The Breakdown - Legendary Investor Stan Druckenmiller Turns Bitcoin Bull

Episode Date: November 11, 2020

Today on the Brief:  Was Monday’s stock rally overdone?  Lebanon to launch digital currency 3 reasons BTC has rallied 60%+ in two months Our main discussion: Stan Druckenmiller, Bitcoin Bull.  A few months ago, Stan Druckenmiller told CNBC that he could imagine inflation of 5%–10%. Yesterday, he returned to the network to discuss why bitcoin had captured his attention as a potential hedge.

Drucken Miller points to millennial money and West Coast tech money as interested in Bitcoin as a store of value as a reserve asset. He also points out that there is a lot of that. And with the greatest generational transfer of wealth in history on the verge to millennials, there's going to be more of that. But there's a second line that we need to hone in on. If the gold bet works, the Bitcoin bet will probably work better. He cites liquidity, ease of use, etc. This is obviously huge. 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 Tuesday, November 10th, and today we are talking about the latest, the legendary investor to turn Bitcoin Bull Stan Drucken Miller himself. However, before that, let's do the brief. First on the brief today, some caution returns to markets after yesterday's euphoria. The Wall Street Journal said yesterday's rally likely overdone. Now, of course, we talked about this on the show yesterday.

The S&P 500 saw its second highest close on record, and the whole point or the whole excitement was about Pfizer's report that its vaccine candidate had prevented 90% of COVID cases in its recent trial. This sent the markets into overdrive. It had them buying up the stocks that had been systematically repressed by COVID, things like airlines and Carnival Cruises, while selling off work from home stocks. Things eased off somewhat today as the markets remembered a few things. First, they remembered that we were having the seventh straight day of 100,000-plus COVID-19 cases, which, of course, is bringing with it increased speculation about a second round of lockdowns. People remember that even if this vaccine works, it's still going to take time not only to approve,

but to distribute everywhere it's needed. Nick Brooks, the head of economic and investment research at Intermediate Capital Group, said, The pandemic still has a ways to go, unfortunately. The Pfizer development is a great development. but I don't think it's the game changer that markets seem to perceive. What's more, the other question that's coming up is questions of long-term shifts. These radical switches from work-from home stocks to other things reflect a sense that would seem to reflect a belief that once this vaccine hits, everything goes back to normal,

but that may just not be the case. Nick Brooks again said, quote, it's far too early for investors to be making a structural shift from growth to value. There's been pretty substantial damage to economies, and that's going to take some time to repair. A final note on why the markets might be cooling off is that they're realizing that if there is, in fact, a vaccine that works, it creates incentive for there to be less money printing. It creates a context for congressional Republican, Senate Republicans, to hold back on more stimulus. So the markets don't like when less burr happens. And that may explain part of today's back off of yesterday's rally.

Second, on the brief today, here comes a Lebanese digital currency. Central Bank Governor Riyadh Salama said that Lebanon plans to introduce a digital currency next year in order to, one, restore confidence in the banking sector, and two, transition the country to a cashless system. He said, quote, Lebanon doesn't have any natural resources. We have to keep the gold because it's an asset that could be liquidated in the market. foreign markets if we face an inevitable fateful crisis. The context that he's referring to here really matters. Lebanon has been seen for decades as a safe place for the region's money. Its banking

sector has been historically its most important economic sector. But last fall, a two-decade-long dollar peg began to break. Subsequently, we've seen mass capital controls, mass demonstrations, and the numbers are really staggering. For a very long time, time since 1997 up to last year, 1,15 Lebanese pounds equaled one U.S. dollar. However, starting last October, the black market exchange rate started to shoot up, hitting all the way up to 9,700 Lebanese pounds per dollar at the beginning of July, before falling back down somewhat. Over the last month, the rate has ranged wildly between 6,600 at the low, which is still four times what it was a year ago to 8,600 Lebanese pounds to the dollar at the high.

Digital currency or not, restoring confidence with that context is going to be rather difficult. Last up on the brief today, CoinDesk has just published three reasons Bitcoin has rallied more than 60% in two months, and I thought it would be fun to review them. Their first argument is increased institutional participation. So obviously, Square and Micro Strategy have both announced Treasury Reserve holdings in Bitcoin during this time. We also see Bitcoin whales on the rise. These are addresses or clusters of addresses that hold at least 1,000 Bitcoin. These hit a four-year high last month.

A second factor is a supply crunch, right? That micro-strategy buying, grayscale's Bitcoin trust buying. These represent large spot buyers that are actually putting pretty significant pressure on the supply. And on top of that, you have just simply a lack of retail selling. Finally, they argued that there was a technical breakout where people had pointed to 12,500 as a key technical resistance, and once that broke, it was up, up, up. Whatever the specific reasons, there is no doubt that Bitcoin is on people's minds,

and so with that, let's move to our main discussion. You'll remember a couple months ago, famed investor Stan Drucken Miller made headspin when he went on CNBC and said that not only for the first time in a long time was inflation something that we had to take seriously, but that 5 to 10% inflation wasn't out of the question. He called our current monetary policy in that interview absolutely raging mania. Well, he was back on CNBC yesterday. First, let's discuss what he had to say about the markets in general. More or less, he argued that the behavior that we saw was completely rational. Quote, you've had a bunch of equities benefiting greatly from work from home.

