Stampede Signals

Welcome dear reader to the August Crypto: Decrypted. We have a LOT to unpack this month with the headline perhaps being “Did our bear just transform into a bull?” While I’m not ready to go all in on that statement I will say that a 25% market move cannot be ignored so we’ll start this month exploring in detail exactly why that happened and what that may mean for our markets. Let’s go.

Signals > Substance

It was a beautiful day in Jackson Hole and I was enjoying the Wyoming Blockchain Symposium along with many industry giants in the cowboy state. Great speakers. Great events. Great location. What could be better? Well, as the meat of the conference wrapped up on August 19th something dramatic happened in the crypto markets. They moved. Big time. A welcome event given that bitcoin has basically been a yawn fest all summer, hovering between roughly $60K and $65K since June 2. Then a God candle put us all on notice as BTC surged from $65K to $69K on August 20, jumped to $76K on the 21st and hit an intra-month peak at $81K before settling out at roughly $79K, which is an ~25% move. This marked the strongest weekly advance in more than three years, and is a great example of Tom Lee’s quote from Anthony Scaramucci’s "All Things Markets": “Crypto makes most of its gains in 10 days, so the 10 best days drive almost all the returns in a year.” It goes without saying that those that were in the markets enjoyed this bump. Those that were waiting for the big bear leg, well, they are still waiting. Let’s look at the confluence of events that produced this major move. 

It sure wasn’t the passing of the CLARITY Act, which unceremoniously stalled on August 7th, the last day before the Senate recess, leaving its future up in the air. Instead, this chapter of “where is bitcoin now” had a different confluence of events which began on August 18, when the SEC proposed its rulebook “Regulation Crypto Assets.” This proposal specifically addresses token launches and suggests some exemptions from the Securities Act of 1933. Notably, it would allow a project to raise money without registering with the SEC. More importantly, it also notes that once a project is built and underway its token can move into a “non-security” status, thereby getting the SEC’s eyes off of it. What’s interesting about this is that it came out of nowhere, and it shows that the SEC is in fact trying to be more crypto friendly and provide guidance for the markets. That was the setup.

The next day was the big one, however, and on August 19, two seminal events occurred. Scott Bessent announced the doubling of treasury bond buybacks from $2B to $4B, starting on Sept 9th 2026. While not QE, we believe this accomplishes the same effect by putting liquidity into the markets. This is a signal that risk assets and especially bitcoin historically love but let’s be real for a second. A $4B buyback announcement against a roughly $32.2 Trillion Treasury market shouldn’t really move the needle but it did, and a market that was crowded with short positions after weeks of sideways chop ultimately fell into a short squeeze. That was the first leg. Note that no buybacks had happened, so I consider this signal. This was supported the same day by a seminal summit at the Eisenhower Executive Office with a clear agenda: Advance crypto policy through agency action regardless of the current state of the CLARITY Act. The event included luminaries such as Coinbase’s Brian Armstrong, Robinhood’s Vlad Tenev, Kraken’s Arjun Sethi, SEC Chair Paul Atkins and CFTC Chair Michael Selig (among others). At the meeting, Trump stated, “We’re focused on creating a clear regulatory framework for pioneers and builders like the people that are here with me so that they can do business with confidence on American soil. They don’t have to go to other countries to do their business. We’re ensuring that America remains the undisputed leader.” Bessent’s buyback announcement and Trump’s declaration created a one-two punch that was music to the market’s ears. Markets moved. Short positions got squeezed, and we had a strong move upward to roughly $69k that day. What happened after that was even more interesting.

The next day bonds, which fell on the 19th, reverted. They didn’t believe the news and in essence erased the buyback, so Bessent went on CNBC and stated it could be much more. The same day CFTC Chairman Selig stated that rules are coming with or without Congress, noting “If Clarity continues to stall because of Democrat obstruction, the CFTC will utilize its existing authorities to begin establishing a regime for crypto asset markets.” Bitcoin jumped 10% on this news. If this wasn’t enough, a few days later on August 24th Treasury officials suggested that they may use the $950B General Account for bond buybacks. Now, that’s not QE to Infinity, but a Trillion is a serious number. Markets LOVED this and we saw Bitcoin peak at $81,237 on August 25, while ETFs enjoyed $3.52 billion in inflows in August.

The point in all of this is that massive liquidity being injected into the markets hasn’t really happened yet, but we have signal that it well could. Is it standard QE? No. Is it the same result? Yes. Bitcoin ran on this which was, of course, reinforced by the very positive support from the White House, SEC, and CFTC.

