The Breakdown - Can Bitcoin Just Keep Going Up?

Starting point is 00:00:00 A short thread from Raul Paul, he writes, while everyone seems to celebrate every single new Bitcoin high, let me remind you of where we're going. Nothing is a law of nature, but the log regression trend since inception makes sense to me contextually. I think the risk is people undershoot in their price targets. Welcome back to the breakdown with me, NLW.

Starting point is 00:00:23 It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexor.io and stacks2.com and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, January 7th, and today, my goodness, we're talking Bitcoin. We're asking the question that I think everyone is asking, can Bitcoin just keep going up? First, however, let's do the brief. And I am going to keep the brief, because my goodness, as Meltem put it, Bitcoin has no chill. First on the brief, new bans on Chinese apps.

Starting point is 00:01:05 I've been tracking the ongoing tension between the U.S. and China, and on Tuesday, President Trump signed an executive order banning the Alipay payment platform and seven other apps. Apparently, U.S. officials are also considering banning U.S. citizens from investing in Alibaba and 10 cents. There is also within China tension happening right now between the government and major companies. The IPO of Ant Group was suspended by Chinese regulators, and Jack Ma has barely been heard from since then. It is seen widely as an issue relating to China's forthcoming CBDC, and this is just going to get more interesting. Next on the brief, let's check back in with jobless claims.

Starting point is 00:01:47 They are holding almost exactly the same as last week at 787,000, holding at about 4x pre-pandemic levels. Even as this vaccine rolls out, there continues to be extremely uneven recovery, which could have some major implications for stratifying society later on. Last up, speaking of which, we have a new world's richest man, Elon Musk. Tesla was up 4.8% driving Elon's net worth to 188.5 billion, which is about 1.5 billion more than Jeff Bezos. Elon's net worth has grown 150 billion in the last 12. months, which is absolutely insane. Musk for his part tweeted, how strange? Well, back to work.

Starting point is 00:02:32 Think what you will of Elon. I do like the idea of the world's richest man being someone who's trying to build such huge, crazy, mind-boggling technology. So make of that what you will. With that, let's get to our main discussion. Can Bitcoin just keep going up? First, let's talk about what's happening. Yesterday was one of the craziest days in American history. I hardly need to describe this to you as the whole world was watching. On the show, I talked about the implications of the Democrats' victory in Georgia and a democratically controlled Senate. And meanwhile, despite or perhaps because of the political chaos, Bitcoin just kept surging. In fact, crypto as a whole hit a trillion dollar market cap for the first time.

Starting point is 00:03:18 Now, I think it will be an even bigger deal when Bitcoin specifically hits a trillion, but this is still a huge marker, especially for institutions that have been on the sidelines, waiting for more maturity in the asset class. And frankly, it's well on its way. Bitcoin just keeps rallying. In fact, at this point, Crypto-Twitter is pretty much just people posting the latest number that has been breached, and it's happening so fast that the algos are sometimes showing numbers in the feed that are entirely out of date. You can also tell that 40,000 is a big one for the mainstream. I'm seeing tons of journalists and publications reaching out asking crypto industry folks for commentary. The TV circuit is warming up. I'm not sure why it took to 40,000 for this to happen, but it's

Starting point is 00:04:00 absolutely happening. But next, however, let's talk about the theories on why it's happening. First theory, the everything rally. Stocks are also up this morning. S&P 500 is up nearly 1.5%. Nasdaq was up 2.4%. Tesla, as I mentioned, was up 4.8% making Elon the world's richest man. And the question is, why in this context? Is it just about market security? Joe Wisenthal tweeted, obviously the Democrats have a substantial left faction, but the stereotype of them being bad for the stock market feels very dated, maybe because it's never been born out in reality, but also because there's so much corporate slash dem crossover now. Basically, that old theory is based on taxes, right? The idea that Democrats will increase taxes, which is absolutely true,

Starting point is 00:04:44 but the question is how much that actually impacts stock prices. Taxes have become come, at least in the popular narrative, very, very secondary to spending in terms of the business environment, especially when it comes to stock price. Christopher Smart, the chief global strategist at Bering said, the expectation is now we've avoided a gridlock and more fiscal support will be available to the economy through this coming year rather than less. So the idea here is that what we're seeing in traditional markets is a reaction to the end of the Georgia runoffs and Democrats assuming control of the Senate. Now, this gets us to the second point I want to talk about the larger macro setup. Dems are pushing hard to get $2,000 stimulus checks on the agenda right away.

