Bitcoin Is Down 50% and No One Knows Why

Michael (00:01.088) Welcome back to the last trade just stealing Jackson's thunder. Jackson Mikalic (00:01.842) Hmm? Brian Cubellis (00:04.855) You Jackson Mikalic (00:07.176) But you messed up the line. We are back. Yeah. Nice try. Nice try, Mike. Brian Cubellis (00:10.699) We are, we are back. Michael (00:11.692) We are back. There was an insane amount of travel. The guys were at the Bitcoin conference in New York. I was driving around Texas, just got back home to record this. Nick, we're gonna introduce, he's been following, didn't even know he's been following the pod. But before we kick things off, to keep everyone, because we were talking, like we gotta bring the energy, because everyone's a little tired. I got some swag. So this is the first piece. This is a nice quarter zip with on the arm. There's a bunch more, I got like vests, a bunch of cool stuff. But whoever's listening gets this, that comes up with our new segment, because we know we're gonna be switching things up. And so if you tag us on Twitter with what segment that gets the most, it's not even most likes. We want people to like it, we want people to retweet it, but we're gonna come up with what the segment actually is. But whoever wins that segment, whoever we're gonna introduce to the pod and maybe even come on the pod but for sure you get this piece of swag it'll be shipped directly to you. Jackson Mikalic (01:21.426) Michael is going to drive it personally to your home. Nick (01:22.318) It. Michael (01:23.758) I I have to drive it somewhere because it's here at my home. I will be... All right, Jackson, is that bullish enough for you? Nick (01:27.918) I might throw my hat into the ring for this. I want some swag. Yeah. Jackson Mikalic (01:33.117) Wow. Jackson Mikalic (01:39.366) Yeah, well, so I was expecting something more exciting. So come back next week, get us fired up, bring the energy and we'll see what happens on the last trade. Thank you all for tuning in and we'll see you next week. All right, let's get into it. So travel has been interesting. Nick, we'll get you introduced here in just a second. I had something top of mind. So Brian and I were meeting up yesterday for the Bitcoin investor week in New York. This is a conference that I think both of us have attended now three years in a row. I think it's a good one. I would recommend it. Check it out next year. A lot of quality conversations, a number of people listening to The Last Trade. Thank you for your support. Jackson Mikalic (02:38.174) I, the Thursday going into Friday night, I was staying at maybe not the most glamorous hotel in New York and midtown. And I had an unexpected visitor at my hotel room about two o'clock in the morning. I wake up in a frantic, I had some sweats from drinking a little bit too much. And, next thing you know, I looked through the peephole and got someone banging on my door two o'clock in the morning. Long story short, this individual proceeds to pee on the front of my hotel door. And next thing you know, it becomes a whole situation. The police come, the hotel staff come. And this year it didn't top that. Fortunately. But the conference is always high signal. Jackson Mikalic (04:29.0) So Nick, you're a long time listener of the show, allegedly. I actually didn't know anyone at the company listened to the podcast, to be honest. So that's nice to know. But yeah, Nick, so Nick Delosier, the COO of OnRamp. Nick, nice to have you on the show. What's going on? Brian Cubellis (04:31.861) A day one. A day one. Nick (04:46.222) Yeah, you know, it's great to be here. I've of course been following along and I think there's probably more internal team member listeners than you give yourselves credit for. But you know, I've been listening along for a while here, and excited to be here talking to you guys. Michael (05:10.23) Yeah, we have some exciting stuff to chat about. We'll get into some of the topics and then some of the product announcements that will be fun to discuss. Jackson Mikalic (06:17.95) What is even happening in the markets? I genuinely don't know. Brian Cubellis (06:20.887) Coinbase was down. Coinbase was down was part of what Michael's alluding to. I did just recheck their Twitter account. They are back. They're now back operational, but I think they were out for an hour or two, which just feels like every time there's volatility in the market, people can't access their coins on Coinbase. They can't buy or sell, which is just not a great user experience. And we also know that you can't get someone on the phone there. So it's just a scary situation if you do have funds on that platform at those times. Michael (06:52.233) What if you're just an industry participant? Like you think about if it's a most firms if they go down or don't have something right like you chalk it up to temporary whatever system update. Most people think that's the same with Coinbase, but there's the lagging thing that's hanging over everyone's head is that Coinbase is existential if somehow they actually had a breach. And so how many people are sitting there like wondering, did this market