In December 2024, the laser eyed crypto enthusiasts were taking a
victory lap. Bitcoin had just crossed
$100,000 milestone and even the skeptics at FT Alphaville were
forced into a somewhat brittle public apology for their years
of doubt. At that moment, the narrative
was that crypto had finally been freed from its regulatory
shackles, Wall Street was finally in the game, and those
who were once nervous about the technology could now invest
through a convenient suite of ETFs.
The institutional grade liquidity this was supposed to
bring was meant to smooth out the volatility, finally etching
the digital gold pieces into the granite of the global financial
system. Over the years, I've learned
that whenever someone tells you that a new era of stability has
arrived, it's usually a good time to start looking for the
nearest exit. Fast forward to today, and
digital gold has behaved a lot less like actual gold and more
like a high beta tech stock on a very bad day.
Bitcoin is currently trading down around 23% year to date,
and it has shed about 45% of its value since its October peak.
To put the severity of this move into perspective, the 13% plunge
that we saw on February 5th was the largest one day drop in
Bitcoin since the collapse of FTX back in 2022.
One of the most fascinating aspects of Bitcoin is it's hydra
headed narrative. Whenever one claim of its
utility dies, three more sprout in its place.
Over the years we've been told that it's an alternative
currency, a ticket to life changing an inflation hedge, and
a digital gold that would rally during geopolitical shocks.
Yet while actual gold and silver hit records this year, Bitcoin
has languished. Stocks are up and geopolitical
risk has certainly increased. Inflation isn't under control
yet either, but Bitcoin simply isn't doing any of the things
that we were told it would do. The Dow is over 50,000 right now
and P at almost 7000 and the NASDAQ smashing records.
As as what the motor and of NYU points out, Bitcoin can be
priced, but it can't be valued the way assets are.
Commodities can. Assets are valued based on their
cash flows and the riskiness of those cash flows.
Commodities are valued based on their utilitarian supply and
demand. Bitcoin fits best into the
category of currencies and collectibles, which drive their
price entirely from scarcity and desirability.
But there's a catch. Most collectibles, like a
Picasso or a rare bottle of wine, have some utility and are
extremely difficult to precisely replicate.
While Bitcoin is famously capped at 21 million units, the crypto
industry as a whole is a factory for replication.
With over 10,000 active tokens now on the market, the
uniqueness of anyone digital collectible is constantly being
diluted by a sea of very similar alternatives.
If the only thing Bitcoin has going for it is that it was the
first one, that's a very thin thread to hang a trillion dollar
valuation on. A major reason for this current
crisis of faith is that in a very real sense, the crypto
industry has finally achieved everything it ever wanted.
For years, the dream was a Bitcoin president, a friendly
CC, and Wall Street ETFs that would finally bring in the mom
and pop investors. By early 2025, those battles had
all been won. But victory has turned out to be
a bit of a trap. As The Economist points out,
every major rally in recent years was fueled by the
anticipation of these milestones.
Now that the forbidden fruit is easily bought in every brokerage
account, there's no big story left to drive the price.
The underdog narrative has been replaced by a reality where the
president's family is hosting crypto conferences in a gilded
ballroom at Mar a Lago and political figures launched their
own meme coins. It's not exactly an underground
asset anymore. We've seen a similar story play
out in the UK. After years have been described
as a total crapshoot by the authorities, the UK government
finally brought crypto into the fold.
In October 2025, the government officially announced that retail
investors would be allowed to hold crypto exchange traded
notes in their tax advantage to retirement accounts.
It was, with the benefit of hindsight, a classic piece of
British top taking. The decision was implemented on
October 8th 2025, almost the day that Bitcoin hit its all time
high. Hilariously, quasi Quartang, the
38 day Chancellor of the Exchequer behind Britain's
disastrous 2022 mini budget, announced that he had been
orange peeled last year and had taken a role as a non executive
director of AUK based Bitcoin Treasury company in November,
not long after the all time high.
Essentially, a arriving at the party right as everyone else was
leaving. According to FCA data, the
number of Brits who own crypto has fallen from 7 million down
to around 5 million people over the last two years.
There's maybe a lesson here that retail investors should take to
heart. Whenever a sophisticated
financial institution tells you that they're democratizing a
cool new asset class, you should probably check for the fire
marshals and head for the street.
