The return of crypto

Episode Summary

Executive Summary: In this episode of Unhedged, hosts Ethan Wu and Katie Martin discuss the current state of cryptocurrency, noting a resurgence in prices (Bitcoin at $45,000) and a shift in focus from speculative coins to institutional use of blockchain technology. They highlight regulatory crackdowns, the rise of stablecoins like Société Générale's euro-based offering, and skepticism about institutional demand for Bitcoin. The conversation also touches on the absurdity of crypto narratives and includes a segment on long/short positions, with Katie shorting former UK Chancellor Kwasi Kwarteng and longing central bank speak.

Main Topics: Crypto Market Resurgence (Priority: 5/5): Bitcoin has crossed $45,000, and altcoins like 'bonk' have surged over 1000% in the past month, signaling a return of boom times, though with a more tired sentiment. Regulatory Crackdown and Institutional Shift (Priority: 5/5): Major players like Binance (new CEO Richard Teng) face scrutiny, while institutions like BlackRock and Société Générale explore regulated products like Bitcoin ETFs and stablecoins. Contradictory Crypto Narratives (Priority: 4/5): Bitcoin is promoted as both an inflation hedge and a risk asset sensitive to interest rates, leading to circular arguments where the answer is always 'buy Bitcoin'. Stablecoins and Blockchain Technology (Priority: 4/5): Société Générale is issuing a euro-based stablecoin, aiming for efficiency in payments, contrasting with the speculative nature of other cryptocurrencies. Skepticism of Institutional Demand (Priority: 3/5): Despite hype, most institutional investors (pensions, insurers) are not buying Bitcoin; the supply is largely inert, and demand could be met by dormant holdings. Long/Short Segment (Priority: 2/5): Katie shorts Kwasi Kwarteng for blaming bond market irrationality for his fiscal policy failures, and longs central bank speak for its absurd phrasing.

Key Arguments: Crypto's resurgence is driven by ETF speculation and liquidity, but narratives are contradictory (inflation hedge vs. risk asset). Regulatory crackdowns on Binance and FTX have not killed crypto; instead, focus shifts to technology and regulated products. Institutional demand for Bitcoin is overstated; most supply is illiquid, and actual buyers are venture capital and hedge funds, not pensions. Stablecoins like Société Générale's represent a boring but potentially useful application of blockchain for payments. The crypto space is confusing, with different buyers having conflicting reasons for investing. Bitcoin's price is sensitive to interest rates, but proponents use any economic condition to justify buying.

Data Points: Bitcoin price: $45,000 - Current price as of the episode, up from $40,000 recently. Bonk altcoin surge: Over 1000% - Increase in the past month for a meme-based coin. Binance fine: Over $4 billion - Paid for being complicit in money laundering. Bitcoin supply inert: 70% - Approximate percentage of Bitcoin supply that is not moving. Coinbase stock increase: Tripled - Year-to-date increase in Coinbase's stock price.

Pivotal Quotes: "Why do you feel so entitled to these answers?" — Richard Teng: New Binance CEO responding to a question about the company's headquarters, indicating lack of transparency. "One idea I've been contemplating is that Bitcoin may be the key to extending Western civilization." — Coinbase CEO: Said when Bitcoin price is rising, highlighting how bullish statements correlate with market conditions. "It's impossible to say the chances are zero in truth, but as I just said, there are less than two months left in 2023." — Kazuo Ueda: Bank of Japan Governor on the probability of interest rates staying below zero, exemplifying central bank speak.

Implications: The crypto industry is maturing with regulatory scrutiny and institutional involvement, but speculative mania persists. Listeners should be cautious of hype, as narratives are often contradictory and demand may be overstated. The focus on technology like stablecoins could lead to practical applications, but the market remains volatile and unpredictable.