The Breakdown - 10 Metrics Where Bitcoin Has Already Hit New All-Time Highs

Episode Date: November 21, 2020

Earlier this week, investor Nic Carter published a piece called “Nine Bitcoin Charts Already at All-Time Highs” showing just how far bitcoin had come and how fundamentally bullish this quiet run-up was.  In this piece, NLW goes over those metrics that have achieved all-time highs, and adds one more that happened after Nic published his piece. The metrics include: Addresses with a balance of $10 or more Open interest on CME bitcoin futures Realized capitalization  Bitcoin options open interest Bitcoin priced in Turkish lira Bitcoin held by Grayscale Stablecoin free float Silvergate’s settlement network Growth of crypto-native credit Market Capitalization

I think what these numbers together show is just how rich and strong and fundamental this rally is. But what's clear and what's important is that it is not based on some mania, it is not based on some set of media, it is based on a fundamental long-term growing strength, based on a correct understanding of what Bitcoin can do and where it fits in the larger macro environment. And that's pretty awesome to see. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com and nexo.io and produced and distributed by CoinDes. What's going on, guys? It is Friday, November 20th, and I have a fun little one for you today.

This episode was inspired by Nick Carter's most recent essay. Nick has been on this show multiple times. He's an investor with Castle Island, as well as being a co-founder of Coin Metrics. And Nick noticed that in this amazing run-up that we've been living through, the one where we've come tantalizingly close to that huge psychological barrier of 20,000 per Bitcoin, it was happening without the same sort of fanfare and retail mania that happened. in the ICO days of 2017. Nick wanted to see if data could explain what was going on, so he dug in. Now, I highly recommend you go check out his piece because some of the charts he uses

are much easier if you see them than just hear about them, but still this should give you an overview of some of the most exciting areas where Bitcoin is already minting new all-time highs. The first area is addresses with a balance of $10 or more. So the metric is a proxy for the number of people who own Bitcoin. The previous peak in late 2017, early 2018 for this number was a little over 14 million individual addresses with 10 Bitcoin or more. That number is now over 18 million. Nick also notes that this is true for every other threshold. Pick, $1, $100, $1,000, it's all at all-time highs. Now, it's also worth noting that one address does not equal one human, right? You can have more than one Bitcoin address, but still it

directionally shows a clear pattern of increased adoption. The second metric at new all-time highs is open interest on CME Bitcoin Futures. Open interest in futures refers to the total value of outstanding contracts that haven't been settled. So think about them as active contracts. The CME matters because it is a Bitcoin product at the world's largest derivatives exchange. That means it's accessible to all types of investors. This particular Bitcoin Futures product launched right at the peak of the last bull run, December 17th, 2017, and it has been absolutely rocking this year. August and October were both huge, and recently the open interest punched up over a billion dollars. Nick also notes that the CME could be a key way marker on the path to a Bitcoin ETF.

Previous Bitcoin ETF applications have been rejected in large part because of a lack of regulated markets. Seeing more interest coming into this very well-known, very institutionalized player could be a big deal on the way to something that many think will be a key catalyst for increasing people's Bitcoin exposure. Next up, realized capitalization. Realized cap is a market cap alternative that was actually invented by Nick, and instead of pricing each Bitcoin at the last market price, it prices each Bitcoin according to when they last moved on chain. the idea is to better account for liquid supply, effectively ignoring Bitcoin that haven't moved for years and years and years. In turn, it also better cuts out lost coins. Currently, the realized

capitalization of Bitcoin sits at $129 billion, which is well above the $90 billion peak that was in early 2018. Here's how Nick describes that. What this tells us is that Bitcoin is substantially more liquid at these levels, with investors less eager to sell. In late 2017, early 2018, the unit price was higher, but less of the supply had changed hands at those rarefied levels. It also explains why the price collapsed so quickly from there. It simply couldn't be sustained as investors in the aggregate had a cost basis far below that threshold and were eager to take profit. The 2017 bull run was more of a melt-up driven by ICOs, press coverage, and retail investor excitement. This bull run is more of a sustainable slow burn. All right,