It's like discovering that you can finally get a table at the
city's trendiest restaurant. It usually only happens because
the cool people have already left, the chef has moved on to a
new project, and you're just there to pay for the expensive
leftovers. By the time Wall Street
democratizes an investment, it's usually because they need
someone to hold the bag. The Bloomberg journalist and
friend of the show, Zeke Fox, frequently makes the point that
crypto is no longer a young, scrappy technology.
He points out that Bitcoin was launched in January 2009, so
it's over 17 years old today. For context, by the time the
public Internet was 17 years old, we had the iPhone and
Wicca, Wikipedia e-mail was universal, and Amazon put bricks
and mortar bookstores out of business years ago.
Crypto, after nearly two decades, has yet to find a real
world use case that doesn't involve gambling or in some
cases pig butchering scams run out of Cambodian labor camps.
This helps explain some of the current exodus.
It's not that a single exchange failed like a few years ago,
it's that the new believers on Wall Street turned out to be
anything but. They didn't get involved because
they wanted to fix the money. They got involved so that they
could sell a financial product at a markup or take advantage of
the basis trade. An arbitrage strategy where
hedge funds buy spot Bitcoin and simultaneously sell futures
contracts, pocketing the price difference.
Essentially manufacturing a high yield savings account at a
retail traders demand for leverage for most of 20 25 that
crypto yield was significantly higher than anything you could
find in traditional finance. But as the spread compressed
Wall Street moved on to the next good trade.
We can see the fingerprint of this retreat in the Coinbase
premium. This metric looks at the price
difference between Bitcoin traded on Coinbase and Bitcoin
traded on Binance. It helps you track US
institutional demand because large professional American
investors mostly use coin base for their trades.
When it trades at a premium or is positive, you can interpret
that as meaning that US institutions are buying or
accumulating Bitcoin. When it's negative, it indicates
selling pressure in the US For months it's been deeply
negative, which tells you that the selling is coming primarily
from the United States. It's not just the arbitragers,
it's a general loss of interest in the very market that was
supposed to be crypto's new home.
As Bitcoin slides, it's dragging the rest of the ecosystem down
with it. Most other coins, from ether to
the board ape NFTS that people used to pay hundreds of
thousands of dollars for, are essentially just high beta bets
on Bitcoin's price. When the king of digital gold
falls, the digital cartoon monkeys tend to follow him
straight into the basement. If you think the mom and pop
investors are having a tough time, you should spare a thought
for the digital asset treasury companies.
We've talked about these a few times already, but they're
publicly traded businesses that decided that their actual
operations, whether it was selling enterprise software or
mobile chips, were far too boring and instead pivoted to
becoming a giant leverage bet on crypto.
The most famous one is Strategy, the company formerly known as
Micro Strategy. Its chairman, Michael Saylor,
has been dubbed the Bitcoin Alchemist by Forbes for
seemingly discovering an infinite money glitch.
The trick was simple. As long as his stock traded at a
premium to the Bitcoin it held, he could issue new shares, buy
more Bitcoin, and the value of the company would magically
increase. At least on paper.
It was a virtuous circle of hype, unhinged tweets, and
orange tinted memes. As it turns out, alchemy only
works as long as the audience believes in the magic.
With Bitcoin sliding, that premium has evaporated, and The
Alchemist is now facing the harsh reality of financial
gravity. For the fourth quarter of 2025,
Strategy reported a staggering $12.6 billion loss.
Driven by the requirement to mark its Bitcoin holdings to
market, Strategy is now in the awkward position of running what
looks like 2 two different businesses.
One is the Bitcoin alchemist we all know who picked up another
2486 Bitcoin just last week. But the other business is a bit
more traditional and a lot more expensive.
To keep the game going, the company has issued billions in
preferred stock with names like Stretch, Strike and Strife.
These come with high yield dividends.
The Stretch shares currently pay roughly 11 1/4%.
Usually, the plan was to sell stock and use 100% of the
proceeds to buy Bitcoin, but this month's strategy announced
that they'd established a $2.25 billion cash reserve.
They raised this money by selling equity, but instead of
buying Bitcoin, they're keeping it in a bank account to cover
the dividends on those preferred shares for the next 2 1/2 years.
When Michael Saylor starts hoarding the very dollars he
wants compared to melting ice cubes just to pay his lenders,
the infinite money glitch starts to look like a fairly standard
corporate refinancing scheme. As Bloomberg's Matt Levine
noted, selling stock to buy Bitcoin is a great story.
