The Breakdown - If You Sell Your Bitcoin, Michael Saylor and Jack Dorsey WILL Buy It

Starting point is 00:00:00 Listen, if you had any doubt ever that when you sell your coins because you're nervous about the price going down or that things have gotten overheated, if you had any doubt that they will be scooped by stronger hands, let that doubt pass you by. 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 nexo.io and produced and distributed by coin desk. What's going on, guys? It is Wednesday, February 24th, and today we are talking about one of the most important lessons of this bull market. If you sell your Bitcoin, Michael Saylor and Jack Dorsey

Starting point is 00:00:46 will buy it. First up, however, let's do the brief. First on the brief today, we're going to look at comments by Fed Chair Jay Powell. Now, I'm going to do a full show soon on his digital dollar comments and what they might mean. But next week, we are welcoming a new addition to the family. And so I'm pre-recording a bunch of shows. We're not exactly sure when and for how long we'll be in the hospital. So I want to make sure I have shows ready to go. And I think a show about a digital dollar and what its impact on Bitcoin might be, both positive and negative, is a good show for that time. So I'm working on that. You'll have that soon. I appreciate everyone who voted in today's poll for that type of show. But I still wanted to briefly touch on what he said yesterday. Before Powell spoke, investors had started to get nervous in the U.S. around the potential for an early

Starting point is 00:01:36 unwinding of the Fed's extremely aggressive approach to keeping rates low and stimulus, etc. Because of this, the market was getting out of stocks and into treasuries driving the yield of treasuries down. And by the way, if that sounded like Greek to you, we're actually going to do a macro 101 show and a bond-specific show as part of that new kiddo show set as well. Either way, Powell gave testimony to the U.S. Senate Banking Committee on Tuesday and said that the economic recovery remains uneven and far from complete, and the path ahead is highly uncertain. The Bloomberg headline this morning about it said Powell reiterates view that labor market has a long way to go. Powell pointed out that there are 10 million fewer people employed, and that's a long way to go to maximum employment,

Starting point is 00:02:22 and this is really important. The mandate of the Fed is actually two parts. It's market stability, but it's also full employment. The tools, however, that they have to achieve that full employment are limited, and what we've seen is that asset prices tend to benefit before full employment is reached. Over the course of this year, we're likely to shift from the market stability part of that equation to the full employment part of that equation, but it still promises a pretty aggressive approach from the Fed. Powell also mentioned digital currency, saying it's a priority

Starting point is 00:02:56 and that they'll be reaching out to Congress about it in 2021, so we'll have to come back to that soon. Next up on the brief today, trouble in Arkland. I have discussed Kathy Wood and Arc pretty frequently here, most recently in the ETF episode last week. I find it interesting how a lot of the macro dynamics that are potentially interacting with Bitcoin might be interacting with ARC funds as well. Arc has seen a stratospheric rise over the last year but has been hammered the past few days. In fact, it started a couple weeks ago, as people started to get nervous about how concentrated ARC's holdings of some of their companies were. Remember, ARC funds have specific thesis around

Starting point is 00:03:36 innovation, so there are frankly only so many companies they can buy. If their fund owns too high a percentage of those companies, the fear goes, it could create risk in both directions. That an issue in one company could create broader risk for ARC or vice versa, that ARC risk could create new exogenous risk for the companies themselves. Over the past few days, however, the concern has been less about that and more about this rise in treasury yields. The innovation ETF, which is their flagship, fell three sessions in a row. It had its worst two-day drops in September. And again, basically these yields were reflective, as we just discussed, of investors thinking that there was going to be pressure for rates to rise

Starting point is 00:04:15 and for Fed support to unwind earlier than expected. Because of that, they were moving out of the pricier parts of the market, i.e. tech. Now, for her part, Kathy Wood said she wasn't worried, said that she welcomed the correction. And to be fair, she's gone from 3 billion assets under management in January 2020 to more than 30 in January 2021 to more than 60 billion last week. Still, I think this is worth watching as a reflection of the bleeding edge of the markets. I don't think Bitcoin is so correlated that you can watch these things move in tandem, but I do believe that there's some proxy for how traditional investors might think about Bitcoin at any given time based on the macro context.

Starting point is 00:04:56 Last up on the brief today, let's talk about the latest out of India. India, as we've discussed, has been very aggressive vis-a-vis cryptocurrencies, with that seeming to only be heightening right now. A couple updates from the last few days, Rakesh Junjuan Walla, who's likened to an Indian Warren Buffett, he's a billionaire investor. he told CNBC that he will never buy Bitcoin, that regulators should step in and ban cryptos in India, and called Bitcoin's speculation of the highest order. So pretty much that Warren Buffett description is accurate, at least when it comes to opinions on Bitcoin. At the same

Starting point is 00:05:30 time, however, he also stated that India should focus on the creation of an official digital rupee. This was echoed by comments of a Reserve Bank of India governor who reiterated that the RBI has major concerns around cryptos, but that they are working aggressively on a digital I wanted to point this out because I think it shows just how much India is going to really draw this contrast between killing cryptos, private cryptos, and network cryptos, while simultaneously trying to harness that momentum for an official central bank digital currency. Is that paradigm that one can't survive while the other one does, or are there different ways to look at it? That will be the subject of a future show.

