The Breakdown - $400,000 Bitcoin in 2021? The Best of Bloomberg's Latest Bullish Bitcoin Report

Starting point is 00:00:00 I think this is a super interesting report. It captured a lot of the shifts that I'm seeing, that I'm feeling this narrative shift, like I said, of just a pure play digital dollar inflation hedge to something that's a much bigger story, missing out on the potential of a new digital reserve asset. 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 Nexo.io. and Exodus, and produced and distributed by CoinDesk. What's going on, guys? It is Wednesday, April 7th, and today we are talking about the latest Bloomberg Bitcoin report, and my oh my, is it bullish. First up, however, let's do the brief. First on the brief today, we have to take a minute to go over Coinbase's insane Q1 numbers. We have obviously been spending a lot of time here this week on Coinbase. They announced the date of

Starting point is 00:00:57 their IPO last week, and it is slated for April 14th. Now, part of the reason they delayed their IPO until Q2 was so that they could release their Q1 numbers, and boy, were they monster. In total, Coinbase has over 56 million verified users. Compare that, for example, to Robin Hood's 13 million. Active users went from 2.8 million in Q4, 2020 to 6.1 million in Q1 2021. Trading volume in Q1 was $335 billion compared to $193 billion for all of 2020. And total assets on Coinbase went from $90 billion to $223 billion, a 150% jump quarter over quarter. The craziest part of that one and certainly validation of the institutional narrative was that $122 million of that $223 billion overall came from institutions. Now, the number that people were most,

Starting point is 00:01:53 focused on was revenue. Revenue was $1.8 billion for the quarter compared to $1.3 billion for all of last year. And in something that will be absolutely shocking to Wall Street, the company actually had a net income of $730 million to $800 million. Basically, this is exactly what the crypto kids knew was coming, but still caught many Wall Street analysts off guard. D.A. Davidson raised their price target from $195 a share to $440. That price target is a 20x multiple on 2021 revenue. They had previously estimated $614 million in Q1 revenue, which was obviously about a billion dollars off. This price target would put Coinbase's valuation at a whopping $144 billion. Should be some interesting fireworks to watch next week. Next up on the brief today, some crazy and frankly very sad statistics

Starting point is 00:02:47 about the global middle class. Obviously, the fallout of the COVID-19 pandemic has been extremely bifurcated. Many did very well, for many a set of positive trends like remote work and homeownership were accelerated. However, the bottom of the socioeconomic period had a much tougher time. Those living closer to the edge already disproportionately had their jobs affected by shutdowns. But the question is, what about the middle? Well, according to new estimates from the Pew Research Center, for the first time since the 1990s, the global middle class shranked. 1,50 million people globally fell out of the middle class. For some context, that's the combined population of the UK and Germany just wiped back to a lower class. India saw 32% reduction

Starting point is 00:03:30 in the size of the middle class. South Asia saw 25% reduction, sub-Saharan Africa, 11%. The Middle East and North Africa, 10% reduction in the middle class. You'll notice that these are also places where there is a bifurcation in the recovery. Many of them are last on the list to get vaccines, and are seeing continued rise and spread of the disease. This is just a reminder that this was a seminal world reorganizing event whose impacts aren't yet fully realized. Finally, let's go to the highlights from Jamie Diamond's investor letter. Big investor letters are one of the ways that markets take the temperature of some of their leaders,

Starting point is 00:04:06 and everyone today is discussing Jamie Diamond, obviously the CEO of J.P. Morgan Chase's recent tone. Bloomberg focused on his prediction that the market could continue to boom. quote, I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom. This boom could easily run into 2023. He suggests, unlike folks like Paul Tudor Jones, that instead of rapid inflation, we could see a Goldie-Lox moment, with fast and sustained growth with only gentle inflation. CoinDesk, as you might guess, was more interested in his comments on crypto. He called crypto regulation among his chief concerns,

Starting point is 00:04:49 saying, there are serious emerging issues that need to be dealt with and rather quickly. Among those, he listed the regulatory status of crypto alongside the growth of shadow banking, cybersecurity risks, and ethics around AI. Now, for my part, I would like to see all of these folks calling for crypto regulation to actually say what they think isn't regulated about crypto and how they think that should work, but I guess we're just going to get these vague statements instead. With that, however, let's move on to our main discussion, Bloomberg's latest bullish report. Bloomberg publishes a monthly crypto outlook and this month is called Rising Bitcoin Adoption Tide. For some context, these tend to be on the bullish side, but they always have real insights and real numbers backing them up.

