tag, or if it does, the markets are disparate and siloed, leaving those prices unreliable. 

Why bother fighting it? Better to lean into it, I reckon.

— David Canellis

There are clear differences between crypto and stocks, but I think prices are one of the important similarities. 

In the same way that stocks can show sentiment and react to news events, so, too, should crypto. It’s a healthy expression, and lets all of us understand what’s happening as current events play out. 

Heck, look at Polymarket. It’s obviously a bit of a different story, but prices matter there because you can tell what folks are expecting to happen. And, so far, Polymarket bettors have been pretty on the nose this year. 

I’m 100% with David on this one. Embrace it, and utilize it. 

— Katherine Ross

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