The Breakdown - Bitcoin Is Now a Trillion-Dollar Asset: Where Do We Go From Here?

Starting point is 00:00:00 Institutional Bitcoin buying in 2021 is an iceberg. We've seen how big the part that's above the surface is, but we haven't seen how many things are going on just below. A trillion dollar market size not only incentivizes new people to join up with that iceberg, it also creates a lot of momentum for the people who have been keeping what they've been doing out of plain view to lend their voice to this momentum. Welcome back to the breakdown with me and LW. 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 produced and distributed by CoinDesk. Well, damn it. It is Friday, February 19th at 1149 a.m. I just finished today's podcast episode.

Starting point is 00:00:52 It's a ripper about the GameStop hearing yesterday and why it shows how much we need a new financial system. I was sitting here getting ready to push that out. out when all of a sudden Bitcoin did Bitcoin things and surged up to a trillion dollars in total market cap. So here I am. We're switching it. That GameStop Roaring Kitty episode will be tomorrow. That will be the weekly recap. And now we have got to talk about Bitcoin as a trillion dollar asset and ask the question, where do we go from here? There is so much to cover. So let's just dive right in. And first of all, let's not bury the lead. Just a few minutes. ago, Bitcoin surged above $54,000, which is cool because that's a lot of money when we started

Starting point is 00:01:38 the year under $30,000 per coin. But it turns out that's not actually the big thing. The big thing was that when Bitcoin crossed a threshold around $53,700, it became a trillion dollar asset. Now, the first question around that is, how much is Bitcoin being a trillion dollar asset, a fun psychological barrier versus something that will have a meaningful impact on the industry. You guys know my take that psychological barriers always matter and that I don't think we should dismiss them, although I will say that the speed, with which we've been blowing through them recently, does sort of take the edge off of that a little bit. Still, when it comes to $1 trillion, the psychology that matters isn't that of individuals. It's about institutions. It's

Starting point is 00:02:23 investment committees at big corporates, endowments, pensions, insurance, general accounts. There are so many of these institutions where a few things have been true simultaneously. First, there are longstanding advocates inside, employees, teams, members of investment committees who have been on the Bitcoin train for a while and trying to convert their colleagues and peers. Second, there are allies, if not advocates, who are open to Bitcoin and potentially getting more interested as the price grows. But three, the third thing that is simultaneously true is that the Bitcoin industry simply hasn't been of a size where they could realistically allocate at the level that they needed to. Here's how Travis Kling put that on November 20th of last year. He tweeted,

Starting point is 00:03:12 Friendly reminder, there is an entire class of institutional capital that can't buy Bitcoin before it hits $1 trillion market cap because it's just too small. These investors are largely price agnostic. They don't market time they allocate. A $1 trillion dollar Bitcoin market cap means that these institutions are now in play. There is then, as you would imagine, a ton of triumphant tweeting going on. Bloomberg anchor John Erlickman wrote, Time to reach $1 trillion market cap. Bitcoin, 12 years, Google, 21 years, Amazon, 24 years, Apple, 42 years, Microsoft 44 years. VJ Boyapati tweeted, Bitcoin is a $1 trillion market capitalization. It has reached geopolitical significance.

Starting point is 00:04:01 Mark Moss echoed this saying Bitcoin has reached escape velocity. With a $1 trillion market cap and the fragility of the economy and markets now make Bitcoin too big to fail. A government move to shut down would be too much of a shock to the levered financial system. Buckle up. By the way, if you're interested in this aspect of the discussion, please come back and listen to Long Read Sunday. it's going to be a discussion of whether the Fed should buy Bitcoin. There's also a lot of rational understanding of where this move is coming from. BlackRock earlier this week, who are, again, I will remind you, the world's largest institutional asset manager. Their CEO, Rick Reeder, got on TV and said that they were dabbling with Bitcoin, whatever that means. In Canada,

Starting point is 00:04:42 North America's first Bitcoin ETF started trading, and boy did it trade. It traded somewhere near $200 million of shares in its first day, which for some context is about 10 times the average volume of a new ETF and would be a top five ETF debut all time in the U.S. It was the 17th most active stock on the Toronto Stock Exchange, and a second Canadian Bitcoin ETF begins trading 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. Try NXO's instant crypto credit lines and borrow against any major cryptocurrency with no minimum or maximum withdrawal amounts, no fees whatsoever, no credit checks, and flexible repayment.

Starting point is 00:05:32 Not to mention the APR starts at just 5.9%. Stay on top of your investment game with nexo.io. And remember, it's your crypto, your credit, your choice. Get started at nexo.io. Meanwhile, back in the U.S., remember that $600 million debt offering that MicroStrategy introduced? Well, it was just completed and it ended up being $1.05 billion in total instead. Over in the UK, the trading firm BCB launched a Bitcoin treasury service for crypto-cfos. BCB Group partner Ben Sebly said this.