number four on our list of new all-time highs Bitcoin options open interest. What's the metric? Open interest in an options contract adds up the value of the outstanding unexercised option. So this is a smaller area in aggregate, only approaching $4 billion right now. But according to Nick, this matters for two reasons. First, these options give miners better tools to hedge their exposure. This means that they can be more stable, more efficient. They don't have the same sort boom and bust cycles. Second, he also sees this as a way for traders to bet on things other than the price. They can bet on future volatility. And his point ultimately is that more sophisticated tools mean more ability to bring capital in. This episode is brought to you by Crypto.com,

the Crypto super app that lets you buy, earn, and spend crypto all in one place and earn up to 8.5% per year on your Bitcoin. Download the Crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the crypto.com metal card, which pays you up to 8% cashback instantly on all purchases. Reserve yours in the crypto.com app today. Looking for the best way to stay on top of your investment game? Nexo.io has you covered in three easy steps with their high-yield savings account for digital assets. Step one, create an account at nexo.io. Step two, transfer assets to your secure nexo wallet with no minimum or

maximum limits on funds deposited. Step three, sit back, relax, and earn up to 10% compounding interest, paid out daily on your crypto and fiat. Your passive income made simple. Get started at nexo.io. Number five new all-time highs, Bitcoin priced in Turkish lira. We always discuss Bitcoin as priced in USD, but many places don't have access to the dollar. Indeed, many people are trying to flee their local currencies into something like Bitcoin because even with its volatility, it could hold value better than a local fiat regime. In 2020, Bitcoin has reached all-time highs in local currencies in Turkish lira, the Argentine peso, the Russian rouble, the Venezuelan Bolivar, the Brazilian reall, the Colombian

peso, the Lebanese pound, the Sudanese pound, and more. This is something we've talked about a lot on this show. The places where people might be running to get away from fiat into Bitcoin aren't necessarily the places that we all spend most of our time. What Nick points out that I think is really important, however, is that the exchange infrastructure to accommodate these changes is actually coming to fruition. In December 2018, the Cambridge Crypto Asset Benchmarking Survey found that there were about 35 million identity verified crypto users at global exchanges, versus their third version of that survey released in September 2020, 101 million identity verified crypto users, basically 3x.

With it, he puts it, quote, quite simply, exchange infrastructure has matured and proliferated to the point that exiting local fiat for digital assets is a viable proposition for a meaningful share of the world's population. As you guys have heard me explain before, I think that is so game-changing in the context of human history. I can't even describe it. Number six, new all-time high Bitcoin held by Grayscale. What is the metric here?

The Grayscale Bitcoin Trust is the most popular third. financialized version of Bitcoin, currently holding over 500,000 BTC. What's interesting about this is that GBTC takes six months to mature, meaning that there is a mismatch between market value and net asset value. So the fact that people still want this, even though they're paying a premium for getting exposure through grayscale, says something significant. The way Nick puts it is this. The immense growth of GBTC in 2020 is evidence that there is a class of allocators who are content. tend to obtain inefficient exposure to Bitcoin. Buyers of GBTC are not your typical techie crypto investors, who are more likely to make an account with one of the crypto exchanges and take ownership of

spot Bitcoin and avoid a costly premium. The continued growth of GBTC is evidence that an older and less crypto-native cohort of investors retains a significant appetite for the asset, even if the exposure is inefficient. Next up on the list is stable coin-free float. In other words, the supply of stablecoins. That supply is currently at 22.7 billion. That was under $5 billion at the beginning of the year and was only at about $1.5 billion in 2017 during the Big Bull run. Interestingly, Nick argues this is good for Bitcoin because of the liquidity environment. He also points out that even as U.S.D. stablecoins have taken much of the role that Bitcoin used to play for the industry as a trading reserve asset, basically Bitcoin's value is more independent than ever.

