The Breakdown - A Bitcoin Shortage? PayPal and Cash App Buying More Than 100% of New Supply

Episode Date: November 24, 2020

Today on the Brief: AstraZeneca and University of Oxford release third positive COVID-19 vaccine trial data Trump administration ratchets up pressure on China Another DCEP lottery trial coming Our main discussion: a narrative shift, growing attention and a bitcoin shortage. What happens when demand exceeds supply and supply is being gobbled up aggressively by new market actors? That’s the question posed by Pantera’s recent investor letter and today’s Breakdown episode. NLW also looks at: The reappearance of bitcoin (BTC, +1.08%) in mainstream media, like today’s Wall Street Journal The rise of celebrities coming out as HODLers BlackRock’s CIO suggests bitcoin could replace gold for many

Here is the key quote from Pantera's newsletter. The increase in Itbit volume implies that within four weeks of going live, PayPal is already buying almost 70% of the new supply of Bitcoins. Together, PayPal and Cash App are already buying more than 100% of all newly issued Bitcoins. So where would Cash App get their coins? That's where the finite supply inelasticity part comes in, at a higher price. 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 CoinDesk. What's going on, guys? It is Monday, November 23rd, and today we are talking about a Bitcoin shortage, PayPal and cash app combined, buying more than 100% of newly issued bitcoins, what does that mean? First, however, let's do the brief. First upon the brief today, a new positive vaccine trial, this time from AstraZeneca and the University of Oxford. This is the latest and third in a row positive vaccine trial. This one was slightly less effective than Pfizer and Moderna. It prevented 70% of participants from falling ill, although effectiveness rose to 90% in one of the regiments that was tested. This trial was held

in the UK and Brazil, and there is now a larger trial starting in the U.S. Before we get too focused on the actual numbers of prevented infections, however, it's important to note other benefits over the Pfizer and Moderna trials. This vaccine can be kept at regular refrigerator temperatures, whereas the mRNA tech of Pfizer and Moderna requires freezing. This means, of course, that AstraZeneca's could be easier to deploy around the world, especially in developing countries. It also makes it cheaper. Being able to have a solution that's viable for the whole world, of course, strikes me as super important. Now, interestingly, Astrozenica was down 2.2% initially on the news, I guess because the trial results weren't as high as the 90, 95% numbers of prevented infections that we

heard from Pfizer and Moderna. Still, the Dow as a whole rose 100 points, and the dollar hit a two and a half year low. Rodrigo Catrill, a currency strategist at National Australia Bank, said, The Vaccine News is favoring the view of a sooner rather than later global economic recovery with the USDA losing its safe haven appeal along the way. This is a risk-positive backdrop, especially with the Fed likely to remain ultra-doubish for some time. Next up on the brief today, interesting machinations in the China-U-S tit-for-tat battle. There are going to be some weird times in this, in-between period between administrations. Trump administration officials are pushing during that period

for new hardline measures against Beijing. So the Wall Street Journal puts it like this. They're trying to build, quote, an informal alliance of Western nations to jointly retaliate when China uses trading power to coerce countries. This was inspired by China's economic pressure on Australia after that country called for an investigation on the origins of COVID-19. China restricted beef, barley, and wine imports from Australia, and it seemed to many to be a signal or an attempt to signal to U.S. allies, with Australia basically being made an example of. Said one senior official in the Trump administration, China is trying to beat countries into submission by egregious economic coercion. The West needs to create a system of absorbing collectively the economic punishment from China's

coercive diplomacy and offset the cost. So under this quote-unquote joint retaliation plan, the idea would be that if China does boycott and import, the nations who are a part of this alliance would agree to purchase those goods that were going to be or theoretically allocated to China. Alternatively, the group could also try to put their own tariffs on China that would make up for the lost trade. Now, in addition to this move, according to Reuters, the Trump administration has also drafted a new list of 89 Chinese firms with alleged military ties. It wants to restrict them from buying a range of different U.S. goods and technology. So in question here is the definition of military end user, which is a designation that means U.S. suppliers have to get specific licenses

to sell commercially available things to them. In general, those applications are denied, and theoretically it might no longer include simply armed services and national police, but anyone who contributes to the production or maintenance of military items, even if it's not their primary business. This could prevent the sale of everything from word processing to aircraft parts. The most surprising inclusion to many was Comac, the commercial aircraft corporation of China, which is spearheading Chinese efforts to compete with Boeing and Airbus. Comac has contracts with GE and Honeywell, so it shows just how integrated these players are into the existing corporate structure. And speaking of China, our third topic on the brief today is another lottery trial.

of China's digital currency. In October, Shenjin held a trial that allowed residents to apply for a 200 yuan share of 10 million of the new DeSep, which is about $1.5 million worth in total. December 12th, there is a shopping festival known as Double 12 in China, and Shu Zhao will trial some new elements, including the digital yuan's offline feature that allows smart devices to make transfers. I think it's worth keeping up on this digital currency as it's likely to be one of the biggest topics of discussion in the coming year. And before we know it, because of China's heavy push,

it simply will be a fact of life there. 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% cash back instantly on all purchases. Reserve yours in the crypto.com app today. Many investors want to be a part of the next bull run. Others seek to build their dream home, finally launch that startup or fund their education.