Starting point is 00:06:07 Last year after Micro Strategy, we started getting some interesting introductions on the quiet from average FTSE-type firms that are not into crypto, not even into trading. Since Tesla, it's gone bananas. Here's another quote from the CoinDesk article about this. Without naming any names, Sebly said BCB's early conversations about Bitcoin were mainly involving U.S. FinTech firms. In the last month, this has spread to Europe and now includes mid-sized and large-cap companies of every stripe, including import-export businesses, Middle Eastern businesses, and also very

Starting point is 00:06:37 high net worth individuals. Bitcoin is even hitting the mainstream media. The title of the most recent Wall Street Journal heard on the street piece is Bitcoin is hitting record highs, why it's not too late to dig for digital gold. And here's a key quote. Many investors may justifiably feel that buying Bitcoin or other tokens directly as a way to tap into this momentum is too speculative or volatile. But it may be time for even the crypto-agnostic to start thinking about getting exposure to the emerging ecosystem around Bitcoin and other digital assets. Not necessarily for the value of those assets themselves, but how finance

Starting point is 00:07:12 and banking might evolve because of them. All in all, there is a storm swirling around Bitcoin that is driving these prices up and keeping this narrative incredibly hot. So the question becomes, where do we go from here? First, the bear side. There are going to be firms that are just too uncomfortable with the speed of this thing. And that could be exacerbated by the fact that other totally non-Bitcoin crypto things are intruding kind of fast. Just by way of example, Gene Simmons is on Twitter, Schilling Cardano right now,

Starting point is 00:07:44 on the basis of people not being able to buy a whole Bitcoin, which is a classic misunderstanding that harkens right back to 2017. Last night, the Kool-Aid man, yes, the brand mascot Kool-Aid man, was talking about NFTs on Clubhouse, courtesy of Gary Vaynerchuk, which is enough to make just about anyone nervous. More than that, however, there may be some firms who have put money into Bitcoin that actually have fiduciary rules about taking profits when things move up this fast. A bigger bear factor that I anticipate, however, comes from,

Starting point is 00:08:17 from the market research firms. Now, these are businesses. They are in the business of selling their knowledge, their insight, et cetera. And what that means is that they always want to have at least some degree of non-conventional wisdom so that they look smart and, by extension, important. And while I wouldn't go so far as to say that these firms never have conviction behind what they research or write, they are ultimately businesses who are operating in the context of market cycle. So I expect that we're going to see some deep fud reports in the next few weeks. When that happens, remember that the purpose of these reports isn't actually to fud Bitcoin. It's to sound smart because right now everyone likes Bitcoin. This is the way. This is the cycle.

Starting point is 00:08:59 Speaking of which, J.P. Morgan put out an 86-pager today with a lot of focus on Tether. The Coin Desk headline about the piece is a sudden loss of faith in Tether would pose risk to Bitcoin, J.P. Morgan says, quote, if any issues arise that could affect the willingness or ability of both domestic and foreign investors to use USDT, the most likely result will be a severe liquidity shock to the broader cryptocurrency market. This is just the beginning, unfortunately, get ready for another Boil the Oceans report, get ready for ownership concentration, get ready for China mining. I would expect to see a whole wave of these, and I think you just have to read them in the context of what they are, advertisements for a research business. However, all of that said,

Starting point is 00:09:44 On the flip side, it's very hard for me to imagine that this doesn't create even more of a dense Bitcoin black hole, sucking in and absorbing an ever-growing part of the traditional financial world. I will go on record right now and say that I think there are probably a half-dozen firms at least racing with their PR firms and their compliance divisions to see how fast they can announce their Bitcoin positions to capitalize on this momentum. I bet we see at least one or two this weekend and certainly by Monday or Tuesday of next week. Institutional Bitcoin buying in 2021 is an iceberg. We've seen how big the part that's above the surface is, but we haven't seen how many things are going on just below.

Starting point is 00:10:30 A trillion dollar market size not only incentivizes new people to join up with that iceberg. It also creates a lot of momentum for the people who have been keeping what they've been doing out of plain view to lend their voice to this momentum. So with that, happy Friday, get yourself some laser eyes on Twitter, and let's see who the next company to announce a Bitcoin position will be. Hope you're headed to a great weekend, guys. Appreciate you listening as always. Until tomorrow, be safe and take care of each other.

Starting point is 00:11:00 Peace.

The Breakdown - Bitcoin Is Now a Trillion-Dollar Asset: Where Do We Go From Here?

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