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.