Starting point is 00:05:30 Now, direct stimulus in this form has the potential to more significantly increase the velocity of money than does some of the types of QE that we've seen over the course of the last year. Basically, the closer to the consumer the money actually is, the more the consumers spend that money, the more the velocity of money increases, the more that an increase in the supply of money potentially leads to inflation. Travis Kling tweeted, inverse Bitcoin to money supply chart honestly looks like an exit scam out of dollars into Bitcoin, which makes sense because that's exactly what's happening. Also serves as a reminder that we're really just getting warmed up this cycle. Now, it is not Travis alone that has adopted that narrative. And for many, the clearest

Starting point is 00:06:11 reason that we're seeing such gains in Bitcoin right now is the introduction of institutions to the space. This is something we've obviously talked about a lot, but I want to reinforce one point. The institutional source of demand is likely much, much more significant than what we see above the surface. Obviously, everyone knows about mass mutuals $100 million investment. We did a whole show about it. But my sources suggest that at least three other insurance firms have made similar-sized Bitcoin purchases. If this is reflected in other categories of buying, such as corporate treasuries, etc., I think that we could see a lot more activity revealed over the coming months. There's also this $1 trillion market cap which unlocks a new set of buyers. Jack Purdy from Masari said,

Starting point is 00:06:58 the $1 trillion marks cemented cryptocurrency as an investable asset class that no longer sits on the fringes of traditional finance as a toy for retail investors. It demonstrates that this asset class is large enough to absorb large orders like we've seen recently with the slew of institutions entering over the last few months. A few more indicators of just the growing size of institutional demand. Grayscale is up to 21.1 billion assets under management. That's 10x from where they were last year at this time, which is just insane. The CME saw 2.1 billion of open interest in Bitcoin futures yesterday, which is a record for them. There was speculation earlier this week that institutions were front running the OCC news about banks now being able to use blockchain infrastructure,

Starting point is 00:07:43 and perhaps that has continued throughout this week. 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 12% compounding

Starting point is 00:08:10 interest paid out daily on your crypto and fiat. Your passive income made simple. Get started at nexo.io. Hey guys, this week we've got a special product launch sponsor. Apps and smart contracts are coming to Bitcoin, along with a brand new way to earn BTC. Stax 2.0 will give developers powerful new tools, including a smart contract language called clarity that was made for Bitcoin and jointly developed with Algarand, as well as a new consensus mechanism that rewards the network with both Stax Tocons. and Bitcoin. Stacks, which you may recognize as Blockstack, unlocks new use cases and functionality for the world's most secure blockchain, Bitcoin, without modifying Bitcoin itself. The door for developers and entrepreneurs to activate the billions of dollars of capital currently passively held

Starting point is 00:08:54 on Bitcoin is now wide open. For more information and to register for the Stacks 2.0 launch event, visit Stacks2.com. That's Stacks followed by the number 2.com. What about Asia? Asia had been providing some amount of cell pressure, if you remember, we woke up Monday on the east coast of the U.S. to a Bitcoin price that had dipped significantly. It seems now potentially to be shifting. Airy Paul tweeted, the long-running trend of Asia hours being bearish may be broken as South Korea seems to have finally caught a major bid yesterday and continuing into tonight. What about retail? Obviously, we've covered a lot on this show how this rally has been driven so much by institutions, but it does seem like retail is starting to FOMO

Starting point is 00:09:42 in a little bit. Google Trends Search for Bitcoin is at 69 on the 100-point scale they use. Basically, the all-time high for a trend search is pegged at 100, and then everything else is pegged against that. And we're seeing a real surge and increase in people who are Googling Bitcoin. Ethereum, meanwhile, hit a new all-time high in search interest, and Coinbase is now trending on Twitter as I'm recording this. Ultimately, though, the simplest explanation is really just supply and demand. Will McCormick from OKCoin tweeted, growing so quickly has breached a lot of the sell orders and cleared the way. Traders were making money on the margins prior, and now everyone is hoddling, so demand is far outstripping those wanting to sell. Basically, right now, there are simply no sellers and whole new

