Is This The END Of Bitcoin?

0:00Hello, everyone. Bitcoin is crashing and everyone wants to know what the hell is going on. So I got a complete breakdown of why everyone's favorite digital asset continues to fall lower and lower. We're live today from the desk of Anthony Pompliano.

0:23Before we get into today's episode, I need your help. We currently have 42 ,614 subscribers, but me and the team, we work really hard to bring you this content. Hit the subscribe button as a thank you and let's get into today's show.

1:02owe from the latest all-time high price of$126 ,000. Now, Raul Paul points out that the fear and greed index was sitting at five out of 100 yesterday. I don't think I've ever seen the metric come in that low. Bitcoin Archive shows that the four-week RSI has only been lower once in the entire history of Bitcoin. That ain't good either. So why is Bitcoin falling? What the heck is going on here? That seems to be the trillion-dollar question right now. Now, the easy answer, of course, is that there's more sellers than buyers. But that's not going to satisfy the millions of Bitcoin holders who are looking for hyper-Bitcoinization or the six-figure price predictions from their favorite social media influencer.

1:40The truth is that Bitcoin is selling off for a variety of reasons. First, there's a psychological milestone at$100 ,000 Bitcoin price that seems to have unlocked sellers of Bitcoin that have held the asset for a long time. The adoption of Bitcoin by Wall Street giants like BlackRock and Fidelity may have actually signaled Bitcoin's conquest was achieved in the mind of early cypherpunks and Bitcoin believers. The second reason is that Bitcoin has become highly financialized compared to its previous state, simply as a spot asset that investors could buy and hold. I'll share more on that in a minute.

2:11The third reason is the four-year cycle has been a concept in Bitcoiners' mind for more than a decade. Whether it is real or not, many holders were prepared to sell their Bitcoin about 18 months after the havoc, with the hopes of buying more Bitcoin back later at lower prices. Anticipation creates action and actions create reality. And then lastly, Bitcoin is a forward-looking market. When investors believed inflation was on the horizon in 2020, they rushed to buy Bitcoin in advance and that led to a 600 % increase in the asset price. Now that deflation is a bigger risk than inflation, I believe a portion of investors realized that Bitcoin, an inflation hedge asset, should sell off when that deflation becomes obvious to everyone else.

2:51So there's not one single reason that you can point to as the culprit of the recent drop in price for Bitcoin. But I want to dig a little deeper on the idea of Bitcoin as a financialized asset. The first aspect of the story is the increased ways to gain exposure to Bitcoin. Many Bitcoiners incorrectly believe that scarcity has been negated in Bitcoin because of these new instruments. For example, I'm going to share with you a post from a popular account on Twitter that has racked up 2 million views since yesterday. This person writes, the moment supply can be synthetically created scarcity is gone.

3:24And when scarcity is gone, price stops being discovered on chain and starts being set in derivatives. That is exactly what happened to Bitcoin. And it's the same structural break that already happened to gold, silver, oil, and equities. Once derivatives took over the original Bitcoin thesis is broken. Bitcoin's valuation was built on two ideas, a hard cap of 21 million and no rehypothecation. That framework died the moment Wall Street layered this on top of the chain. Cash settled futures, perpetual swaps, options, ETFs, prime broker lending, wrapped Bitcoin, and total return swaps. From that point forward, Bitcoin supply became theoretically infinite, not on chain, but in price discovery, which is what actually matters according to this person.

4:09Synthetic float ratio, SFR, that metric that explains everything. Once synthetic supply overwhelms real supply, price no longer responds to demand. Now, this person says that it responds to positioning, hedging, and liquidation flows. Wall Street can now trade against Bitcoin. They're not guessing direction. They're doing what they do in every derivative-dominated market, create unlimited paper Bitcoin, shorten to the rallies, force liquidations, cover lower, and repeat. They say that this isn't betting, it's inventory manufacturing. One real Bitcoin can now simultaneously back an ETF share, a futures contract, a perpetual swap, an options delta, a broker loan, and a structured note, all at the same time.

