The Breakdown - The Case for $1M Bitcoin

Starting point is 00:00:04 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 Casper and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, March 14th, and that means it's time for Longreed Sunday. Today, I am super excited to share a recent op-ed from Nick Batia, the author of layered money from gold and dollars to Bitcoin and Central Bank digital currencies. Regular listeners will recognize Nick from a couple of weeks ago. We did a fast, fun, one-hour history of the entire global monetary system and how it leads to Bitcoin. It's one of my

Starting point is 00:00:52 favorite interviews I've done in a very long time. I definitely recommend you go check it out. Not so long after that interview, Nick took to the pages of CoinDesk and wrote why $1 million Bitcoin is coming. Now, sometimes these type of price prediction pieces can be all fluff and silly and speculative, and inherently they're all speculative. But Nick is someone who, if you've heard that show, if you've read his book, has considered the history and trajectory of money deeply. So when he discusses these ideas, they're worth listening to more than just some talking head looking for Twitter engagement. So with that in mind, let's have a fun Sunday and read Why, $1 million Bitcoin is coming by Nick Batia, the question he poses, if purchases by micro-strategy

Starting point is 00:01:40 and Tesla can send Bitcoin rocketing, what happens when bigger players start entering the market? Bitcoin is officially mainstream. By the end of the last megabole market in 2017, most of the world had heard of Bitcoin, but after Tesla recently purchased $1.5 billion of it for its corporate treasury, and not for a speculative research and developments leave, those still thinking Bitcoin was a fad, exposed themselves as woefully under-informed. Tesla's purchase underpins something even more dramatic than mainstreaming Bitcoin as a legitimate cash replacement for the world's largest corporate financial and government institutions. These sudden influxes in demand, including a handful of recent bond issuance-fueled purchases

Starting point is 00:02:22 by micro-strategy, are having an extreme impact on the Bitcoin price. I believe we'll see the price of Bitcoin above $1 million sooner than most people can fathom. I understand that 50,000 is already slightly discombobulating to the investment community at large, but that Bitcoin price is only associated with one trillion of total market value in a world of hundreds of trillions of dollars in global wealth. If Bitcoin's market value reach the size of the U.S. Treasury market, for example, its price would reach $1.5 million. It's easy to predict $1 million Bitcoin given a long enough time horizon, considering the pace of crypto adoption across industries, and the willingness of governments and central banks to provide unlimited amounts

Starting point is 00:03:04 of fiscal and monetary stimulus. But when faced with the math of how much 3.5 million in Bitcoin demand, Tesla with $1.5 billion and Microstrategy with $2 billion, caused its price to move, the approximations led me to some staggering numbers. Keep in mind that this exercise is far from scientific. The price of Bitcoin has basically tripled since Micro Strategies first publicly announced debt issuance in December. While the company has been purchasing Bitcoin since August, it accelerated its buy program then by raising capital via the corporate bond market aiming to bolster its Bitcoin treasury holdings. Micro Strategy, U.S. dollar bond issuance has become a regularity ever since. Quantifying exactly how much of the price explosion since December was caused

Starting point is 00:03:45 directly by Michael Saylor or Elon Musk is impossible, but it's fun to guess. During the weeks that Sailor and Musk purchased at least $1 billion worth of Bitcoin, its price increased by several thousand dollars. We know that the entire price move during those weeks cannot be solely attributed to these technology giants. After some rough calculations and a hefty discount, I believe that a $1 billion Bitcoin purchase resulted in at least $25 billion increase in its total market value, or about $1,300 per Bitcoin. I'm saying the $3.5 billion total purchased by Micro Strategy and Tesla over the past three months directly increased the Bitcoin price by $5,000 of the $30,000 total increase over that time. Maybe the actual contribution is more or less than that, but that's the guess with which I'll extrapolate.

Starting point is 00:04:29 Bitcoin's powerful role in today's society as a non-government, counterparty-free, first-layer money is apparent and markedly pronounced in 2021. In my new book, layered money, I make the argument that Bitcoin will anchor the financial system in the future. But I failed to speculate on a Bitcoin market value significantly higher than that of gold at $10 trillion, according to a Bitcoin price of $500,000. In retrospect, this was way too bearish, given the information we gained from the market during February. Let's say that out of the $100 trillion worth of wealth in each of the following vehicles, real estate, public securities, i.e. stocks and bonds, and monetary instruments, government debt, bank deposits, and money market funds, Bitcoin manages to eke out a meagerly one trillion

Starting point is 00:05:11 in new demand. Using a 25x multiplier, given our estimations from microstrategy and Tesla, this would equate to a $25 trillion increase in market value, or $1.3 million per Bitcoin. I know this type of extrapolation is grandiose and extremely crude, but it doesn't make the information any less dramatic. Looking for the best way to unlock your crypto's liquidity? Nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR, earn passive income with yields of up to 12%, and swap between more than 75 market pairs with the instant Nexo exchange. Try the NXO Wallet app to get the whole 360 degrees of crypto banking. Get started at nexo.io.

