Oct 31, 2023

Bitcoin (BTC) is holding above $34,000 after a hawkish decision from the Bank of Japan.

Video transcript

Bitcoin is holding above $34,000 after the Bank of Japan signaled that it's open to higher rates. Joining us now to discuss the crypto markets is bit wise crypto analyst, Ryan Rasmussen. Welcome Ryan. Hey, good to be here, Lawrence. Good to see you. So again, we we, we see Bitcoin uh taking a look now uh at, at liquidity in the markets which uh the which Japanese investors provided there is a chance now that uh that might not necessarily happen in the long run if there are higher rates, correct. So I I'm sort of trying to piece together what's exactly going on because if Japan raises rates, one would expect that takes away some investment out of Japan into things like crypto. So why hasn't crypto particularly Bitcoin suffered with higher rates or the potential for higher rates is not, not 100% there, but the potential for higher rates in, in a, in a country, a crypto friendly country like Japan. Yeah, that, that's right. We're seeing a potentially higher interest rates in Japan that's going to have a similar effect to a certain extent as rising interest rates in the US have had on markets, you know, over the past year or so. And so I don't think it's far off to, to try to connect those dots and say higher interest rates. Japan going to have an impact on risk assets like Bitcoin. But I think the reality is, is that we've been living in this higher for longer environment now for over a year. And so the, the rate of interest rate policy change in the US and in Europe and now, you know, across Asia isn't as shocking to markets as it perhaps would have been a year ago. And so I do think it does have some impact, but obviously Bitcoin holding strong here, I think that speaks to, you know, Bitcoin as a flight to quality asset, kind of like Larry Fink had said a few weeks ago on C NBC kind of like gold. And so I do think it has an impact but not as big of an impact as the potential for a flight to quality and for a more, you know, stable asset given these chaotic times. Uh We, we, we see of course a lot of economic uh a lot of geopolitical uncertainty right now happening. We have two major wars about either starting or ha have started so far. Um And there is at least some suspicion that Bitcoin is used in that process on some level. Um It that and that's debated, of course, you can go on Twitter and you'll see people, everyone with their own set of facts here. Uh Nonetheless, it, it's, it, is it more than just the enthusiasm for the ETF, which a lot of people have said this is all ETF, is there more to the story than just ETF? I think there's a lot of momentum behind the price of Bitcoin that's driven by the potential for a spot. Bitcoin. ETF. I, we think a bit wise a spot Bitcoin ETF is the biggest thing to happen to Bitcoin since it was traded in 2009. So we, I think it's a huge deal. It's going to unlock a ton of demand on the market that really hasn't been able to access Bitcoin because of compliance or regulatory burdens. And it's going to create some regulatory clarity around Bitcoin that will give at least us investors more comfortable in investing in Bitcoin. I do think that there's other factors at play. You talked about the geopolitical conflict, we talked about rising interest rates. Bitcoin really is well suited for that kind of environment. I think it's evolving into this chaos, resilient asset and a thought Bitcoin A TF is just going to allow more traditional financial managers, professional investors to access Bitcoin at a time where chaos is reaching, you know, a multiyear highs. And so I do think the spot Bitcoin A TF plays a role. We certainly are excited for the prospects of a Bitcoin A TF. We think a bit wise we might see one as soon as November or December, you know, before the holidays. But I do think there's a few factors at play, geopolitical risk rising interest rates, the spot, Bitcoin A TF, all of those are tailwinds for Bitcoin. And that's why we've seen this big price jump over the past month and it's why Bitcoin is up more than 100% year to date. Right. I want to take a look at this chart now, bit wise recently published its crypto market quarterly review. The chart shows Bitcoin compared to major asset classes like gold, real estate bonds, equities and commodities. Talk to us about what we're seeing here. Yeah, I, I love this chart. I like to call this chart the the Ricky Bobby of Crypto charts. It kind of shows that Bitcoin has either been the best performing asset class or the worst performing asset class over the past 1012 years. And so it's one of those, if you're not first, your last is what we're seeing a lot of response to on Twitter, which I love. But really what it tells us is that Bitcoin is a powerful addition to a portfolio. It's not as uh correlated to traditional assets as many people think it's traditionally been something that outperforms traditional assets in boom cycles, underperforms in bust cycles. And so right now, we're kind of seeing the beginning of what we think is a new four year or more cycle where we're seeing the mainstream adoption of crypto. And so you generally have in these four year cycles, three positive years followed by a year of retracement and then another three years and a pull back. What we're seeing in 2023 with Bitcoin up more than 100% year to date is that we're in the first year of what we think is a multiyear bull market and, and even when compared to other assets like real estate and equities and gold and bonds, we think Bitcoin is a really powerful portion of a portfolio right now. We're seeing advisors and professional money managers that we speak to start thinking about Bitcoin in their portfolios as a nice alternative investment to hedge against some of these risks and to boost risk adjusted returns, they're starting to think about it. But uh why haven't they made the leap? The, the idea is that you, you kind of when you're a portfolio manager, you're, you're not, you don't particularly care about what's happened in the past, you're looking forward. So what is their view? Why are they, why are they withholding from putting money in? Are they looking forward and saying, you know what? I don't think this, the returns are going to be as good as they have been in the past. There's certainly a little bit of that. There's certainly a little bit of hesitance to say. How do we know that these past outsized returns are going to carry forward. I think the major reason we're seeing advisor turn the corner on including Bitcoin in portfolios on a go forward basis is, is really the regulatory clarity in the accessibility that a spot Bitcoin ETF brings for a long time because if you're associated with a big wire house or another type of firm that doesn't allow you to access certain types of products, maybe only allows you to invest in ETF S or a range of products like ETS, you haven't been able to access Bitcoin. You can't just go buy it on behalf of your clients on Coinbase, on cracking on Unisoft. You