4:53That's six claims on one coin. That's not a free market. There's a fractional reserve price system wearing a Bitcoin mask. Ignore it if you want, but don't pretend you weren't warned. Now, that all sounds really bad and scary, right? Like, oh, shoot, maybe I should go reevaluate my Bitcoin thesis. Well, like all good conspiracy theories, it only has a hint of truth to it. There's been no change to the scarcity of Bitcoin. There will only ever be 21 million coins. The monetary policy is not changing and neither is the total supply. However, it is true that the increased financial instruments give sophisticated investors many more tools to express their view in the market or to manipulate the price in a given direction.

5:35So don't believe the doomsday prediction of synthetic Bitcoin supply, but do understand that market dynamics have fundamentally changed. There are new players with new tools and a very different approach than the hardcore believers of the past. The second theory related to financialization is that the increased participation in Bitcoin ETFs could be behind the recent sell-off as well. Now, the other Parker, an account on X, explains it well. This was the highest volume day on IBIT yesterday. It was ever by a factor of nearly 2x and trading volume was$10.7 billion. Additionally, roughly$900 million in options premium were traded, also the highest ever for IBIT.

6:12Now, given these facts and the way that Bitcoin and Solana traded down in lockstep, the relatively lower liquidations on CeFi exchanges, this leads him to believe that the nexus of the problem lies with a large IBIT holder. Now, BlackRock's Bitcoin ETF has become the number one venue for Bitcoin options trading. So his guess is that a hedge fund trading IBIT options is the culprit. If you look at the 13F filings for IBIT, you'll find a number of interesting names that have the majority of their fund in IBIT. In fact, there are a few in there that have 100 % of their fund in IBIT, which likely means no cross margin.

6:48In fact, the biggest reason to set up a fund to hold a single asset would be to isolate margin so that if the trade blew up, the brokers wouldn't have claimed to other assets. Interestingly, most of these giant single asset funds are based in Hong Kong. We know that Asian traders, particularly in China, have been deeply involved in the silver and gold trade. Silver was down 20 % yesterday, which was the second largest one-day move in a very long time. We also know that the JPY carry trade has been unwinding at an increasingly rapid pace. That leads this person to think that the culprit for the IBIT blowup was one or more Hong Kong-based non-crypto hedge funds.

7:24As we know, the funds being non-crypto would explain why no one sniffed them out. They would likely have few to no crypto counterparties, meaning complete isolation from crypto Twitter. Now, the small last piece of evidence that this person has is that they personally know a number of Hong Kong-based hedge funds that were holders of DFDV, which had the single worst down day ever. The MNav had been holding steady surprisingly well throughout this entire pullback until yesterday. Now, one of these funds could have been connected to the IBIT culprit, and he thinks that it's highly doubts a fund taking that large of a position in IBIT and using a single entity structure would only have the one fund.

8:03Now he could easily see how the funds could have been running a levered options trade on IBIT with borrowed capital in JPY. October 10th could very well have blown a hole in their balance sheet that they tried to win back by adding leverage waiting for the obvious rebound. As that led to increased losses coupled with increased funding costs in JPY, this person says that they could see how the funds would have gotten more desperate and hopped on the silver trade. When that blew up, things got dire and this last push in Bitcoin finished them off. Now that theory of IBIT holders being caught off sides, it doesn't seem crazy to me.

8:37Is it the reason for Bitcoin's 50 % decline in the last four to five months? Definitely not. Could it have exasperated the situation, especially yesterday when there was such a severe sell-off? Absolutely though. Forced sellers tend to make assets do volatile things. And to say yesterday was volatile would be an understatement. But here's the good news. Bitcoin's recent sell-off is not nearly as bad as past bear markets. Pierre Rochard posted this great chart here, and he points out that this is actually the least worst Bitcoin bear market so far out of all the bear markets. Bitcoiners were built for this type of chaos in markets.

9:11They have held the asset through many 50 % drawdowns. In fact, Bitcoiners have experienced a 50 % drawdown in the same asset approximately every 18 months for the last decade. That is a global financial crisis every year and a half. It's not bad for a bunch of people on the internet with a crazy dream to simply reimagine money in the monetary system. That's it for today's show. Thank you guys so much for watching. Please remember to subscribe on YouTube. And I'll see you guys live on Monday from the desk of Anthony Pompliano.