Starting point is 00:05:34 I want to go through seven of the highlights that I noticed. The first comes in the form of a direct quote. Bitcoin fills the digital reserve asset need in a low-yield world. So this is something we've noted frequently here, but fund managers increasingly feel like they have to be involved in Bitcoin because of two things. First, the macro context which could lean into inflation, and which even if you're not sure of that, certainly is off on a monetary policy experiment,

Starting point is 00:06:03 the likes of which the world has never seen. And then, of course, the second part is the pressure, the pressure of peers, the pressure of more, the pressure of more and more legitimacy being conferred on this asset class. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR. Earn passive income with yields of up to 12%

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Starting point is 00:06:59 or visit multiple websites. Through beautifully designed desktop and mobile applications, Exodus users can secure, manage, and exchange their cryptocurrency in one easy-to-use wallet. With Exodus's non-custodial nature, nothing stands between you and your assets. Take control of your crypto and download Exodus today. Visit the App Store or Google Play to download or visit Exodus.com for more information. This Bloomberg report points out effectively that managers are increasingly in a position where even if they're not quite comfortable with Bitcoin,

Starting point is 00:07:34 they sort of have to be allocating at least something. The way that Bloomberg puts it is, quote, money managers reluctant to cross the Rubicon and allocate at least a small portion of funds may be at risk as Bitcoin simply does more of the same, advancing in price amid unprecedented low interest rates and elevated equities. There is so much packed into that statement you have the macro context, unprecedented low interest rates, elevated equities, these are things that people don't disagree with. And then on the other side, the notion proven over and over again that Bitcoin simply carries on. It continues to do what Bitcoin does, predictably and without the capacity for monetary policy change. In that alone, it stands out as a hedge as a differentiator against everything

Starting point is 00:08:18 going on on the higher macro level. This theme of Bitcoin filling the digital reserve asset need in a low yield world would run throughout the report. Next, the report notes that Bitcoin's support base has risen to $50,000. Now, this is obvious as we've been here for some time now, but I still think it's worth taking a moment to note how remarkable it is in context. At 50,000 as the new support base for Bitcoin, we're talking about a number that is more than two and a half times the great mental barrier of 20,000 that took us three full years to return to. This shift has happened in a matter of months and feels frankly incredibly strong. Speaking of numbers, if you want a big eye-popping number to associate with this report, look to their notion of Bitcoin at $400,000. Now, the report does

Starting point is 00:09:09 stop short of making an actual $400,000 Bitcoin price prediction for this year, but they point to 55x gains in 2013 and 15x gains in 2017 and suggest that if it were to reach price extreme similar to that, it would approach $400,000. So if you think it was just Plan B and the S2F model advocates calculating these big price predictions, here's Bloomberg giving at least some credence to numbers that high. Next up, let's talk gold. A lot of the report is looking at how rapidly Bitcoin is replacing gold. As they put it, quote, Bitcoin replacing Old Guard gold is more sudden than gradual. They discuss digital versus analog and why it gives Bitcoin an upper hand. They ask what's to stop Bitcoin from replacing gold. They discuss gold ETF holdings that have peaked with a velocity of

Starting point is 00:10:00 decline similar to the 28% price job in 2013 as compared to Bitcoin's gaining mainstream adoption. All total, they do not come out with a very favorable view of gold in the reserve asset slot as we move into a digital world. And in some ways, this is just so obvious. Digitally native generations are going to have different types of reserve assets, different types of hedge assets. And you better believe that increasingly they're also going to be digitally native. Next up, Bloomberg argues that the this is going to be the year of publicly traded crypto. So this is a note on another phenomenon we've looked at, the institutional adoption of these assets among publicly traded companies.