just all blow up overnight when you have something like that go down? Jackson Mikalic (07:33.874) Yeah, I mean that's a huge problem. Should we start with a tweet and then we can get into some of the other topics? Brian Cubellis (07:57.205) Yeah, this is a tweet from Nick Szabo, sort of a very much a Bitcoin OG, had some early writings even before Bitcoin existed that sort of predated the invention or the discovery of Bitcoin. And so he's been in the space for a while. He was actually off Twitter for a number of years and he came back probably three to six months ago and he's been putting out some pretty high signal stuff. But in this tweet, he's specifically talking about basically the market gaps that we often talk about around sort of like the parallels between gold and Bitcoin, these bearer assets, and basically the trust assumptions that come with any form of custody for those bearer assets. And he's sort of insinuating or suggesting that there's still work to be done in terms of making Bitcoin custody more user friendly but also more trust minimized. So Michael and I both saw this late on Wednesday evening and said, you know, this directly applies to what we're doing at OnRamp. Michael (09:36.174) Yeah, I think the big overarching deal was that he was basically saying we're just getting started and Coinbase will be a blip. And that's how we've always looked at this in the sense of for the first 15 years, the asset was a dollar, $10, $100. The current embarrassing centralization of Bitcoin at mega custodian Coinbase is temporary phase in Bitcoin's bumpy path to maturity. Whereas centralization of gold in bank vaults is unlikely to change much. Brian Cubellis (12:22.273) Yeah, the other big takeaway from me reading that and then responding to it was basically like, he points out basically a lot of the reasons that gold failed as money was because of those same centralization issues that we're seeing with large custodians in the Bitcoin and crypto space. And the core difference what this highlights is that with multisig and the ability to distribute keys, you can actually do something that you could never do with gold. Because the technology is superior and its monetary properties happen to be superior, you can do more innovative things. You can distribute the risk. You can distribute the control, which was never really possible for money, basically. Jackson Mikalic (13:27.133) Well said. Yeah. So look, I think everyone is a little bit concerned about the price. I definitely felt this yesterday at the conference and it's weird because it's different than previous cycles. These drawdowns are not something that we're unfamiliar with, but I think people are just struggling to find the catalyst or the narrative to explain it. And it also is at odds with expectations that people had, particularly how we're down about 50% from the all time highs when pretty much name your influencer, name your podcast, even the last trade, we kind of were skeptical that we were going to have like a pretty material drawdown into 2026. Brian Cubellis (15:06.037) Yeah, I mean, I think there's a number of things going on. I think as you highlighted, like there's not one specific thing that people can reliably point to over the past, call it three to five months that specifically prompted this 50% correction. There are a number of different things that you could partially attribute it to though. One that people like to talk about is basically the Clarity Act and this market structure bill. But I think the biggest one in my mind is just sort of this self-fulfilling nature of four-year cycles. And I think if I was talking about this six months ago, I thought maybe that was going to break into this year, and it clearly hasn't. There's clearly some amount of sell pressure that is stemming just naturally from people thinking the price is scheduled to go down this year. Brian Cubellis (17:28.807) Then you add on to that all the geopolitical risks, like are we about to go to war with Iran, potentially? The broader debasement trade that was propagated last year, I think is still a narrative. There is this broader recognition of the fiat system, questioning the debt and debasement, which just makes everyone a little bit risk off. And the problem is that even though we perceive Bitcoin as risk off and the most risk off thing you could own in terms of its monetary policy, the average market participant views it as risk on. They view it as a form of tech. Michael (19:08.257) Brian's end of saying, you know, it could be this, could be that. There's a few things I want to touch on that Brian shared and then I want to get Nick's thoughts on the quantum stuff. Nick (22:39.98) Yeah, that's a great question. Going back to how this drawdown feels a little different maybe than historical price action has. There's really no smoking gun or there hasn't been a major exchange collapse of any sort here to point towards. I think in terms of what people are contending with more broadly, the rate of change of technology right now is only accelerating and it's like nothing we've ever seen. Quantum is a risk we're very mindful