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shortage of Bitcoin. Bitcoin is back in mainstream media. It's back in the Wall Street Journal this morning. Bitcoin traders, again near record, driven by a new group of buyers. Cryptocurrency attracts billionaires Paul Tudor Jones and Stanley Drucken Miller plus momentum investors. Now, this article is a new narrative in perfect order. It talks about the fixed supply inflation resistance idea. It talks about mainstream platforms like PayPal and cash app, adding crypto support, adding Bitcoin support. It talks about a new class of interested influencers coming in.

Specifically, it talks about Greg Giannati of Boomer and Geo, a morning sports talk radio that has had a lot of success and a lot of reception to discussing Bitcoin over the last month. But it also discusses an argument from Pantara's recent investor note that suggests there could be some pretty significant pressure on supply in the months to come. This is a quote from the Wall Street Journal article. Despite the recent growth, the Bitcoin market is tiny compared with other assets, which contributes to its volatility. Pantara estimates that trading volumes on PayPal and on Squarespace cash app alone would exceed the amount of new Bitcoin being created daily. With hedge funds and other professionals also buying, supply will become even more constrained,

according to Pantera Capital's Mr. Moorhead. The only way supply and demand equilibuates is at a higher price, he said. So we're going to come back to that in just a minute, but I want to point out a couple more bullish things first. One article that was getting some notice on Twitter is that Sean Lennon, the son of John Lennon and Yoko Ono, was on the Orange Pill podcast with Matt. and Stacey, if you haven't heard that podcast yet, go check it out. But anyways, he said things like Bitcoin empowers people in a way they've never been empowered before. Quote, if they had gold,

they would have to carry it in a sack and someone could steal that from them. In an ocean of destruction that was this year, I find Bitcoin to give me a kind of optimism, to be honest. Now, I pointed out on Twitter, although people were asking, and I think it's good to have skepticism of the sort of celebrityification of Bitcoin. People were asking, why should we care? And the only thing that I wanted to point out is that if you zoom back to the ICO boom, right, of 2017 and early 2018, when you had well-known people getting involved in the space, it was not discussing self-sovereignty and empowerment through Bitcoin. It wasn't talking about confiscation of assets and gold in a sack. It was shilling some ICO that they were the face of. This is a lot. This

is a very different type of engagement and something that I find much, much more optimistic. But of course, the random celebrity here or there musician doesn't make a difference the way that financial professionals do, and we had another one of them come up this weekend as well. Rick Reeder is the CIO of Fixed Income at BlackRock, which is an $8 trillion asset manager, and said that Bitcoin is here to stay, even going so far as to saying that it could take the place of gold to a large extent. Let's actually just listen to that clip because obviously he'll say it better than I can. Listen, I think cryptocurrency is here to stay.

And I think it is a durable, and you've seen the central banks that have talked about digital currencies. I think digital currency and the receptivity, particularly millennials' receptivity of technology and cryptocurrency is real. Digital payment systems is real. So I think Bitcoin is here to stay. I think, you know, am I a Bitcoin bull? I mean, I don't do a lot of it or actually any of it in my point. portfolios, my corporate portfolios, my business portfolios. But do I think it is probably, you know, it's hard to say, is it worth the price it's trading

at today? But do I think it's a durable mechanism that, you know, do I think will take the place of gold to a large extent? Yeah, I do, because it's so much more functional than passing a bar of gold around. I want to round out this episode, however, going back to that argument from Pantera that showed up in the Wall Street Journal piece. the idea that demand from PayPal and Cash App alone would be more Bitcoin than was being minted. In Pantera's October newsletter, they discussed that after 30 months in operation,

Square's Cash App was estimated to already be buying around 40% of all newly issued Bitcoin. Now, in this November newsletter, they talked about PayPal. PayPal currently has something like 3x the number of global users as there are estimated Bitcoin holders. And to get a sense of how much demand there is for the PayPal offering, we can look at the infrastructure provider they're working with in Paxos. Paxos Itbit Exchange has had a very consistent trading volume looking back across the course of the year. That is until PayPal went live and volume exploded. Here is the key quote from Pantera's newsletter. The increase in Itbit volume implies that within four weeks of going live, PayPal is already buying almost 70% of the

new supply of Bitcoins. Together, PayPal and Cash App are already buying more than 100% of all newly issued Bitcoins. So where would Cash App get their coins? That's where the finite supply inelasticity part comes in, at a higher price. So you have these two sources of retail buying that are new or newish on the market, creating a huge pull on supply. Put on top of this grayscale's Bitcoin Trust, which has been growing like a weed. Put on top of this other hedge funds and other quiet financial actors who are also trying to accumulate. Put on top of this accumulation by any corporate treasuries who are seeing the Michael Saylor model and trying to get exposure. And keep in mind, it doesn't take many to have a huge impact when we're talking about such small relative numbers.

All of this comes back to Vijay Boyapati's thesis from last week on this show that there are, in fact, very few bitcoins available to institutional buyers under 20,000. Take it together and it feels like an undeniable source of demand that is likely to keep pushing the price of Bitcoin up. This is not retail speculation. This is a simple supply and demand curve that is going to go in exactly one direction. Anyways, guys, I thought this was an interesting argument and certainly some notable numbers that were worth looking at in a little bit more depth. But for now, I appreciate you listening. I hope you're getting set for a great week. And until tomorrow, be safe and take care of each other. Peace.