Selling stock to pay interest on old loans is considerably less
fun. Then we have Gemini Space
Station Incorporated, the exchange founded by the
Winklevoss twins, most famous for their band Mars Junction.
In this photo you can see that one of them has one of those
wallet chains, which I pointed out before.
Makes no sense for a crypto bro. You're supposed to etch your
crypto seed phrase on a stainless steel plate and buried
in your backyard, not chain it to your belt.
I don't get the impression that he's the smart one.
Gemini went public last September, with its shares
briefly spiking to around $46 a share.
Since then, the stock has cratered by over 80%, recently
hitting record lows near $6. It hasn't been a great six
months. The share collapse has been
accompanied by a wholesale flight from the C-Suite.
This month, they announced that their chief operating officer,
chief financial officer and chief legal officers were all
leaving the company, effective immediately.
No successor has been named for the COO role.
Instead, the one with the wallet chain, or maybe the other one,
will assume those duties himself.
Less than six months after the IPO, they're laying off 1/4 of
their staff and exiting markets like the UK and Australia,
according to Coindesk. They've told UK customers to
open an account at etoro so that their accounts can be
transferred out. They've told the press that the
reality is that America has the world's greatest capital markets
and America has always been where it's at.
For Gemini, this is a bit surprising, as I pointed out
earlier that most of the selling pressure seems to be coming from
the USA. Their new grand strategy is to
pivot to prediction markets. They've argued that betting on
things like elections and the weather will eventually outgrow
the entire global capital markets, which would be a bit of
a surprising outcome. I'd never want to get into an
argument with them over this for fear that they'd come by my
house and play their music at me.
I believe that under the Geneva Convention, playing a Mars
Junction song at high volume is classified as a war crime.
While the twins are busy leaning into the vibes of prediction
markets, something much more ominous is happening in the real
plumbing of the institutional market.
You see, while the collapse of a retail exchange like FTX makes
front page news, the cracks in the foundation of the
professional market often happen in total silence.
Earlier this month, Block Fills, a major chicago-based
institutional prime broker, officially confirmed that it has
suspended all client deposits and withdrawals.
Customers can continue to trade, but they can't withdraw their
money. Now, most people have never
heard of block fills, but they act as a liquidity provider and
lender to about 2000 institutional clients.
They don't have a flashy app for your phone.
They deal instead with hedge funds, family offices, and some
of the mining companies that we'll talk about in a moment.
Their options products are only available to investors with
digital currency holdings of $10 million or more.
Last year, they facilitated over $61 billion in trading volume.
The company's statement cited recent market and financial
conditions and claimed that the freeze was a temporary measure
to protect clients and the firm. Well, the company has not
provided a specific reason for the freeze beyond market
volatility. The timing is hard to ignore.
The announcement followed violent moves in early February
that saw Bitcoin plunge nearly 25% in a single week, briefly
touching the $60,000 mark. For an institutional lender,
this kind of rapid price action is the ultimate stress test.
If the value of the collateral, the Bitcoin, falls faster than
the borrowers can top up their accounts, the lender can find
itself with a liquidity mismatch where they have assets on paper
but lack the ready cash to meet withdrawal requests.
What makes this especially noteworthy is that block fills
isn't some fly by night offshore operation.
They're backed by CME Ventures and Susquehanna Private Equity
Investments, some of the most sophisticated names in
traditional trading. Historically, in this industry,
a temporary suspension has often been a precursor to a
restructuring or a search for new capital, as we saw with
firms like Genesis and Block Fi a few years ago.
For now, Blockville says that they're working tirelessly to
restore liquidity, but this is a worrying development.
If the institutional plumbing is starting to clog, it's worth
looking at the people who actually keep the lights on for
the entire network, the miners. Now, there's a common
misconception that miners are just there to print new
bitcoins, but in reality, they play 2 critical roles.
They're the transaction processors and the security
guards of the system. Every time you send Bitcoin, a
miner has to verify that you actually have the funds and then
record that transaction into a block.
In exchange for doing this work and providing the massive
computing power that secures the network against hackers, they
get paid in two ways, transaction fees and a block
subsidy of newly minted bitcoins.
But lately, being a bodyguard for the blockchain has become a
very expensive and very unprofitable hobby.
The problem is something called hash price.