Starting point is 00:10:30 categories of buyers coming in. Finally, let's get back to the major question of this show, whether it can just keep going up. There have been tons of tweets to the effect of, we really need a pullback, we really need a reset. I wouldn't be surprised to see a 10, 20, even 30% retracement. And what's more, there's a ton of searching happening right now around the term, will Bitcoin crash in 2021? So clearly some of that retail interest is trying to see if this can continue. They're skeptical, and rightly so, it's grown so fast, basically $10,000 in the first seven days of the year. There's also some focus in Twitter at least on the idea of traders potentially getting ready to rotate into altcoins. This is how CoinDesk put it. The spread between the sixth month implied volatility for

Starting point is 00:11:18 ether and Bitcoin, a measure of the expected relative price volatility between the two, has risen to a record high of 46, according to data provider skew. Widening of the spreads indicates the market expects ether and other alternative coins to chart bigger percentage moves than Bitcoin in the near term. Skew CEO Emmanuel Go said traders are expecting increased volatility for ether relative to Bitcoin. This is consistent with decreasing correlation and a pickup in interest across alternative cryptocurrencies. But as you guys know, the point of my question is much less about will there be some shift into alt in the short term and much more about the longer term trajectory over the course of 2021 of Bitcoin at these new rarefied prices. For that, I think instead of just looking at the

Starting point is 00:12:03 Twitter conversation, we should look at what people are actually doing. For that, a research report from the block offers something really interesting. Frank Chaparro tweeted, trading desks are staffing up in anticipation of a prolonged Bitcoin bull run. Some nuggets. B2C2 had a record volume day on January 4th, trading $1.4 billion, plans to grow team to 70. Genesis plans to triple its headcount. Galaxy is taking on a summer analyst class. The point is that they anticipate more of this happening, more demand from institutions, more of these macro tailwinds pushing people into Bitcoin. Why would they anticipate this? Institutions have a fundamentally different type of investor profile. Sure, it takes them longer to get in, but it also means they're less likely

Starting point is 00:12:50 to move away quickly. The institutions are finally here, and that I think is the biggest factor. As we said, though, retail hasn't even really fomoed in yet, so we don't know that increased demand, and they have more tools than ever before to do so, i.e. PayPal, if they want to. The key point that I want to make is that just because the price is more than it was, doesn't mean it isn't still undervalued. Let's go back to the Bitcoin valuation frameworks that VJ Boyapati shared on this show. Bitcoin is still a fraction of the market cap of gold, despite doing the same thing in terms of providing scarcity, but also doing so much more. If you look at that even as your base case, just digital gold, just capturing the investment that gold has,

Starting point is 00:13:35 there is clearly so much more room to run. Now, I want to close with a short thread from Raul Paul, who kind of took this in the opposite direction and actually wondered if we're potentially undershooting our price targets. He writes, while everyone seems to celebrate every single new Bitcoin high, let me remind you of where we're going. Nothing is a law of nature, but the log regress and trend since inception makes sense to me contextually. I think the risk is people undershoot in their price targets. The having runs tend to get between one and two standard deviations overbought versus trend, and it occurs usually around 18 months. This would give a rough price target between 400K and 1.2 million by the end of 2021, not an exact science, but context.

Starting point is 00:14:21 It also always climbs a wall of fear. In 2017, it was forks. They threw me off the trend back then. This time it feels like regulation and tether stable coins will create a wall of fear that the market climbs, throwing weak hands off. At every point, people will tell you it's insanity, it's due a correction, it's overbought, bad news is about to come out. And they are right, but the Bitcoin's supermassive black hole doesn't care. It is going from here to somewhere up there and how it gets there is irrelevant. But we can guess how long it takes to get there, and that makes it hugely attractive as we have a decent probabilistic outcome from both price and time. It's just path we don't know. I still don't own enough. And man, how many of us are feeling that right now? I tweeted earlier,

Starting point is 00:15:07 pour one out for all the friends and family who said, I just want to wait for one more dip to buy because, whew, the next dip is at a very different place than the last one is. So can Bitcoin just keep going up, logic dictates that at some point there has to be a pullback. However, I think the point that I'm trying to make on this show is two things. One, there are a huge number of very clear explanatory factors driving this, and although it's happening very quickly, I think in larger context, it makes sense. The second part is, by any expectation of what the total value of Bitcoin should be, it's still undervalued. So as Matt Odell would say, stay humble, stack sats, and until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - Can Bitcoin Just Keep Going Up?

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.