The Breakdown - Bitcoin at $318,000 Next December? One Citibank Exec Says It’s Possible

Episode Date: November 17, 2020

Today on the Brief:  Moderna trial success drives markets up New all-time high in negative-yielding debt Jay Clayton to leave SEC  Our main discussion: BTC $318,000 in December 2021? That’s the prediction of one Citibank exec in a report called “Bitcoin: 21st Century Gold” sent last week to institutional clients. In this episode, NLW breaks down the report, including the macro justification that sets the stage as well as the technical analysis that led to these numbers. Ultimately, he argues that what matters isn’t the report’s predictions, but the fact that its very existence suggests a shifting narrative for institutional buyers.   

For retail narratives, we look to Twitter. We look to these public social media spheres. But institutional narratives have different channels. They go in more quiet back channels, private emails, etc. Things like this, private reports from big banks to their clients. And if this is the way that they're talking about Bitcoin now, it could have pretty significant implications, especially coming up against liquidity pressures at the same time as corporate treasuries

are trying to scoop more. 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 CoinDest. What's going on, guys? It is Monday, November 16th, and today we have a bit of an interesting one. Bitcoin at $318,000 a coin in a year? One city is. bank exec says it's possible. Before we discuss that, however, let's do the brief.

First up on the brief today, another bullish vaccine headline. Moderna is reporting 94.5% effectiveness in early results. Now, this is the second vaccine to see higher than 90% effectiveness in early trials in the recent weeks after Pfizer made a similar announcement last week. Stocks, of course, jumped on the news because the only thing, up there with the Fed stimulus trade is the vaccine narrative trade. Although, interestingly, they're sort of opposite of one another. A vaccine coming down the pipeline makes it less likely that there's going to be the sort of political will that you need, especially across the aisle in the Republican side, to get more stimulus. That said, I think you're going to see this cycle

play out over and over again. Bullish news in a test, followed by a rally, followed by perhaps some cool off as we realize there's still a lot of time to go. And in the meantime, the number of COVID cases just continues to rise. Next up on the brief today, a new all-time high for global negative yielding debt. The amount of negative yielding bonds has been creeping higher over the past, call it decade or so, hitting a previous high of 17.04 trillion last year. It is now at 17.05 $0.5 trillion a new high. Now, to define this term, a negative yielding bond is basically a bond that is worth less at maturity than the original buying price. Why would you buy it then? You might ask astutely, and the point here is that it's safe theoretically, right? This is something that's a government

bond. It's theoretically the safest type of asset that someone could park their money in. In a world where everything looks chaotic, people may be willing to pay for the privilege of keeping their money more whole than they might by putting it in other types of assets. Of course, this is highly compelling for assets like Bitcoin. Joel Kruger, who's a strategist at Elmax Digital, said, the more central banks print money and push bond yields lower to contend with ongoing stress in the global economy, the more compelling the economics around Bitcoin become. This was echoed by Dan Tapiero on Twitter, who wrote, expect more liquidity injections from central banks. Short-term economic activity will slow again as caution returns. No view on COVID only on people's response to it.

Markets will be well supported with gold and Bitcoin continuing to benefit. Last up on the brief today, Jay Clayton is leaving the SEC. So Jay Clayton is the chairman of the SEC and he is stepping down at the end of the year. He was nominated by President Trump, although he is politically independent himself and has been in office for 3.5 years. This is a normal political process. People are making these types of decisions in advance of a likely change of presidential administration. However, for crypto people, this is something they're paying attention to probably more than anyone else, frankly. The SEC under Clayton has consistently and universally rejected a Bitcoin ETF. This is something that many people in the Bitcoin community have seen as a really important step for increasing institutional participation in the space.

Clayton has recently softened his stance somewhat expressing willingness around the idea of a tokenized ETF, expressing willingness around exploring tokenized stocks, but you can bet that people are going to wonder if this may open up a slot for someone who is more pro-Bitcoin, more pro-crypto. In fact, people are already paying a lot of attention to potential Biden appointees. Gary Gensler has joined Biden's transition team, and he, of course, is a former CFTC chair who has taught courses on Bitcoin and blockchain at MIT. The block called him, quote, one of the country's most serious thinkers on the future of payments. And so the fact that he is in there in the Biden transition could be telling of what we might expect under a Biden administration.

That, I think, deserves potentially a whole show at some point. So for now, let's shift to our main discussion, the idea, maybe outlandish at first, of Bitcoin at 318,000 in December 2021. So let's get into this report and no, I swear, as far as I can tell, this isn't secretly plan B. A Citibank analyst Tom Fitzpatrick wrote a report called Bitcoin 21st Century Gold. It was distributed via their city FX wire market commentary, which is a source that is intended for institutional clients only. And so to kick this off, I'm going to read the first two sections of the report, because I think it'll give you a flavor and a flare for where it heads better than I could just summarizing. The whole existence of Bitcoin has been characterized by unthinkable rallies followed by painful corrections, the type of pattern that sustains a long-term trend. The first major rally on this chart, as Bitcoin came into the mainstream, was the exponential move from 2010 into the 2011 high, followed by a double.

deep correction. This is interesting for two reasons. That surge, as it came into the mainstream, was very reminiscent of what happened with gold as it was allowed to float in the early 1970s, after 50 years of trading in the $20 to $35 range. That period with regard to the gold price was a structural change in the modern-day monetary regime, as it broke the Orthodox relationship between fiat currencies and gold, ushering in a world of fiscal indiscipline, deficits, and inflation. The Bitcoin move happened in the aftermath of the great financial crisis, which saw a new change in the monetary regime as we went to 0% interest rates negative in some countries and massive QE. Are we on the cusp of another such structural development? 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.

