Aug 16, 2023

Perceived safe havens like bitcoin and gold are struggling to gain upside traction, even as signs of cracks in the global market begin to appear in the form of volatility in the fiat currencies of distressed nations.

Video transcript

We're seeing fiat currencies in distress yet people aren't flocking to Bitcoin and gold like they used to. What's going on here. Joining us now to discuss is Van Neck Head of Digital Asset Research, Matthew Siegel. Welcome Matt Lawrence. How are you? Good to see you. So, you know, we, we, we just had a discussion here about what's going on in Argentina, the peso devaluing uh we're seeing in Russia the lowest uh value of the ruble since March of 22. Um What's going on? Why aren't people buying Bitcoin? Why aren't we seeing a bump, an increase in volume, an increase in price? It's like nothing's happening. Yeah, I agree. Nothing is happening in the sense that volumes and volatility are at all time lows. So, you know, if market makers can't make money, then that creates a bit of a vicious cycle on liquidity. We saw yesterday, CSR essentially pulling out market making selling a bunch of their Matic coins. So past crypto cycles often start with this kind of Bitcoin dominance, rising Bitcoin outperforming and then folks take profits from their BTC and use it to speculate on riskier assets with leverage. And so we're still hopeful that that's the type of cycle that's going to play out. But you need a sustainable Bitcoin rally for that to happen. And then the other thing is that compared to last cycles, there's less leverage available, right? All the major lenders have have gone bankrupt and the regulatory environment is quite different. So I think one of the major questions that digital assets investors are facing right now is we have this asset class that is generally marked by winner take all characteristics. We saw that in web two likely to pay out in web three as well over time. But then we have this historical divergence or not much historical but very notable divergence year to date and the performance of large caps like BTC and E versus the AL coins where you have this liquidity issue that I'm talking about. So how much of that will mean revert? We saw some of that during ripple, the case against ripple and the resolution there. But that's the open question for investors right now. So I I mean to summarize, you're saying that the, the the big reason we're not seeing this sort of increased volatility that we're seeing a debt volatility right now and and prices flat is because the leverage isn't there and the regulations aren't there are those, those are the two things and that's the difference here is that I mean it yet we keep hearing about this any day now, the you know, the institutions are coming in. Look at this, there's, there's a ef being filed by the biggest institution in the world. Why isn't this, you know, driving more institutional traffic anyway, those guys can do the kind of leverage that the retail investor can't. What's going on though. I mean, like what's, what's with the lack of enthusiasm is, is the, is the feeling that the, the ultimate endgame of Bitcoin, it's almost like world domination isn't quite going to be there. Is there, is there, is there a lack of faith in the market, the long term uh chipping away at this belief of Bitcoin thanks to FTX and UT and all those things, I mean, like, is this a fundamental issue, a long term, fundamental issue beyond leverage and beyond regulation? Well, we think some of some of it's a timing issue we saw after Blackrock filed that a number of large players got involved in this on the CME futures market in anticipation of the spot being approved, you know, after which there would be notable spot buying. Some of that optimism has come out of the market last week's delay of ARCS spot. Bitcoin filing brought a little bit more air out of those sales. And then I heard your last segment on Argentina, like I think I disagree a little bit on the Russia side in the sense that Russia just raised rates 450 basis points yesterday. They're talking about more capital controls. So that's not a positive environment for crypto crypto an asset class that requires inflows just to keep the price flat. If you have one of the major sources of demand, Russia cracking down, you know, I don't see that as a positive. I think these are timing issues. You know, the chances of a Bitcoin ETF being approved next year are probably greater now than they were a month or two ago. Most of much of the options activity is taking place at December X, not September. So it seems sophisticated. Market participants agree with us to be a little bit pessimistic in the short term, the longer term story. Yes, the institutions have to get involved. You know, we think that's going to be at the sovereign level in the Middle East in Asia, in Latin America and it could be, you know, a 2024 story which lines up with the having, which lines up with the political, you know, political dynamic in the US, with the election. So I think it's a timing issue but for now, no volatility, no volumes. It's dead out there. So Matt, if I can summarize, you're pessimistic about the spot, Bitcoin ETF in the short term, but optimistic about it happening in 2024 and possibly kicking off the next bill cycle. Yes, I want to turn now to, oh, I'm losing my voice a little bit here. I want to turn now to uh alt coins and NFTS. He says what you say, um the lack of leverage along with regulatory uncertainty. Like we've been speaking about a shifted market structure of alt coins and NFTS relative to Bitcoin. What do you mean by this? Well, most crypto cycles haven't been too many of them, but they start with a Bitcoin rally and then market participants take profits from, take their Bitcoin profits and use them to speculate on leverage on new innovations, whether it's Alltel ones, two S NTS, whatever is new this time, that leverage is less available and there are a lot more regulatory uncertainties. So we haven't seen the supply of leverage, we haven't seen the demand of leverage and all coins continue to underperform. All right, Matt, we are going to leave it there. Thanks so much for joining the show this morning. That was head of Digital assets, assets, research, Matthew Siegel.

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