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Starting point is 00:06:30 A $3.5 billion purchase triggered an explosion of $30,000. Imagine what a $10 billion purchase from Apple would unleash. Imagine the chain reaction from a $100 billion purchase by the Bank of Japan in a new quantitative easing program. Then finally, imagine the world coming into Bitcoin in a wave of fomo the financial world has never seen before. A Bitcoin total market value above $20 trillion, equating to a price of $1 million per Bitcoin, no longer seems extreme. It seems mild. Bitcoin's price assent will surprise most people who haven't fully

Starting point is 00:07:01 grasped the supply inelasticity of Bitcoin. No increase in price can lead to a supply response because Bitcoin's supply is pre-programmed and universally agreed upon. Governments, banks, and companies can issue as many crypto competitors as they desire, but the Bitcoin land grab is gaining the characteristics of the demand for prime real estate in the world's most beautiful buildings and scenic coastlines, for the rarest art and jewels, and for the precious metal itself. Its demand as an inflation hedge in Latin America, a path to economic development in Africa, and is a peaceful protest of QE infinity in the West. It has its own instant settlement mechanism and lightning network. And most importantly, Bitcoin is decentralized. There's nobody to

Starting point is 00:07:42 subpoena or central server to seize if governments tried to bring the network to a halt. People often think they're too late to buy Bitcoin because it's already at a price of 50,000. They just haven't run the latest numbers. So a couple comments from me following up. I think, obviously, it gets into very challenging territory when you're trying to extrapolate how much of the price increase is attributable to the actual buying of these companies versus to the knock-on effects of other people buying because they see other people seeing those companies buying and wanting to be in as well. In other words, how much is the fundamentals of supply and demand and the new pressure on a limited supply versus a corresponding increase in demand based on the new cycle. I think it's good to do what

Starting point is 00:08:26 Nick does and try to figure that out and try to put some numbers around it, but I also think it's worth taking with a huge grain of salt, which clearly Nick does as well. I think perhaps the more significant thing to contemplate is the seismic and growing mismatch between the potential sources of increased Bitcoin demand and the absolutely unchangeable programmatically. determine supply. In other words, when people point to Apple, when they point to sovereign wealth funds, the point that they're making is that there are so many pockets of money who could plausibly start to demand Bitcoin. But when they do, the total available amount of Bitcoin not only does not increase, it in fact likely shrinks because the people who already hold Bitcoin find themselves

Starting point is 00:09:15 having even greater reason to hold than before. Put it this way, when you heard that insurance companies like Mass Mutual and New York Life, who are more than 100 years old, who are some of the most conservative financial institutions in the world, are getting into Bitcoin in major ways. Mass Mutual putting $100 million of Bitcoin on its books, the CEO of New York Life joining the board of Nidig, as well as participating in that company's $200 million equity round, did that make you want to sell more of your Bitcoin or hold it even tighter? The answer is, of course, that it makes you want to hold more. It creates more conviction that some of these pockets of money, big, huge, tens of trillions and dollars of size pockets of money, like insurance general accounts,

Starting point is 00:10:07 will actually find their way to Bitcoin, however outlandish it, might have seemed even a year or two ago that someone like them would want to participate in this market. If insurance company general accounts could want to get into this space, there is absolutely no limits on what other types of financial institutions might. Every time they do, not only do they increase the demand for Bitcoin, both among themselves and among other people who see them getting in, they effectively decrease the supply further by ratcheting up the clamps with which today's toddlers hold. This is the X-factor in the Bitcoin price. It is not just the potential increase in the

Starting point is 00:10:49 demand that comes from new institutions. It is not even just the limited supply that comes from a programmatic decreasing inflation schedule that gets to a total hard cap of 21 million. It also is the psychological X-factor of how every new piece of demand from a new category limits that supply even further by cutting off current holdler's willingness to sell. Anyways, guys, fun little thought experiment for your Sunday. I hope you're having a great weekend. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - The Case for $1M Bitcoin

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