The Breakdown - Crypto Daily 3@3 - 8.6 | China, Stonks and Safe Havens

Episode Date: August 6, 2019

First Trump threatened tariffs. Then China devalued the Yuan. Then Trump declared China to be currency manipulators. Then stonks went down while orange coin went up. Then everyone asked: "is Bitcoin the new safe haven asset?" For the last two days, this has been the conversation. It is a culmination of months of convergence between the Bitcoin hedge narrative and the global macro paradigm shift narrative. This special edition of 3@3 goes deep on what happened and why it matters.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another Crypto Daily 3 at 3. So today we have a little bit of a special edition as well. For the last two days, I think really since Sunday night, pretty much the whole crypto community has been talking about China, Stonks, and BTC. And so we're going to dig in a little bit more overarchingly, I guess, about that. So we'll be back hopefully tomorrow to three different topics. But I think that this is such an important moment that intersects so many different. narratives that I wanted to dig into it a little bit more.

So let's kick off with what actually happened. So the yuan China's currency was devalued on Monday, I guess, or Sunday night, Monday after threats from Donald Trump around more tariffs against the Chinese. So he basically Trump threatened another imposing a 10% tariff on $300 billion worth of Chinese goods, effectively making it so that all Chinese imports to the U.S. had new duties on them, right? And so in response, the PBOC, the Central Bank of China, which, by the way, is not independent, devalued the U.M, the Chinese currency. And so it went below a kind of an exchange rate of seven to the dollar for the first time since 2008. And that obviously,

triggered response to. So we can see over here, Arbbed out, I don't know what we're yelling about. Again, this is my point is that this was all everyone was talking about yesterday. Then never mind, figured it out, Treasury designates China as a currency manipulator. So Secretary Mnuchin announced basically that the Trump administration was labeling China as a currency manipulator and would be pursuing action consequently. So this is the first time in 25 years that that that designation has happened. And obviously, this is kind of larger, larger indications of an escalating trade war. Sue points out the irony of labeling China, a currency manipulator, of course, is that China has

actually been defending it the other way, i.e. propping it up to avoid capital flight for five years now. The People's Bank of China does nothing. This is what it would look like. And so he's making the point that there's kind of an irony or hypocrisy almost of, you know, when we like the direction of that manipulation, we're not going to label them a currency manipulator, but when it's going the other direction, not so much. Now, this brings up, you know, brought up a ton of conversation. So one was, again, the independence of federal, of central banks, right? So you can

see CNBC quoted or wrote this article, all living formal Fed chairs call for independent Fed in Wall Street Journal op-ed. Pierre-Richard, the Fed is not independent. Bitcoin. is independent. So again, this is kind of an intersecting narrative. So on the one hand, you have the Chinese central bank, which is explicitly not independent, comparing and contrasting with the Fed, which is kind of fighting in some ways for its independence versus an administration that obviously wants a lot more control. So again, you have all these macro narratives converging. And at the same time, what's happening is that the Bitcoin was surging, right? So Bitcoin got up over 10,000, and then 11,000, and then 12,000 for a time over the course of the last couple days.

And so the question was, is it actually demand from China that is the reason for this? So here's the question. Was the price surge capital flight from China? You have kind of a variety of different opinions on this. Dovi-Wan, who's an investor who spends a lot of time focused on China, works with primitive ventures, doesn't think so, right? So she says Chinese buying up Bitcoin is a very dubious narrative, in my opinion. One, Bitcoin is trading at a negative premium in Chinese-centric exchanges like Kowie and

OkX. Two, the R&B-denominated OTC price is now at 1% premium with its normal range since the bull. And then she goes on to say, and I think this is important, I personally think that overall global financial uncertainty does help push up the market, but the capital might come from the non-Chinese side more than the Chinese side. So basically, her take is that the overall. overall insecurity surrounding the markets with all of these kind of trade war machinations might be having an impact, but it's unlikely in her estimation that it's actually coming from

capital flight from China. In Pomp's newsletter this morning, he makes the point that there is some precedent to think that these, that actual capital flows from and around China might be having an impact. And he kind of represents or quotes a few different sources. So he references Tertemister's Adam and Capital's newsletter, wrote from May 31st. On May 5th, the Chinese Yuan started weakening against the U.S. dollar. 13 days later, traded 2.5% lower, a huge move in Forex terms. Remarkably, that was also the week that Bitcoin broke above the resistance at $6,500. In short, there's a significant chance that, in fact, it was Chinese investors who pushed Bitcoin in bull market territory this year. So he goes on to speculate a little bit about that.