Signals & State Changes

There are some nuances here I want to point out. The first is that I think this actually may be the air we need to get the CLARITY Act passed. While in Wyoming I had the chance to spend some time with Banking Committee Chair Senator Tim Scott who was fully focused on a floor vote on Sept 15th. As we’ve discussed all year, the passing of this is important in the USA because it would provide much needed legislation to guide us. But what the SEC and CFTC have basically said, CLARITY be damned… we can’t wait for it to pass so we’re going to issue guidance anyway. The outcome of this may well be that CLARITY does pass in September. With a 60-vote bi-partisan requirement it’s not obvious, but with clear guidelines in place already, suddenly there’s a lot less to fight about. Moreover, it ceases to be the bargaining chip that it has become. I hope this is the case because I believe it’s what we need for the long run. Both Selig and Atkins seem to believe this too. If it doesn’t pass this time around, however, we still have guidance from both regulatory bodies, and markets seem to like that enough for now. Ultimately, we’ll see.

Now let’s look at Bessent’s buyback signal. As noted, a $4B buyback against a roughly $32.2 Trillion market shouldn’t move the needle. But it did. And more importantly, the messaging amplified over the coming days, culminating in the Treasury signal that the TGA could be used for this, which is something the markets loved.

Interestingly, I see this as being somewhat similar to what happened when Michael Saylor’s Strategy sold 32 bitcoin in May. MSTR dropped ~6% and Bitcoin fell to a two-month low on this activity and markets were shaken. OMG. SAYLOR SOLD. The Earth is clearly ending. It didn’t of course. Instead, it seemed to do exactly what Saylor said he wanted which is to “inoculate the markets.” It showed a state change in his position and that he could, and would, sell. Then, ultimately, when Strategy did sell 3,588 BTC in June/July, which mind you is over one hundred times more Bitcoin, the reaction was a fraction of the size. By the time they sold more in August, the markets barely blinked at all.

Bessent did the same thing. He announced a state change. The Treasury’s operating doctrine for years has been “regular and predictable” and his announcement was anything but… and markets have already responded. So, when September 9th comes and the $4B in bond buybacks begin I don’t think that will move the crypto market needle much. But, as noted, the stage has been set for much, much bigger moves. The Treasury basically just demonstrated that it has enormous discretionary capacity to add liquidity without Congress, without the Fed, and without new issuance. Funding a $4B program is a non-issue. But having almost a Trillion in spare powder? Well, that’s a catalyst that should be undeniable. Again, we’ll see but I can tell you that I for one am grabbing my popcorn, because this is a movie I don’t want to miss.

A Cold Day in… Wallets?

Now for the not-so-fun news. For 17 or so years crypto purists have preached about the value of holding one’s assets inside of one’s own cold wallet, following the adage “Not your keys, not your coins”. Well, in late July that got turned on its head as Coldcard wallets, offered by Coinkite, began to be mysteriously drained. This should be an impossibility as Coldcard is an air-gapped, source-available, Bitcoin-only cold wallet. It happened however, and the genesis of this event, dear reader, sources back to a bug accidentally introduced into their software in 2021. This bug lay dormant for five years until a hacker, who is speculated to have used AI, swept 594 BTC (about $38 million at the time) from over 500 wallets. And once the dam broke, other hackers joined in with the total impact now estimated at $116 million of stolen Bitcoin, perpetrated by what appears to be a dozen separate hackers.

How. Could. This. Happen? Well, software is written by humans. Humans make mistakes. The only way to really avoid such mistakes is to have code reviewed and tested by many, many, many, many, many different people. In my years as a developer, project manager and COO, I would always encourage my teams to initiate redundancies, backups and checks. And even then sometimes bugs would sneak through, because even the best make mistakes. In this case, somehow, a bit of code slipped through and didn’t get caught. Unfortunately that was the code used to generate the completely random and unique seed phrase that is the key that unlocks a wallet, and the bug allowed these phrases to be replicated. Was it developer error? Surely. Was it missed by the code reviewers and testers? Obviously. And years later, the thing that was supposedly the safest way to store coins turned out not to be.

Now, before we all panic let me be clear: this is one instance from one vendor. Block, Trezor, and Ledger all confirmed their products are unaffected. They use an entirely different method for producing a seed phrase and, indeed, so do Coinkite’s other products, so this isn’t a case of “Hardware Wallets are Broken.” Rather, this is a case of “one wallet from one vendor is broken.” Of course, this was a real tragedy for those who used Coinkite as, for those that were hacked, their holdings are just gone. The punchline from a market’s perspective however? They simply didn’t seem to care, as Bitcoin moved a whopping 1% or so the days after. Let me repeat that. Roughly $100M gone and the markets yawned. So that’s also worth noticing; these markets are much deeper now that institutional capital is in.

Importantly, the individual matters even if Wall Street yawned, so for those holding all of your crypto in an “impenetrable” hardware wallet, as a word of caution it may be worth platform diversification. If all of your eggs are in one basket and that basket breaks…. ouch.

