00:00 Speaker A
Bitcoin prices have recovered to start the year after trading in a tight range following a sell-off in the fourth quarter of last year. Forced liquidations and selling by long-term holders have pushed prices down as much as 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, good to see you again. Good to see you live in person. He appreciates it.
00:23 John D’Agostino
I always, always love coming to see you.
00:25 Speaker A
So, at its simplest level, what is happening in Bitcoin? Help us understand this mini rally.
00:35 John D’Agostino
Sure. Um, so, I can understand why people think it’s happening all of a sudden, kind of after New Years. The reality is, um, Bitcoin has been quietly recovering from a liquidity crisis around the beginning of October.
00:53 John D’Agostino
Um, now a liquidity crisis in uh cryptocurrency is a bit different from other markets because unlike equities for example, the market makers, the participants who um usually buy and sell and bridge liquidity, are not obliged to post offers and offers um like they are in the equity markets. So the commodity markets and the crypto markets are similar in that way.
01:17 John D’Agostino
So on October 10, we have what we call a liquidity crisis, which means that people are scared. They feared they were overextended on their balance sheets and pulled cash flow away. They just went off the market.
01:29 John D’Agostino
And when that happens, you tend to short these violent price gaps because people are very, very afraid of not being able to get out of their positions and sell at any price. Um that’s what happened. It happens in we we have heard of flash crashes in the stock markets, right? That’s the equivalent.
01:38 Speaker A
I tried to forget those, but yes.
01:39 John D’Agostino
Right We happen in all markets. When it happens in markets like crypto and commodities where market makers are not obligated to be in the market, they tend to be a little more severe. So this happened on October 10th and it was awesome.
01:52 John D’Agostino
Here is the good news. The good news is that you didn’t have this quick violent expulsion. There were these levels of support of institutional buyers. So retail panicked a bit, um they needed to get out, but the institutional buyers kept what that ground, that foundation.
02:12 John D’Agostino
Now, the uh was reported that there was this horrible liquidity environment and so crypto kind of fell out of the news cycle for those two quarters and you saw this kind of grinding sideways movement, boring price action.
02:32 John D’Agostino
What was happening for those of us who were still active in the market was that we were a bit confused because you had this horrible retail feeling. You had this um, you know, crypto Twitter and just Twitter X in general just being very bearish on the asset class. But what we were seeing at Coinbase…
02:51 Speaker A
Peter Schiff knows how to tweet Michael. Everything is over, dead, going to zero, everything.
02:57 John D’Agostino
And uu um and that’s good. II actually like those environments because you get to buy cheap things and people forget. Uh but what was happening at Coinbase is that we were noticing, well, institutions were gaining interest. So that period from October to December was probably one of the most active institutional buying periods, and there was not one institution that was looking at Bitcoin and crypto before October 10th that stopped suddenly because of October 10th.
03:31 John D’Agostino
So, there was this huge bifurcation of interest. It had huge institutional interest and horrible retail sentiment. And so what’s happening from October 10th until now is you’re seeing a bit of a pick-up in retail sentiment recognizing that the institutions are still building and still growing. Um so I think less of a short term spike and more of a sustained recovery.