before. He also makes a point that tokenized fiat tends never to leave the crypto space. Quote, lastly, capital existing in tokenized fiat format tends to enter the crypto industry, but not leave. This is because crypto rails are fundamentally more convenient, more globalized, and less encumbered than traditional payment and settlement rails. Thus, a material portion of the 22.7 billion worth of tokenized USD circulating on public blockchains represents dry powder that could well be allocated to risk assets like Bitcoin. If there is a run on any of these stable coins or their backing comes into question, the natural direction to flee will be in the direction of censorship-resistant assets like Bitcoin, which can absorb that much liquidity at short notice.

Presumably, if a stablecoin suspends convertibility, holders will not be able to conveniently exit at fiat off-ramps, but they will be able to flee into the blue-chip crypto assets, of which Bitcoin is by far the largest and most liquid. Thus, if stablecoins do face it outcomes, the result is most likely a significant capital inflow into Bitcoin. Eighth on Nick's list of new all-time highs is Silvergate's settlement network. So Silvergate Exchange Network allows clients of the Silvergate Bank to settle with one another. It is an intra-bank settlement product. And because so many crypto firms use Silvergate, this exchange network actually becomes a proxy for U.S. domiciled firms. Now, this only launched last year, but grew

from 10 billion in Q3 last year to 36 billion in Q3 this year. Interestingly, the point here is that Silvergate and Silvergate's Exchange Network are a proxy for the growth in banking services for which a huge period of time were an absolute Achilles heel for this industry. I discussed this on Thursday's show about Brian Brooks, the acting comptroller of the currency, and what a big deal it was that he said that banks could custody crypto assets. And then later on that he said that they could work with Sable Coin. issuers, banking has been a huge problem for crypto firms, and so the fact that you're seeing

such growth is a suggestion of the maturity of the industry. Number nine and finally on Nick's list was the growth of crypto-native credit. So this is the nexos, the blockfis, et cetera, of the world, right, where people can use their crypto-collateral to get loans and get credit. These are contentious for some people, but frankly, as Nick puts it, they provide such massive liquidity benefits to the space, and they just didn't exist back in that other bull run. Today, they are many, many billions, and they allow people to do more with their crypto along the way, even as they continue to hold it. Now, finally, I wanted to add one more that happened after Nick had published his piece, which is the big one, market cap all-time high. The total value of all Bitcoin in today's prices

is higher than it ever was, this week going above the previous high from 2017. Basically, this one is just the way that the supply issuance works in Bitcoin. Over the past three years, we've had more Bitcoin hit the market based on the block reward based on mining. And at these prices, we've achieved a higher total overall value of the entire industry than we had back then. Now, I would say this is probably the second most psychologically significant number after 20,000 itself, although it still lags far behind. Now, Nick's conclusion points to a number of other things he didn't mention, such as the rise of fidelity-type institutional players in this space, and he argues that this bull run ultimately is being driven by commodities traders, global macro hedge funds, a whole different set

of users in effect, and it's driven by macro headwinds, it's driven by this understanding and narrative and sensibility around where Bitcoin fits as a hedge against unlimited money printing. I think what these numbers together show is just how rich and strong and fundamental this rally is. It may be that we cross that psychological barrier of 20,000 in a week or a month or three months. It may be longer. It may be shorter. You never know with this space. But what's clear and what's important is that it is not based on some mania. It is not based on some set of media. It is based on a fundamental long-term growing strength based on a correct understanding of what Bitcoin can do and where it fits in the larger macro environment. And that's pretty

awesome to see. Anyways, guys, I hope you enjoyed this little numerical look at this strength underlying, this rally underlying, this industry underlying this asset. And I hope you're heading towards a great weekend. Until tomorrow, guys, be safe and take care of each other. Peace.