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Your passive income made simple. Get started at nexo.io. He then discusses a few things. First, he talks about the idea that, in his words, fiscal orthodoxy has gone out the window, and there's little, if any, room around the world for fiscal austerity. Discussing the Fed, he says that monetary policy is being reshaped in the most dramatic fashion since the floating of gold in the 1970s, even going so far as to say that it's being reshape more than in the introduction of QE. He argues that guidance from the Fed suggests, quote,

MMT an all but name and a clear intention of debasing fiat currency. He also mentions that this historically has been good for gold, but discusses Bitcoin's benefits over gold, including, as he puts it, Bitcoin moving easily across borders and ownership being opaque. The report then discusses central banks and central bank digital currencies, and I'm going to read that section in its entirety. Central banks are increasingly discussing digitization of currencies. This is a double-edged sword. On one side, it creates a much more effective mechanism for distributing stimulus, particularly fiscal, but on the other side it also makes capital confiscation easier, e.g. negative interest rates. Both these scenarios would look to me to be positive Bitcoin, and in the 21st century give us the

digital equivalent, Bitcoin versus Fiat Digital, of what we saw in the 20th century when the financial regime changed, gold versus fiat paper. In other words, he sees the introduction of central bank coins as creating even more of a raise on debt as the digital opposite. it for Bitcoin. From there, he goes on to do a bunch of charting and technical analysis, and ultimately he comes with this headline-grabbing paragraph. You look at price action being much more symmetrical over the past seven years or so, while still huge numbers, forming what looks like a very well-defined channel, giving us an up move of similar time frame to the last rally. Such an argument would suggest that this move could potentially peak in December 2021,

at the high of the channel, suggesting a move as high as $318,000. Improbable, though, this would seem it would only be a low-to-high rally of 102x, the weakest rally so far in percentage terms at a point where arguments in favor of Bitcoin could well be at their most persuasive ever. It's not hard to see why this got people's attention in the Bitcoin community, but what do we actually think about this? The first person to share this as far as I can tell was Alex at Classic Macro on Twitter, and he added two bits of context.

First, he said, for perspective, this analyst is a big fan of moon targets. Here's his earlier take on gold and silver from July a week after the breakout. And in those targets, he talked about gold at 4,000 to 8,000, and silver at 50. Gold is currently at 1887, and silver is currently at 2459. So those predictions haven't exactly panned out. Now, the second context that Alex added was this. Quote, this kind of technical analysis is of little value. There's no edge in guessing targets so far in time with TA.

All we know is that price is likely to continue going up and a lot. But readers love this. What matters here is Citi's clients being exposed to the Bitcoin moon. Others on Twitter reiterated this point. Larry Sirmack from the block pulled up a few months. more of these types of predictions that had come from this particular analysts. And we also need to keep in mind that this is a particular analyst's, an individual analyst's opinion. Now, it does have that city brand slapped on top of the note, so it's not that it's totally independent. However,

it doesn't mean that Citibank is now pushing to all their customers that they should be buying Bitcoin or anything like that. But I do think it's still an interesting note for a couple of reasons. This was not written for public consumption. It was written explicitly for an institutional investor audience. Now, on this show, we've spent the last few weeks discussing what is underpinning the recent Bitcoin price rally. Specifically, we've discussed how there hasn't really been a big retail push or crazy news headlines or anything like that, but there may have been some behind-the-scenes institutional pressure, or at least that's what we've wondered about.

There have been public statements. Druck and Miller getting on CNBC and talking about Bitcoin, Paul Tudor Jones coming out with his full-throated endorsement of it earlier in the year, as well as the idea that maybe there's new pressure from corporate treasury buying, right? Micro Strategy is picking up 38,000 Bitcoin. It's hard to actually get the type of liquidity that you would want as an institution when you have actors like that scooping, scooping, scooping. What's more on the show last week, we had Robbie Gutman of Nideg and Stone Ridge, who said that there had been a total 180 as more of these fiduciaries than ever were coming in over the last six months. If this is the type of analysis that all of a sudden those fiduciaries are getting,

it makes a lot of sense that there's been such a shift. In other words, for retail narratives, we look to Twitter, we look to these public social media spheres, but institutional narratives have different channels. They go in more quiet back channels, private emails, etc. things like this, private reports from big banks to their clients. And if this is the way that they're talking about Bitcoin now, it could have pretty significant implications, especially coming up against liquidity pressures

at the same time as corporate treasuries are trying to scoop more. There's a concept that I'm starting to see articulated called Hoddle FOMO, which is different from speculator FOMO, and I think it's worth exploring in a full episode, so look for that either tomorrow or sometime this week. For now, however, enjoy that big green candle, and we'll talk soon. So until tomorrow, guys, be safe and take care of each other. Peace.