Now of course, let me now address the elephant. There are those who are now going to turn this on the Bitcoin blockchain itself as a case of fearmongering, to which I note the robustness and 17 years of fidelity of the Bitcoin blockchain is because over those 17 years the network’s open source code has been, in many cases adversarially, peer reviewed, prodded, poked, pressed, pushed… you get the picture. Many (many, many, many, many) people have reviewed the code. Some have copied it. Some have tried to improve it. But the net/net of this is that full open-source generally implies that developers are all over it, which tends to root out hidden bugs. Coldcard wasn’t open source. It used to be, however on November 18, 2020, approximately four months before the Coldcard bug was introduced, Coldcard switched from open source to source available, which is not the same thing.

Source available allows anyone to read the code, but does not allow anyone to use it for financial gain or commercial use, so it disincentivizes developers to really “kick the tires”. In fact, Foundation Devices founder Zach Herbert, who launched Passport, a hardware wallet built on a fork of Coldcard’s code and whose fork seemingly prompted the change in Coldcard’s move away from open source, publicly objected at the time. Seems he was prescient. Ultimately this is why open source advocates are so passionate about open source, because it tends to yield much more robust code. This is also one of the hallmarks of a public blockchain. Technology that is shared and vetted by all.

Swifter than Ripples

We have one more note to touch on, which could very easily fall into the “boring but important” category: Swift's blockchain ledger went live on August 19th. Yes, in the space of roughly one year Swift went from announcement of a blockchain ledger implementation to an actual working implementation. Not a pilot in a sandbox. Not a prototype. A working implementation. That’s like warp 10 for financial markets. HSBC and Standard Chartered were the two players that proved it out. Simply, a transfer was initiated, the clearing happened quickly on a blockchain, and then the actual live cross-border settlement occurred. Why is this important? Well, Swift’s network connects more than 11,500 financial institutions. It is the way banks transact, therefore this is a big deal. Crypto promised fast settlement. Turns out that’s the easy part. What Swift did was build and implement an efficient clearing house.

Let’s look under the hood a little. Instead of the clunky Swift system we have today, wherein Bank A initiates a transaction, Bank B receives it then verifies funds, runs compliance, validates the transaction and messages back (sometimes days later), this new implementation finds that both banks are on a shared blockchain, looking at the same data, writing to the same ledger, and validating the whole transaction quickly and elegantly. (This is also designed to eliminate the need for pre-funding correspondent banks, which is another historical cross-border headache.) Of course this doesn’t speed up the actual settlement, but that’s the least expensive part of this exercise. Historically, the vast majority of this expense has been spent on validating a transaction before any funds are sent, and in today’s Swift network lots of staff spend lots of time sitting on lots of capital (in correspondent banks) to ensure all of this is correct. In the new network it’s a non-issue.

Ripple built this architecture back in 2017 with RippleNet, which does blockchain clearing among institutions. The Bank of England validated it the very same year, but ultimately they were never able to implement at scale. They were first, and yes, they were ahead of their time. However, now it seems Ripple may fall victim to that infamous first mover advantage… which turns out not to be an advantage. Second mover Swift (almost a decade later) finally got on board, arriving at the same architecture. Ouch. From my perspective as an entrepreneur, honestly, I have always thought Second Mover advantage was a better position. It would seem Swift thinks the same.

BlockchAIn

Now let’s move this into the world of AI. On July 9th, during the announcement and preparation for the actual transaction detailed above, Swift Chief Business Officer Thierry Chilosi framed the ledger as “creating a foundation for… programmable money and agentic commerce.” Wait, what? Agentic Commerce. That means machines working with other machines. No humans. Bank to Bank. For months we’ve been talking about this on a retail level, with every major player from Google to Coinbase to Visa setting up wallets that agents can use. Chilosi’s comments move this into another league because now he’s talking about this happening on an institutional level. And guess what? The transaction worked. The foundation is set.

Of course this will take some time as this needs to roll out to all banks and be put in place as, well, foundation. However once done I argue it won’t be very long before banks have agents that are really doing the heavy lifting here. This is the evolution.

Point being, I know that crypto is boring right now (notwithstanding the huge run this month). It’s not shiny. It’s not exciting. It’s overshadowed by AI which is taking all the press and our hearts and minds. But this is just one more example of how I see AI and crypto will work hand in hand. In fact, I assert AI will need crypto to transact. These two technologies are simply the opposite side of the same coin (I couldn’t resist) and I believe they will be converging as time goes on. I’ve been saying this for well over a year. Now, Swift is also saying it. ‘Nuff Said.

In Closing

Bitcoin ran big time, Washington made announcements, Treasury signaled some buybacks and regulators clarified positioning, all of which was incredibly well received by our crypto markets. Mark Twain once famously said upon hearing the announcement of his death, “The report of my death was an exaggeration.” It would seem this adage still holds true.

What is more interesting, however, is that in the same week Washington moved markets with announcements, Swift and two banks moved actual money and barely anyone noticed. This is the kind of thing I believe we need to pay attention to, because while the markets get all the attention, it’s the boring stuff that’s happening under the radar that is really going to drive us into the future.

Well, that’s all for now! Until next time be well, stay safe, and I’ll keep Decrypting Crypto for you!