For those of you who don't spend your time in industrial
warehouses in Texas, hash price is the industry's way of
measuring the daily dollar revenue a miner earns from their
computing power. Since the beginning of 2026,
it's been sitting at record lows, meaning that for many
operators, the cost of the electricity to run the machines
is now higher than the total value of the Bitcoin and fees
they collect. My friend Ben Jordan, who does
spend some of his spare time outside data centres in Texas
investigating the acoustic impact of these places, explains
that the way Bitcoin mining works is often misunderstood.
Many people understand that it's set up such that the network
difficulty regulates itself to ensure that miners stay
profitable, but it's actually an autonomous process with rigid
thresholds. The mining difficulty only
adjusts every 2016 blocks, which is roughly every two weeks.
If the price of Bitcoin crashes or if electricity costs spike in
the middle of that window, the difficulty doesn't know, so the
difficulty stays high. As Ben points out, the system
wasn't designed for massive industrial data centers, it was
designed for hobbyists. So while waiting for that two
week window to close and the difficulty to ease ease up,
these data centers have to either eat a massive loss or
stop operating entirely while their overhead costs continue to
pile up. Ben also highlights that these
data centers usually buy electricity in bulk contracts
with fixed prices, which isn't as flexible as your metered
power bill at home. It's a bit like if everyone in a
city bought their electricity in bulk, anticipating a massive
heat wave, and then the heat wave never came, and then
everyone under ordered for the next month and then an
unexpected heat wave hits. The power company can't just
snap its fingers and increase output.
This can create a massive mismatch between the digital
needs of the network and the physical reality of the grid,
especially in places like Texas, where winter storms in early
2026 have already forced miners to shut down to save the local
population from blackouts. Faced with shrinking margins and
a hash price at structural lows, some of the biggest names in the
industry have started pivoting from being crypto miners to AI
data centre developers. Why spend millions of dollars in
electricity to solve arbitrary math problems for a volatile
token when you can rent that same power to an AI company for
a more predictable high margin fee?
Wall Street is already cheering for this change.
Morgan Stanley recently initiated coverage on miners
with massive upside price targets.
They argued that these companies should be valued like
infrastructure reads because they have what AI companies
crave, time to power, meaning that they already have the grid
connections and the sheds that big tech is currently fighting
over. There is a catch, however.
If the American miners all decide that hosting anime
girlfriend chat bots for XAI is more profitable than securing
the blockchain, the network itself becomes a lot less
American. Currently, the US has about 37
1/2% of the world's hash rate. If they stop mining, the power
shifts to Russia and China, which have not traditionally
been seen as US allies. For President Trump, who
promised to make America the crypto capital of the world,
watching the network moved to Moscow and Beijing while
American rigs are busy trending LLMS would be a bit of an
awkward outcome. Speaking of China, while the US
is trying to decide if crypto is a commodity or a security,
Beijing has started reminding Chinese citizens that they've
already made-up their minds. In February 2020, Sixth, the
People's Bank of China and seven other agencies released a notice
doubling down on their total ban.
This time they specifically targeted the latest industry
buzzword, real world asset tokenization.
This is the idea that you can take something useful like a
building or a lithium mine, and turn it into a digital token to
sell to investors abroad. Beijing has explicitly labeled
this illegal financial activity and also banned the unauthorized
offshore issuance of any stable coins pegged to the Chinese Wan.
The Chinese government is fiercely protective of their
monetary sovereignty, and they view shadow Wan token
circulating on global exchanges as a direct threat to their
control. While the rest of the world is
busy democratizing digital assets, China is building a all
around them. As one commentator put it, it
wouldn't be a bear market if China wasn't banning crypto.
While the miners are busy becoming AI landlords and the
institutional plumbing is freezing up, the more
enthusiastic end of the market hasn't disappeared.
It's just moved house. The new big thing is, of course,
prediction markets. Platforms like Polymarket and
Calci have seen a massive surge in volume as traders move away
from I'm trying to guess the price of a meme coin and instead
start betting on real world events.
And I don't just mean the next Fed rate cut.
You can now bet on things like whether Jesus Christ will return
before 2027. And because this is the crypto
industry, there's a separate derivative market where you can
bet on whether the odds of the original Jesus bet will go up or
down. Being able to gamble on the
Rapture obviously makes it a bit more exciting.
Platforms like Calci and Polymarket have seen an
explosion in volume recently, logging A staggering 6.3 billion
in trading tied to the Super Bowl.
To put that in perspective, that's nearly four times the
volume of all legal US sports books combined for the same
event. And the most incredible part?
The prediction markets didn't run a single Super Bowl lab.