A lot of money has rotated into them. They are overvalued. But then you've got a whole other sector of the market that has struggled mightily because of COVID. They're selling it undervalue relative to, say, a three to five-year outlook. So the rotation into that would seem entirely rational. Basically, his point is that the market's seeing this COVID-19 vaccine on the horizon reminded them that over the course of a one to two to three to five year time frame, there will be

some recalibration. I don't think it goes back completely to normal. I think that certain genies are out of the bottle when it comes to working from home and remote work, et cetera. But I think that there is probably underselling in some parts of the market and overselling in other parts of the market. So that's kind of what Stan Drucken Miller was saying yesterday as it related to traditional markets. 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. Download the crypto.com app now to see the interest rates you could be earning on BTC and more than 20 other coins. Once in the app, you can apply for the crypto.com metal card, which pays you up to 8% cash back

instantly on all purchases. Reserve yours in the crypto.com app today. 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. 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 10% compounding interest paid out daily on your crypto and fiat. Your passive income made simple. Get started at nex0.com.

Then he shifted back to talk about inflation. He reiterated a point that he made in that previous conversation that we're likely to see pretty serious inflation over the next five to six years due to stimulus measures. Now, don't forget the conversation we had yesterday on this show about how increased confidence from a vaccine could actually unleash inflation by significantly increasing monetary velocity. The TLDR on the point that I was making is that right now,

the money supply growth hasn't increased inflation significantly, because it's being held back by the fact that people aren't spending as much as they would otherwise. They're trying to be more resilient. They're trying to be more savings-oriented, suppressing monetary velocity. If they get confidence back that could change and all of a sudden, that increased spending could run right into the big money supply growth that we've seen. Anyway, that wasn't all for Druckin-Miller. He also shared for the first time some thoughts on Bitcoin. Let's listen to a clip from that right here. I have warmed up to the fact that Bitcoin could be an asset class that has a lot of attraction to it as a store of value to both millennials and the New West Coast money. And as you know, they've got a lot of it.

It's been around for 13 years. And with each passing day, it picks up more of its stabilization of a brand. So I own many, many. many more times gold than I own Bitcoin, but frankly, if the gold bet works, the Bitcoin bet will probably work better because it's thinner and more illiquid and has a lot more beta to it. So let's reiterate what Druggen Miller just said. First was the setup, and the setup has to do with new market participants. Specifically, Drucken Miller points to millennial money and West Coast tech money as interested

in Bitcoin as a store of value, as a reserve asset. He also points out that there is a lot of that. And with the greatest generational transfer of wealth in history on the verge to millennials, there's going to be more of that. But there's a second line that we need to hone in on. If the gold bet works, the Bitcoin bet will probably work better. He cites liquidity, ease of use, etc. This is obviously huge. Jason Yanowitz from Blockworks Group tweeted Bitcoin Bulls, Stanley Druckin-Miller, Paul Tudor Jones, Jack, Michael Michael Sailor, Abby Johnson, Chimoth, Bill Miller, Novogratz, Kathy Wood, and David Swenson. Damn good group of investors, if you ask me. Real Vision's Raoul Paul was even more crisp,

saying the significance of the world's greatest and most respected money manager, Stan Druckenmiller, saying just now that he is long Bitcoin cannot be overstated. That has removed every obstacle for any hedge fund or endowment to invest. So basically Raoul's argument is, that this is a social proof type of moment where a lot of people who have been perhaps trying to convince their funds that they should go all in, those internal champions, now have more clout. This is derisking this move from a professional risk kind of standpoint for money managers. Along those lines, another thing that I noticed was many people sort of having a tip of the iceberg argument where they think that these billionaires that we're seeing announced

their Bitcoin holdings are actually just the visible part of a much larger trend. David Nage tweeted out prediction. In the next two weeks, we will see another two to three prominent investors announced they own Bitcoin on CNBC. Speaking of which, somehow, Drucken Miller wasn't the only big-name investor who comes from a very different school of thought to sing Bitcoin's praises this week. An extremely well-known value investor in Bill Miller also said that at these prices, investors needed to have exposure. But now, I want to go back to Drucken-Miller's argument that, the Bitcoin trade probably works better for Bitcoin than it does for gold. A few days ago on November

6th, a J.P. Morgan analyst report came out saying that Grayscale's Bitcoin Trust is outperforming gold ETFs, and their bet is that it's driven by family office investors. Quote, as we had highlighted in our previous report of October 23rd, the potential long-term upside for Bitcoin is considerable if it competes more intensely with gold as an alternative currency, given that the market cap of Bitcoin would have to rise 10 times from here to match the total private sector investment in gold via ETFs or bars and coins. Pomp built on this argument in his newsletter this morning with a super provocative piece, gold versus Bitcoin doesn't end in coexistence. Here's the key quote. This brings me to my last point. Bitcoin and gold are unlikely to coexist over a long period

of time. This is how technology disruption occurs. The challenger is superior and it eventually ends the legacy player. I know that this is a controversial concept, but it is very likely that over the coming 10 to 20 years, gold's market cap will materially shrink and bitcoins will materially increase. This flow of capital will be important to watch. Whatever one thinks of Pomp's argument about Bitcoin versus gold, it's hard not to see the trend line of 2020, which is an extreme narrative clarification for people in the institutional sectors around Bitcoin. It started off with Paul Tudor Jones and his great monetary inflation. It is now gone through Stan Druckenmiller.

These aren't people who make these arguments lightly. They are trying to open up space for that conversation. Sure, it's to pump their own bags, but that's a pretty valuable thing nonetheless. I tend to agree with all those folks on crypto-Twitter who are arguing right now that there are far more people who are being quiet about their Bitcoin holdings than those who are going on CNBC. but I also do think that we're likely to see some of those folks get more public about their investment as it becomes safer to do so.

Anyways, guys, fun one for today. I appreciate you listening. I hope that you're enjoying the show. If you are, please keep up your ratings and reviews. I really appreciate them. You can also find the breakdown on YouTube. There's a great growing community over there that's watching these shows as videos, and I'd love to see you there. So until tomorrow, guys, be safe and take care of each other.

Peace. You know,