of and we're monitoring. I think it's definitely still a ways out, but it's definitely something we get a lot of questions about. Brian Cubellis (24:26.711) Yeah, the only thing I'd add on the quantum stuff is like it's a very difficult sort of risk to quantify both in terms of the timeline and also like the seriousness of the current stage of progress. A lot of the stuff that is being pushed around it is from people who are working in quantum who have an incentive to say, we're making a ton of progress. But I've come up to speed over the past few months in terms of like, what is actually being worked on? Who's talking about it in terms of like the development community? There's a bunch of different groups from ChainCode Labs to Brink to Hunterbeast on Twitter who proposed BIP 360, which is now sort of merged into the BIP GitHub as something that is being proposed and drafted and thought through. Jackson Mikalic (29:27.839) That's right. Yeah, I mean, there's risk and uncertainty in everything. Size it accordingly. If it's something you're concerned about, then you figure that out for your portfolio. Brian, I need to dig into some of the BIP 360 stuff you mentioned. We kind of glossed over it, but what were some of the main takeaways just from the conference? Brian Cubellis (30:35.255) Yeah. So as Jackson mentioned, we were at POMP's Bitcoin Investor Week yesterday. And I'll be honest, like a lot of it is somewhat repetitive if you're in the Bitcoin space. But the one discussion that stuck out to me the most was actually Bo Heinz, who was formerly sort of the director of the presidential working group and the crypto council, and then over the summer last year took a job at Tether and was named CEO of Tether's US arm. He was pretty confident that the Clarity Act will pass. He put the odds significantly higher than what PolyMarket or CalShi is estimating right now. He put it at like 80 to 90% that he thinks it passes. Tether currently has about 530 million customers today, growing at about 30 million a quarter. They only have 300 employees, a billion in profit in 2025. He also said this year they'll end up being a top 10 purchaser of T-bills. Brian Cubellis (35:15.261) He had one very interesting comment around stablecoin adoption and why stablecoin proliferation is actually very bullish for Bitcoin. He said, stablecoins are going to be the first introduction to the digital asset ecosystem that people have. And with that, they are starting to get comfortable with how things move across chain. And obviously Bitcoin being the granddaddy of them all, I think it'll be an invitation for people to actually use that as an investment vehicle of choice. Nick (41:52.514) Yeah, absolutely. And I mean, I think this really ties well together with the previous discussion. I think trust came up in a few pieces of that. What we wanted to touch on in our Architecture of Trust report is that we're very keen on building a solution that's meeting our clients and potential clients where they're at today, earning their trust and building for the future. Historically a lot of these drawdowns have been the result of major exchange collapses, loss of trust, which creates so much uncertainty or really affects people's ability to hold or secure Bitcoin for the long term. At the heart of everything we do is finding ways to put people in the best position to navigate that uncertainty. Nick (48:07.106) Yeah, it's definitely we've come a long way, as you guys know. From day one, a strategic approach that we've really adhered to at OnRamp, especially on the engineering side of the house is that when it comes to the onboarding, creation and management of our MIC vaults, that is all infrastructure that we have built and managed ourselves. We listen to every piece of feedback we get and we take that very seriously. Jackson Mikalic (01:00:00.193) Yeah, I published this piece on X and really the core idea behind it is, man, it's painful, right? There's no denial. If you're someone who actually has a good amount of wealth in Bitcoin, there's no denying that watching your wealth go down 15% in a day, it hurts. But the point I tried to make here is that it really isn't about the volatility. Anyone who has secure Bitcoin, whether it's in self custody, whether it's with OnRamp, as long as you still have your Bitcoin in that core position, you're in good shape. Brian Cubellis (01:03:04.225) I think it's valuable, Jackson. I think it was a good piece. And the core takeaway to me was, the volatility is temporary, but what's really painful, the only way it could be worse is if you actually lose the Bitcoin in some manner, whether an exchange hack or missing a seed phrase, messing up a transaction. So if you get your house in order, that allows you to withstand the volatility a bit. Jackson Mikalic (01:09:06.185) All right, cool. Well, Nick, thank you for joining. Thank you for listening to the show. I did not know that you did that and yeah, that's cool, man. Brian Cubellis (01:09:08.897) Thank you, Nick. Nick (01:09:13.73) Yeah, a lot of the team members listen in, guys. I told you, don't sell yourself short, you know?