00:00 Speaker A
Bitcoin prices began to rebound early this year after trading within a narrow range following a sell-off in the fourth quarter of last year. Forced liquidation and selling by long-term holders has driven prices down 35% from October highs. You know who hasn’t forgotten about Bitcoin, my next guest, John D’Agostino, Head of Institutional Strategy at Coinbase, is here. John, great to see you again. It’s great to see you live it in person. Appreciate it.
00:23 John D’Agostino
Always, always love coming to see you.
00:25 Speaker A
So, at the simplest level, what is happening with Bitcoin? Help us make sense of this small gathering.
00:35 John D’Agostino
certainly. Well, so, I can understand why people think it happens suddenly, kind of like after New Years. The reality is that, well, Bitcoin has been quietly recovering since the liquidity crisis around early October.
00:53 John D’Agostino
Well, right now uh the liquidity crisis in cryptocurrencies is a little bit different than in other markets because unlike stocks, the market makers, the participants who typically buy and sell and bridge liquidity, they are not obligated to post bids and offers like in the stock market. Therefore, commodity markets and cryptocurrency markets are similar in this regard.
01:17 John D’Agostino
So on October 10th we had what is called a liquidity crisis, which means people were scared. They feared overstretching their balance sheets, so they drained liquidity. They just exited the market.
01:29 John D’Agostino
When this happens, the price gap tends to drop significantly because people are so, so afraid of not being able to close their positions that they will sell at any price. Well, that happened. It happens to us, you hear about the flash crash in the stock market, right? This is equivalent.
01:38 Speaker A
I try to forget about that, but yeah.
01:39 John D’Agostino
Correct. This happens to us in all markets. When this happens in markets like cryptocurrencies and commodities where market makers have no obligation to enter the market, they tend to be more severe. This happened on October 10th and it was horrific.
01:52 John D’Agostino
This is good news. The good news is you don’t have this fast and violent relaxation. Institutional buyers have these levels of support. So retail investors were a little bit panicked and they needed to get out, but institutional buyers kept the base going.
02:12 John D’Agostino
Now, uh, it’s been reported that the liquidity environment is very bad, so cryptocurrencies have been out of the news cycle for these two quarters and you’re seeing this sideways, nasty price action.
02:32 John D’Agostino
For those of us who remain active in the market, we’re a little confused that retail sentiment is so dire. You know, crypto Twitter and Twitter X in general are very bearish on the asset class. But what we saw at Coinbase…
02:51 Speaker A
Peter Schiff knows to tweet about Michael. Everything is over, dead, everything will return to zero.
02:57 John D’Agostino
And, well, that’s okay. I actually like those environments because you can buy cheap stuff that people forget about. Well, but what happened with Coinbase is we noticed that institutions were just starting to take interest. Therefore, the period from October to December was probably one of the most active periods for institutional buying, and no institution was paying attention to Bitcoin and cryptocurrencies before October 10th, but that suddenly stopped because of October 10th.
03:31 John D’Agostino
As a result, a huge divergence of interests emerged. It has huge institutional interest and scary retail sentiment. So from October 10th to now, you’re going to see retail sentiment pick up a little bit, recognizing that institutions are still building and growing. Um, so I think it’s not a short-term spike, but a sustained recovery.