have to wait until it's in a regular regulatory compliance or an easy to use vehicle like an ETF. And so it really is an excessive issue and a compliance issue. And so now that we should see a spot, Bitcoin ETF soon that regulatory and compliance burden is going to be lower and that's why they're starting to turn the corner on. Hey, let's include these in portfolios. It's a one click way to access Bitcoin on behalf of our clients in a time where Bitcoin is looking more and more attractive, given the geopolitical and given the inflation and interest rate risks. You know, there was a lot of excitement about the E futures ETF and then when it launched, it was a little bit lackluster, given what we saw happen there. Does that change your stance at all when you think about the excitement in the industry and even the excitement at bit wise about a spot. Bitcoin ETF. Yeah. You know, when these futures ETF S launched a few weeks ago, we certainly would have liked to see a little bit more excitement from the market around them. But I do think that that's just a sign of the times when we're still so early in this next bull cycle. And that gives me a lot of excitement around where things could go. One thing about futures. ETF S is that a lot of people don't love investing in them. They are a little bit less tax efficient. They have a little bit higher fees than traditional htfs. And so a lot of the focus right now is on that spot, Bitcoin ETF and on Bitcoin. So Ethereum is playing that, that little brother in the shadows kind of role today, but we are excited about the potential for an Epo ETF in the future and what that could do but the the futures futures market, sorry is not as appealing to many investors, you know, some just don't understand it. Some don't like the tax inefficiencies. Some don't like the additional costs associated with rolling and, and managing those products and so less excitement than we anticipated. But I think that just speaks to where we are in this cycle and where we can go from here. So let's take a look. At this chart of correlations with the S and P 500 equities. It's going down using the 90 day moving correlation, which I like. Thank you very much. I don't not a big fan of anything shorter, longer, the better. In, in the case of correlation. In this case, we're seeing correlations go close to 00 is the sweet spot for fund manager. Uh What is this telling us is in terms of how investors are viewing crypto as a risk asset in general Bitcoin specifically. And also uh what's the outlook here again? Bringing back to that whole discussion we had at the beginning, the idea that there are uh idiosyncratic factors involved with Bitcoin that might not have anything to do with the broader market. I love this chart. This is one of the studies that we like to run a bit, like we're talking to advisors and money meers around how Bitcoin fits into a portfolio. If you look at the history of Bitcoin, it's traditionally ranged between 0.25 and negative 0.25 correlation with the S and P 500 which is a broad measure for equities. And so one thing that this shows which I think a lot of, you know, mainstream media gets wrong is that Bitcoin is not as highly correlated asset. It was for a short period of time when interest rate policy and financial policy was going wacky in 2020 2021 but since we've returned to a little bit of a less chaotic regime where we have steadier interest rate changes, we're seeing Bitcoin correlations fall back into a bound which becomes really attractive to investors. One thing that people look to in these times of chaos with geopolitical risk and domestic policy risk and spilling inflation and interest rates is that where can I find outsized returns or where can I increase diversification across the portfolio? And one area that we're seeing interest in is maybe carving off a bit of what investors would be allocating to alternative assets like gold or like real estate or like private credit and allocating some of that to Bitcoin because of the low correlations it has with traditional equities because equity don't look that appealing right now. Bonds don't look that appealing right now, given what's going on and given how they performed here to date. And so that makes them turn to uncorrelated assets like Bitcoin. And, and this chart is a great way of showing that for the past 10 plus years, we haven't had high correlation that narrative. If you look at that last hump there in that chart, if we can go back to it, that that narrative has was that the reason we had that hump was the um the market was viewing Bitcoin specifically crypto in general as a risk on play and that any and it was viewing it the same kind of risk as equities. So why has that, why has that narrative changed specifically uh with the rising rates or with higher for longer uh going on in the markets right now? Yeah, it's a great observation, I think it's changed because we have a less accelerated change of pace in interest rate policy. And so there was this big shock going on every time there was large step raises in interest rates and there was these big news events coming out around uh hawkishness from the Fed and now that that's normalized it now that we expect there to be higher interest rates for longer. I think that Bitcoin is slowly kind of release itself from that correlation with tech and risk assets. I think the other reason why is exactly what we saw over the past month with the mainstream media's narrative changing around Bitcoin is that it's a flight to quality asset. It carries a lot of the same characteristics that's gold. Obviously, that's why a lot of Bitcoin proponents refer to it as digital gold. And that's exactly why we're seeing correlations fall now is because you can think of Bitcoin as a, as a store of value that's kind of untethered from the traditional system, untethered from equities, untethered from bonds. And that's really appealing right now. When everything is moving in tandem with the chaos in the world, Ryan, you predicted we might see a spot Bitcoin ETF before the end of the year. What do you think is going to happen with the price, any predictions there. Oh, that's really interesting. We, we talk a lot about this a bit wise. Obviously, there's a lot of excitement with some price predictions out there. We think a spot Bitcoin ETF could bring in as much as 50 billion to 100 billion in inflows over the next five years. That definitely could have an outsized impact on the price of Bitcoin. We also think liquidity is relatively low across the ecosystem right now. So we wouldn't be surprised in our base case to see Bitcoin ranging the 30,000 or, or up to 100,000 with a spot Bitcoin, a TF launch. And you know, there are some estimates over the next 5, 10 years that Bitcoin could get up into the high hundreds of thousands which that really excites us as well. All right, Ryan, thanks for joining the show. It was a pleasure having you on again. Thanks for having me. That was bit wise crypto analyst, Ryan Rasmussen.

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