And I think that whatever the case was, there was clearly something happening in the markets where Bitcoin was looking very different than everything else that was going on. This, of course, is kind of captured in this tweet from Tim Draper, NASDAQ down 3.4%, Dow down 2.9%, Bitcoin up 3.2%. Bitcoin may be a remarkable hedge. So this is kind of where, you know, one part of the narrative has been, this idea that all of a sudden Bitcoin is a safe haven asset. And this is a word you're hearing a lot, right? This safe haven idea. In fact, so much, I'm going to actually turn over to Yahoo from this morning. They had Nisa Amalus on to talk a little bit about Bitcoin as a safe haven asset. So I'm going to mute myself and turn this on.

12 months has been non-correlated and now it's a negative 0.9 correlation to the S&P as of yesterday. So I think that that narrative is certainly picking up steam now. Do you think, Nisa, that Bitcoin is the new safe haven, dare we say? Are investors seriously looking at Bitcoin as a place to park money in much the same way they would with gold? So this is everywhere right now, right? You see it on Yahoo Finance. You see it on the financial times where they said the euro and the pound, which also feature in the dollar index basket, we're up 0.2% and trading flat against the U.S. currency respectively. Bitcoin, which is also increasingly being seen as a haven among traders, strengthened 5.6% to 11,601, 32. So again, this

idea of Bitcoin as a safe haven asset is starting to enter the mainstream. We've been talking this for the last couple of weeks on Crypto Daily 3 at 3 and in Long Rade Sunday, where you're seeing this global macro narrative converge with the Bitcoin narrative in a really meaningful way. Now, there is a question, I think, about just to what extent there's evidence to back this up. You know, because what we have really right now is a little bit of orange coin go up, stonks go down, and that creates the new narrative, right? So coin metrics obviously are really data-focused shop. And so they suggest in their latest newsletter, empirical data supporting the safe haven narrative is mixed.

So they're, you know, they kind of talk about what's been going on. And they say under this macroeconomic environment, Bitcoin has experienced strong gains this year, which is coincided with similarly strong gains in classic safe haven assets, chief among them gold, but also U.S. sovereign bonds as Swiss franc and the Japanese yen. This relationship has breathed new life in the narrative that Bitcoin can serve as a haven asset. Testing this theory using empirical data is difficult because of the number of confounding variables at play that can affect price. So then they go and look at basically to what extent Bitcoin has reflected Federal Open Market Committee meetings, which are the Fed meetings. And they find that it's not really clear, right?

So again, this is not necessarily saying that it isn't, but pointing out that this is a narrative in search of data rather than data in search of a narrative in some ways. You also see that, I think, reflected in Larry Sermak's post from yesterday or last night. Why is everyone just assuming that if there is a global financial crisis or a currency war, this will translate favorably for Bitcoin. High-risk liquid assets tend not to do well in this environment. None of us know, of course, but seems dangerous to just blindly assume. I think Larry's right to point out this skepticism, right? It's important that we kind of don't just blindly follow on and behave as though Bitcoin is

the next, you know, or the current, I guess, new safe haven asset. However, I think what's interesting to me is, as always, the narrative, right? What I've been watching for the last several months, but it's really accelerating right now is sort of a bottom-up top-down sort of thing where on the bottom-up side, you have this insurgent Bitcoin narrative that has gone from just a store of value to something that's much different. And even safe haven in some ways, you know, when they're talking about safe haven

as a kind of an uncorrelated asset that's moving in the opposite direction of the markets, a good place to go when equities are going down, I think that in some ways that the idea of safe haven as it's told in the Bitcoin community is even larger, right? And it's about a larger hedge against the shifting tides where not only are kind of equities and overpriced assets likely to go down,

but we're likely to see more and more rate cuts. We're likely to see more money printing. We're basically likely to move into MMT world, right? Like that's the bottom-up narrative from the Bitcoiner folks. Over the last couple of weeks, especially, that started to converge with some of the global macro folks who are coming in and coming to the similar conclusions around where Bitcoin sits, you know,

where crypto assets in general, might sit, but certainly where Bitcoin sits as kind of a generational hedge, what it means for millennials who aren't about to go by overpriced stocks, for example. So again, it's always dangerous when you're dealing in narratives to forget that narratives are self-fulfilling prophecy to some extent, and that usually the people who are kind of the loudest about promoting particular narratives have an interest in that narrative coming to be. That doesn't mean that narratives aren't true or that they don't contain kernels of truth. It just means that we should be a little bit skeptical and not let them sway our short-term behavior in particular too much. However, it is

still interesting to note to what extent this narrative of Bitcoin as a safe haven asset is increasingly shared between global macro folks and the Bitcoin community and to what extent that's starting to find its way into mainstream media coverage. So again, this is obviously an emerging story. It will continue to play out along the lines of this trade war, but it is fascinating and as ever shows just how dynamic this this market is and this industry is and we'll continue to watch it here so thanks for hanging out hopefully this was a little bit this was useful to you as you try to sort out why everyone's talking about china and the u.n and currency devaluation and what it means for bitcoin so let me know if you liked it and i will see you guys

tomorrow peace