The Pomp Podcast - #1321 Bitcoin Update: All-Time High and Where We Are Headed

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is a solo episode. You just have me and it's me trying to explain to you what's going on in the Bitcoin market, give a little bit of historical context,

Starting point is 00:00:38 an analysis of where we currently are, what's going on in the macro world, and also where we are headed. It's a shorter episode, but I thought that it'd be interesting to try to do these periodically. So let me know what you think. Get on Twitter, tell me what you like, what you didn't like, and what I could do to improve them in the future. Here is the solo episode. I hope you enjoy it. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression

Starting point is 00:01:15 of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by Espresso, the maker of the world's thinnest portable display. Now, listen up. If you're like me, you feel like you are at a command center when you sit down at your desk. I got a gazillion tabs open and different windows for different activities. There's my web browser, my text messages, I've Slack open, and I got a notes app. I normally work on a desktop and it can be very, very productive. But everything falls apart the second I leave my desk. If I'm traveling, if I go to a coffee shop to do some work, or just want to work from the kitchen table,

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Starting point is 00:02:44 Trust me, I use mine every day. You'll love the Espresso screen, and I think it'll make you more productive. Go check them out today by clicking on the link in the description. Today's episode is brought to you by BASE. BASE is making it their mission to bring a billion people on-chain. What exactly is BASE? It's a layer two offering a seamless experience for both builders and users. With near zero gas fees and rapid transaction speeds, BASE is shaping the future of the

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Starting point is 00:03:48 right now. So here we go. First, we're going to go all the way back to 2020. If you remember, heading into 2020, there was all sorts of signs about our incoming recession. There's an inverted yield curve. There are CEOs leaving their jobs. All of these issues were saying a recession is incoming. Obviously, no one thought that we would have the pandemic occur, but it occurred and we got a liquidity crisis in March of 2020. During that liquidity crisis, people froze. They didn't know what to do. They wanted to sell their assets. And so the government stepped in, the Fed cut interest rates in two emergency rate cuts down to 0%, and the politicians printed trillions of dollars. Together, the QE, both monetary and fiscal policy, ended up driving

Starting point is 00:04:30 asset prices right back. Now, of course, if you pay attention in economics class, you know that you can't print trillions of dollars without inflation coming. Yet, there were plenty of people that said, don't worry about inflation. Inflation is transitory. Or my favorite one is it is such a deflationary environment that you won't even notice. Well, that was wrong. And of course, inflation did come. But before inflation came in the second half of 2020, Bitcoin went on a run. It was $8,000 when we went into the second half of the year and it ended up topping out in March of 2021 at $64,000. Why was it doing that? Well, people thought inflation was coming and inflation did eventually come. In June of 2021, just a few months later, inflation crossed over

Starting point is 00:05:11 5% and it would not come down for almost two years. Now, of course, as Bitcoin hit $64,000, we live in a global world. It's dynamic. There's lots of moving parts. China decided they were going to ban Bitcoin mining. And so all the miners in China had to unplug their machines and move them elsewhere. This led to a 50% drop in the hash rate and Bitcoin's price cratered. it dropped about 50%. Throughout the summer, Bitcoin stayed right around 50% less, so in the 30,000 range or so. But of course, in the second half of the year, here we go again. Inflation was rocking, the miners got plugged back in, hash rate hit an all-time high, and Bitcoin surged once more in a coming back party from the dead. Bitcoin ended up topping out at $69,000. Why was that

Starting point is 00:05:57 the top? Well, all of a sudden, the Fed began to talk about increasing interest rates. They realized the economy was too hot. Inflation at the time was around 7% and we eventually hit over 9% according to the official numbers. Bitcoin sold off. Markets are forward looking. People don't wait for inflation to show up before they go buy assets that can protect them from inflation. And also people don't sell assets that protect them from inflation if they think inflation is going to go down. And so Bitcoin crashed and it crashed hard. It kept going down all throughout 2022. Eventually, we even got the big puking from FTX, BlockFi, Celsius, and others. And so from there, we saw Bitcoin bottomed out somewhere in the $15,000, $16,000, $17,000 range,

Starting point is 00:06:43 $16,000, $17,000. And people thought it was dead. Plenty of people calling for 10K. Some people even calling for zero. Bitcoin is going to zero. Well, newsflash, it didn't go to zero. Instead, Bitcoin slowly came back into the $20,000s, then eventually into the $30,000s. We got all the way to $42,000 and we saw the Bitcoin ETFs were approved. Now, why was the price going from that $17,000 back up into $40,000? It's because people wanted to front run the Fed. They thought that if the Fed was going to pivot and go from high interest rates back down to low interest rates, you should go and buy the assets before the Fed does it. Markets are forward looking. On top of that, we got an increase in global liquidity. That global liquidity was coming