Starting point is 00:10:40 They also put some numbers around it, saying publicly traded cryptocurrency funds assets dominated by Bitcoin have surged to $60 billion as of March 25th from less than $10 billion in October. They also note that a U.S. Bitcoin ETF in the wake of a Canadian Bitcoin E-TF would potentially dramatically accelerate this shift. Now, I think the important part of their analysis is not just the numbers, although damn, $10 billion in October to $60 billion at the end of March. The key thing is the description. They note a key narrative shift.

Starting point is 00:11:12 Quote, it appears the narrative is tilted towards allocating a small portion of assets towards the cryptocurrency, i.e. Bitcoin, versus the risks of missing out on the potential for Bitcoin becoming the global benchmark digital asset. So this is a very significant shift. You're talking about a move from Chimath Palahapatia's 1% or 2% schmuck insurance allocation to the fomo of thinking that this could actually be, as they put it, the global benchmark digital asset. The fomo of missing out on the future global benchmark digital asset is a massively more powerful and more motivating force when it comes to a professional asset manager than this idea of a schmuck insurance hedge. I want to validate this narrative shift as well. I think increasingly you're going to see this not just as an inflation hedge narrative, not just as digital gold constrained by what gold used to represent, but by what the native currency of internet economies could really be and why Bitcoin makes so much sense in that role.

Starting point is 00:12:12 All right, two more notes from the report. The first is exchange outflows, and this is another phenomenon that we've talked about on this show. This is the idea that there is a pretty significant and clear trend move of Bitcoin off exchanges. Now, this tends to be a bullish signal because it means usually that Bitcoin is moving to cold storage, be it for retail or institutional investors. The inverse is also true. When Bitcoin moves back onto exchanges, it's usually because people are getting ready to sell. Now, one of the things that people keep doing in this new bull market cycle is that any time we see a pullback in price, some number of people say, oops, we're going bearish. Bloomberg just isn't buying it. They say that there are a few signs of Bitcoin holders

Starting point is 00:12:52 looking to sell, and that that was the major tell of the top in 2017. Lastly, Bitcoin wasn't all they talked about. There's actually a large discussion in this report of Tether. But importantly, it's not just about Tether per se. The frame of the discussion is digital dollars. Bloomberg argues that the dollar is dominating digital currency. They argue that Tether is currency to Bitcoin's digital gold, saying, quote, the fact that the market cap and volume of the world's top stable coin Tether have increased about 10x while under scrutiny from U.S. regulators, suggest acceptance of digital currencies, notably U.S. dollars. They argue that the presence and growth of Tether is, quote, organic adoption of the

Starting point is 00:13:33 world's reserve currency in the digital ecosystem. Something that I've said a lot is that in many ways it feels to me like the rise of digital dollar approximates like Tether and U.S.TC could absolutely do an end run around China's goal of undermining the dollar as the world's reserve currency with its new digital yuan. Remember, the point of the digital yuan is not just to have convenient surveillance money for its citizens, although that's certainly part of it. It's also to break out of the U.S.-led system that includes SWIFT that can be weaponized on behalf of the U.S., that economically benefits the U.S. in huge ways, and their mechanism of doing so is having a digitally native currency that's more easy to use, that's faster to settle, that's cheaper to settle, right? Basically,

Starting point is 00:14:16 the bet is that those conveniences of the digitally native money will overwhelm people not really wanting to mess with Chinese money. What happens then if you have a fully fledged good enough U.S. dollar approximate that functions just as natively and, in fact, has years more experience in the markets? It could be pretty devastating to China's plans, and it still makes me wonder if we won't see some amount of co-optation of existing digital dollar standards, maybe U.S.D.C. or something else like it, as part of a formal Fed-led U.S. digital dollar product. As I mentioned before, the Boston Fed and MIT are set to reveal some designs for potential

Starting point is 00:14:54 digital dollars coming this summer. Either way, I think this is a super interesting report. It captured a lot of the shifts that I'm seeing, that I'm feeling this narrative shift, like I said, of just a pure play digital dollar inflation hedge to something that's a much bigger story, missing out on the potential of a new digital reserve asset. It'll be interesting to see if and how that narrative consolidates over the months to come. For now, guys, I appreciate you listening. I hope you're having a great week. And until tomorrow, be safe and take care of each other.

Starting point is 00:15:24 Peace.

The Breakdown - $400,000 Bitcoin in 2021? The Best of Bloomberg's Latest Bullish Bitcoin Report

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