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Starting point is 00:06:50 Listen, if you had any doubt ever that when you sell your coins because you're nervous about the price going down or that things have gotten overheated, if you had any doubt that they will be scooped by stronger hands, let that doubt pass you by. Let's start with Square. Yesterday Square reported on all things Q4 2020, and here are some of the highlights. In Q4, the company sold $1.76 billion worth of square. Bitcoin. That was part of $4.57 billion sold for the entire year, which is up 9x from the year before. They generated $97 million in gross profits on those Bitcoin sales, with Q4 gross profits being $41 million. This has been good for both Square and good for Bitcoin. In 2020, more than

Starting point is 00:07:36 3 million customers bought and sold Bitcoin via cash app, and in January 2021, more than 1 million people bought Bitcoin for the first time. The banner headline, however, was that Square had also increased their treasury holdings of Bitcoin. Over the course of Q4, they bought 3,318 bitcoins at an aggregate purchase price of $170 million. Combined with their previous $50 billion Bitcoin purchase, this represents 5% of Square's cash, cash equivalents, and marketable securities. One small reminder of the real cost to corporations for waiting if they're interested in this strategy, Square's $50 million purchase bought them $4,709 Bitcoins, compared to the cost. to just a few months later, their 170 million, buying them only 3,318. In any case, Jack Dorsey

Starting point is 00:08:26 reaffirmed their commitment on a follow-up call saying, we're also going to double down on our commitment to Bitcoin and continue to look for new ways to connect our product lines within the cash app. Speaking of doubling down, Michael Saylor, the absolute madman, will not stop. This morning, he announced that Micro Strategy had purchased another 19, $17,452 Bitcoin at an average price of $52,765 per coin. Micro Strategies total holdings are now worth $4.78 billion, and across all of these coins, they averaged a cost of $23,985. A quick aside, how insane is that paying just about $24,000 per Bitcoin across so many now

Starting point is 00:09:09 makes them look like geniuses when that number was still a pie-in-the-sky goal just six months ago? CoinDesk said that this latest purchase, quote, almost certainly bolstered Micro Strategies' perception among Wall Street types as a de facto Bitcoin exchange traded fund, but I continue to think that this isn't Micro Strategies play. This is a business intelligence and business services company, and I think they're retrofitting everything for what they believe is going to be a Bitcoin generation. While many companies are chasing the on-ramps, custody, etc., of getting into Bitcoin,

Starting point is 00:09:39 microstrategy is going to be, I believe, the first business software suite for Bitcoin companies, and for corporates holding Bitcoin. At least that's my guess. Either way, how does the market feel? Well, MSTR was down about 20% on Tuesday as the price of Bitcoin crash, but it is up nearly 13% at the time I'm recording today. So as we round out, just a few things to think about and consider as we look at these two moves from Square and Micro Strategy. First, these specific company moves are the ones that are the least likely to move the Bitcoin market. Square and Microstrategy are officially in the, okay, we get it, you like Bitcoin camp, and they have less power to influence other market actors, I believe. Second, I think in general, we're going to see this sort of news lose its power to move the market,

Starting point is 00:10:28 and by this sort of news, I mean Bitcoin corporate treasury holdings. Sure, if a really conservative company comes in, if we find out more insurance companies are in, if we find out some category that is unexpected has gotten in, it might have an aggregate power to provide momentum, but I think individual bits of news a la Tesla are going to, over time, lose their individual power to make the market shift in short order. And that, I think, is a good thing. It tends to be a sign of froth when one individual company or one individual piece of news can actually move a market really significantly over the long term, whereas I think it makes

Starting point is 00:11:05 tons of sense that the combination of news, the general trend of corporates' buying, into Bitcoin as a whole has power to create that long-term momentum. A third point is this demonstrates how little Bitcoin there really is to go around. It's going to get harder and harder for companies to buy big blocks of Bitcoin like this, which feels like it inevitably increases the price at which companies will have to buy in. Ironically, this aggressiveness on the part of companies like Micro Strategy could start to crowd people out. At least there could be a conversation or a narrative around that. In fact, I wouldn't be surprised if you started to see a new set of FUD around corporate centralization risk,

Starting point is 00:11:46 and perhaps even Michael Saler and MicroStrategy specifically. Five, speaking of new categories of FUD, I bet there's going to be an increasing conversation about how Bitcoin volatility risk is becoming market risk. Documenting Bitcoin tweeted yesterday, Switzerland's central bank now owns over $5 million worth of Bitcoin indirectly due to their Micro Strategy Square and Tesla stock holdings. Will we see people start to critique these companies for introducing a new type of volatility and a new type of risk to the larger system? Time will tell, but I feel like it's a pretty safe bet.

Starting point is 00:12:21 Anyways, guys, I hope you are having a great week. I appreciate you listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - If You Sell Your Bitcoin, Michael Saylor and Jack Dorsey WILL Buy It

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