Starting point is 00:07:22 from China. We saw that the Fed, the ECB, and the BOJ in Japan, they were all contracting their balance sheets. They were trying to drain liquidity from the market. But China, they didn't care. They were pumping liquidity into the market. They were pumping more liquidity than the other central banks were draining. And therefore, there was a net gain in liquidity, which is a great, great tailwind for financial assets. And so Bitcoin was a big beneficiary. Then, of course, January 11th, 2024, we get the approval of the Bitcoin ETFs, 11 ETFs, all rocking. The response from the institutional world has been greater than I think anyone thought was going to occur. We have seen at this point, just one fund, just BlackRock alone has over $11 billion in assets in

Starting point is 00:08:08 their fund. We've had over $8 billion in net flows. And we are seeing that there is at least 12 to 14 times more demand every single day than there is actual Bitcoin that is being produced by the network. Why is that important? Well, if you have more demand than supply, then the price has to go up. Again, economics 101 class. But the beauty of the Bitcoin network is that Bitcoin does not respond to increases in demand. If you saw gold or other assets have more demand, people would go invest money to create more supply so that they could satisfy the demand and the market would try to find an equilibrium. Here, there is no ability to create more Bitcoin. And therefore, what you get is that you see lots more demand than supply. Supply

Starting point is 00:08:51 doesn't change. Price has to go up to accommodate everyone. And then we look on the horizon. We have the Bitcoin halving coming. In less than 50 days, we will have that Bitcoin halving. So although there are 900 Bitcoin a day coming into the market, that will drop down to 450. Why is that number important? Well, if we're already at 12 to 14 times more demand than supply and we get the supply cut in half in terms of the daily incoming supply, that means we could be at 25 times more demand than supply if demand continues to be at the level it is and if the halving correctly executes as it has done in the past. So that means that there is likely to be much, much more demand in the future than supply incoming every single day. But not only is that occurring at the same

Starting point is 00:09:35 exact time, Bitcoin punctured the new all-time high. It was only by tens of dollars, $20, $30, but still it did touch a new all-time high. In the past, we have seen three of the four times that Bitcoin has broken through the all-time high, that the price of Bitcoin has doubled in 18 days or less. Dylan Leclerc, a great Bitcoin analyst, came up with that analysis that showed three of the last four times that Bitcoin set a new all-time high price, Bitcoin's price doubled in 18 days or less. Pretty incredible. Now, does it count if it only went $20 or $30 up? It depends. We did see one time where Bitcoin, according to Alex Thorne, the head of research at Galaxy Digital, went up. It kind of tapped the all-time high just slightly above. It did it a

Starting point is 00:10:18 second time. So it kind of twice tapped on that new all-time high. It then consolidated for about two to three weeks. And then it finally did puncture the all-time high and led to a rapid appreciation of the price. And so that's kind of my expectation now is whether it happens right now or in two to three weeks, once we're fully through kind of breaking that $70,000, you know, kind of threshold, that's my guess of when we will start to see a rapid appreciation in Bitcoin. And I say rapid appreciation, how quickly does it happen? What's the timeline? That's anyone's guess. I can't tell the future any differently than you can. But what I do think is interesting is that Bitcoin is up 62% year to date. That is the single best performing asset so far this year

Starting point is 00:10:57 in terms of asset classes. Now, as Zero Hedge pointed out, the Sharpe ratio is 2.1, which also is quite attractive. So Bitcoin continues to remain one of the best risk reward assets that you can allocate capital to. Now, again, that doesn't mean that past performance is going to necessarily indicate what's going to happen in the future. But it does mean that from a risk reward standpoint, so far, Bitcoin this year at a 2.1 sharp ratio is pretty attractive. 62% appreciation, also quite attractive. Now, it's hard to argue we're not in a bull market. We're seeing meme coins go to the moon. We've seen whiff. That's exploding. We saw a recent one where somebody took Joe Biden's name and they misspelled it. And that meme coins up like 2,500x

Starting point is 00:11:39 in the matter of 24 or 48 hours. There is lots of frothiness underlying this. But Bitcoin continues to do exactly what it was designed. It produces block after block after block of transactions. And we are seeing institutions that are raising their hand and saying, I want that asset. Some of them may want it because they actually need exposure to the financial performance. Some may want it because they think it's a hedge against inflation or currency debasement. Others may be buying it because they think that it's an index for global liquidity. And yet others, like sovereign wealth funds, actually may want to buy the ETFs to get financial exposure to Bitcoin, but not actually buy Bitcoin itself and take custody of it because