While DraftKings and FanDuel were spending millions on 32nd
spots Cal, she was becoming the biggest brand of the Super Bowl
simply through the product itself.
Part of the reason that these platforms are booming is that
they found a clever legal loophole.
By branding themselves as financial derivatives regulated
at the federal level by the CFTC, they're able to operate in
many U.S. states where traditional sports betting is
still banned. Prediction markets have become a
way to gamble on football in a state that doesn't allow
gambling simply by calling your bed a swap contract.
This brings us to what Zeke Fox calls the Juggalo theory of
crypto resilience, but with a very important catch.
Zeke points out that on the surface, Bitcoiners look a lot
like fans of the band Insane Clown Posse.
They have their own slang, their own face paint, the the laser
eyes, and a shared sense of being misunderstood by the
normies. But Zeke makes a brilliant
distinction. Juggalos are actually more
honest. If you tell a Juggalo that the
music that they like is terrible, they don't really
care. They aren't trying to recruit
you because your fandom doesn't affect their life.
But in crypto, the subculture is a financial pyramid because
there are no fundamentals to talk about.
No earnings, no dividends, no underlying businesses.
The only way for a believer to get rich is to convince other
people to become a believer too. The crypto subculture isn't just
a community, it's a global sales force.
The moment they stop being able to recruit new Juggalos into the
tent, the price stops moving and the number go up.
Magic trick fails. This is where my friend Dmitri
Kofinis idea of financial nihilism fits in so perfectly
for the younger generation who feel that the traditional system
is rigged and the American dream of home ownership is out of
reach, treating the world like a casino isn't just a choice, it's
a survival strategy. In the financial nihilist
worldview, Bitcoin isn't a hedge against inflation or digital
gold. It's just a high leverage way to
yellow your way into a home deposit.
But as we're seeing, the casino might be moving on.
It's more social to bet on the Super Bowl with your friends
than it is to sit alone in a dark room trying to recruit
strangers into the digital subculture that requires
constant new donations just to keep the lights on.
Once the ideological dream of crypto dies, you're left just
with the gambling. And as it turns out, the
gambling industry already has much better content than the
blockchain does. This brings us back to the
warning from NY US as what the motoring.
The great irony of the last two years is that by getting exactly
what they wanted, the ETFs, the institutional respect and a
crypto president, crypto enthusiasts might have
accidentally killed the very thing that made Bitcoin special.
Demotoring points to real estate as a cautionary tale of
financialization. For decades, he points out, real
estate was the king of uncorrelated assets.
If you owned a physical apartment building, it's value
is mostly independent of what the S&P 500 was doing on a
Tuesday afternoon. It was driven by local housing
demand, local rents and physical scarcity.
But then came the financialization of the sector
through real estate investment trusts and mortgage-backed
securities. Suddenly, your real estate
wasn't just a building, it was a liquid, tradable ticker symbol.
And the moment it became easy to trade, it started behaving
exactly like everything else. Today, the REIT market is highly
correlated with the stock market and sensitive to financial
flows, market sentiment, and so on.
By making it part of the system, it became subject to the
system's risks. We might start to see the exact
same thing happened to Bitcoin. For years, the dream was this
idea of decoupling, the idea that Bitcoin would be the one
thing that stood tall while the rest of the world burned.
But now that it's plugged into the plumbing of Wall Street
through ETFs, futures, and options, that dream might be
dead. The moment a hedge fund can sell
Bitcoin as easily as they can sell Apple stock to cover a
margin call, Bitcoin becomes systemically linked.
It's now affected by the same interest rate shifts, the same
risk appetite swings, and the same liquidity drains as a
grocery store chain or a toothpaste company.
Looking forward, even if this crypto winter ends and Bitcoin
finds a new stable level, we have to ask will it ever be an
independent asset again? Or has it simply become a high
beta, non dividend paying tech stock that we've collectively
agreed to call digital gold? If Bitcoin is not a currency,
not a particularly good inflation hedge, and it's now
tethered to the very financial system it was designed to
replace, then what is it? It's a collectible, and as we
know, the price of a collectible depends entirely on the mood of
the next person in line. Right now, that person is
looking at their S&P 500 returns, are looking at a
gambling app on their phone, and starting to wonder if crypto was
just a very expensive ticket to a party that ended years ago.
Thanks for tuning into this week's podcast, with special
thanks to my supporters on Patreon.
If you'd like to support the podcast, I'll leave a Patreon
link in the description. Talk to you again soon.
Bye.