Starting point is 00:12:14 that could create complexities in the geopolitical conversation. So regardless of how you look at this, as I've previously said, it is very hard to construct a narrative right now that it is not bullish for Bitcoin moving forward. That doesn't mean that one, things can't change. Two, we can't get more information. Or three, there can't be some sort of external impact. Obviously, if the Fed all of a sudden started re-hiking interest rates and continuing to increase the cost of capital, that could have a negative impact. Another thing to be aware of here is that the people who are buying Bitcoin today are not necessarily the same actors or behave the same way as people who used to buy it. For example,

Starting point is 00:12:49 if you look at some of these financial advisors, what they are going to do is they are going to allocate to Bitcoin. And let's say that they put 1%. If all of a sudden Bitcoin's price doubles or triples, now that allocation is 2% or 3% inside of their client's portfolio. They're not going to let it run. They instead are going to rebalance. And so there's some percentage of them that are actually going to become net sellers of Bitcoin. And the success of Bitcoin's price will lead to more selling. Now, of course, that doesn't mean it's everyone. And it's nearly impossible to predict what percentage of people fall in that category. But I do think that important in moments of dynamic change in a market is that you keep your head on a swivel. You got to be paying

Starting point is 00:13:28 attention. The ground is shifting in terms of who the holders are. The price action is obviously bullish, but we've also never seen Bitcoin establish a new all-time high before the halving. So when it comes back and it recovers from some sort of price draw like it saw previously, that tends to indicate that there is a big change. And so understanding what is occurring there and what the potential implications are important. Last but not least, we can talk about regulation. It's pretty hard for people to attack Bitcoin now that the SEC has approved these Bitcoin ETFs. Doesn't mean they won't try, but it will be much, much harder. And so I think that overall, when I look at the market today, you can go all the way back to 2020 and look till now,

Starting point is 00:14:09 we can see that Bitcoin is basically matured. It's growing up. It's being entered more into the traditional financial system. There's a trade-off. Bitcoin was something that was outside of the system. That was part of the allure of it. And so some of that is being compromised or changed now, but at the same exact time, we also are getting some of the benefits. And so now there is this trade-off of the more it gets integrated into the legacy system, the higher the price goes, but the more that we lose some of those other aspects. And so being able to separate out those two things is important and continue to evaluate why are you allocated to an asset? Should you continue to be allocated to this asset? And what do you think is going to change in the future that

Starting point is 00:14:43 would make you change your mind? All important questions. Now, when I look at the actual regulation, I think what will end up occurring is that Bitcoin will continue to not be a security. I think that more and more of the legacy Wall Street players will buy Bitcoin. They will put on their balance sheets. They will put in other funds. We've seen BlackRock. They went ahead. They have a $36 billion conservative bond fund that is called the Strategic Income Opportunities fund, they actually are getting approval now so that they can put some of that fund into the Bitcoin ETFs. And you're going to see a lot of Wall Street organizations do this where they're trying to juice their financial returns by taking Bitcoin and sprinkling a little bit of it

Starting point is 00:15:19 throughout their portfolio. So anytime that you see that stuff happening, again, it's going to be very hard for regulators or others to step in and say, hey, BlackRock, hey, Fidelity, hey, Vanguard, hey, whoever, you can't do what you want to do. Because again, they've done the work, They've now come to the conclusion that this asset is valuable and they want to put it in their portfolios and they've gotten the green light once. It's hard to repeal that back. So regulation, price action, macro, all of it looking very strong. But again, in this entire industry, anything can happen. We saw Bitcoin went up, hit the all-time high, immediately it dumped 10, 12%. It's like welcoming all the people who are getting excited about Bitcoin.

Starting point is 00:15:56 Just remember, I'm a volatile asset, about an 80 vol asset, and I can go up a lot. I can go down a lot. Do not, do not sit on your laurels. Instead, what you should be doing is just dollar cost averaging into great assets, like Warren Buffett has said, and simply hold the great assets for as long as you can. So that's what I'm thinking about right now. That's what the market looks like. Hope this was valuable to you. Please let me know what you think. Get on Twitter. Let me know. What are the areas that you're really excited about? What are the things that you're worried about? What are the open questions that you have that you haven't seen other people answer? I'll do my best to answer as many of them as I possibly can. Hope all of you

Starting point is 00:16:28 have a great day. Whether you're listening to this on the podcast, please make sure that you subscribe to the podcast. Or if you're watching it on YouTube, you can go ahead and make sure you subscribe there as well. But I appreciate all of you. And I will do this again a little bit more regularly, hopefully once a week or so. So we will talk then.

The Pomp Podcast - #1321 Bitcoin Update: All-Time High and Where We Are Headed

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