Bitcoin Is 'Significantly Undervalued Today': Off the Chain Capital CEO

Our models today, whether it's a trend line analysis, Metcalfe's law stock to flow with either us dollars or gold. All of those models indicate that Bitcoin is significantly undervalued today. It's Monday, April 29th, 2024 and this is Markets Daily a show where we get into the minds of some of the smartest and most experienced CEO S investors, traders, analysts, economists, anyone with a smart or hot take on the crypto markets. I'm Jen San Nasty. Before we get into our discussion today. Let's take a look at what's going on in those markets. Bitcoin and Ether are trading lower this morning with mixed bullish and bearish market signals as the week begins, Bitcoin was at around $62,000. The last time I checked and Ether was at around 3100. That was as of around 10 a.m. Eastern time this morning. There are fears of stagflation on the rise. Now, this is a period of high inflation and low growth. This could be a worst case scenario for risk assets like crypto. We're gonna keep watching the macro aspect of the markets on this show. So if you don't already like and subscribe, do that and we'll continue to uh follow what's going on with inflation. But meanwhile, the launch of the spot Bitcoin ETF in Hong Kong is tomorrow. But reports that mainland Chinese investors won't be able to access the products have tempered bullishness on these ETF S. Now with all of these mixed signals in the markets, let's try to make sense of it all with the CEO of off the chain capital Brian Dixon. Brian. Welcome to the show. Thanks so much for having me. I appreciate it. Of course. So there is a lot going on in the markets. I've outlined some of them in uh the introduction. Just just now talk to me about what you're watching from a bullish perspective and then we'll turn bearish. Sure. So I actually think the from a bullish perspective, the Hong Kong ETF S are still very bullish uh from the my research, it looks like they're anticipating somewhere around 25 billion as an opportunity to flow into these Hong Kong ETF S over time. And I also look at the Hong Kong ETF as a proxy to China. Now I know there are separate legal jurisdictions and have their own governing body. But in a lot of reality, I think that there's a lot more influence from China than people realize. And so I do think that there's a lot of opportunity there still and they're using it as this test bed to figure out you know what's going to happen initially, once we launch this, in addition to the Hong Kong ETF bullishness, there was also reports that released this morning that Australia is looking to produce their spot Bitcoin ETF sometime this year and approve that. So that would open up a brand new market with a regulated on ramp to acquire and get exposure to Bitcoin, which I believe is also a very big bullish indicator. Well, it's interesting, let's talk about these Hong Kong ETF S for just a second. There have been guests on the show that share the same perspective as you. But there was a Bloomberg report that came out just a few weeks ago. I mentioned it in the introduction that mainland Chinese investors might not actually have access to these products, which is different from other ETF S that um have launched in Hong Kong. Mainland Chinese investors do have access to those. What do you think that could mean for the crypto markets? If mainland Chinese investors don't get access to these products right away, it could mean a little bit slower of adoption in that region. But whenever I see China ban things, I always go back to what we've learned over time with what occurs when China bans something or restricts access, what usually happens. And this is true of Google and Facebook and linkedin, a lot of these media and search engines that we use here in the United States. If a Chinese citizen wants to access it, they're going to access it. And usually what they're doing is they're leveraging VPN S or cloaking software to work around the Chinese firewall in terms of internet infrastructure to still access these platforms. So I won't be surprised if once the ETF is launched, if some of the citizens that really want exposure to it may find workarounds to still invest and get exposure to the asset now that remains to be seen. But we have seen that before with a lot of these digital communication networks and social media engines where they are using VPN to circumvent that Chinese internet infrastructure. Now, I do just want to clarify that they haven't been banned in China. There are just reports that uh mainland Chinese investors might not get access to the product. Um as as soon as folks who are sitting in Hong Kong. But let's take uh the bearish look. Now there's some bearish news coming out of Russia. There may be a ban on crypto in Russia as early as September 1st. Do you expect to see the markets react to these news? Um obviously in a negative way. So I think in the Russian jurisdiction, there could potentially be a short term sell off there. A couple of things that are important to look at with the Russia ban. And I look at this very much with some of my statements I just made about China is that if a Russian citizen wants access to it. They're likely going to use a VPN to get access to it. And I think we've seen that historically as well. But one thing that's very interesting about the proposed ban is it exempts miners, which to me lays out a couple of different things to think about. One is Russia maybe is leveraging miners or wants to leverage miners to continue to accumulate Bitcoin as part of a geopolitical strategy. But in addition to that, if we look at mining tax revenues in Russia, there's reports out that say crypto miners in Russia produce over 2.5 billion in liquidity for foreign trade settlements and also drive a significant amount of tax revenue for the region. And so it's very interesting that they, they're trying to say we're banning retail investors from accessing the crypto ecosystem, but we still want to allow miners to operate. So it's uh you know, there's probably a lot more there that we don't realize yet. Well, Brian, where do we go from here? I feel like the year started off so positive. We're sitting um it's almost a may now and we have these mixed signals on the market. There are some reports on coin desk this morning where analysts are saying, you know, we may have already hit the top of the cycle. The bull cycle could be over. Where do you think we're heading next? Yeah, I do not think we've really even begun to enter the true bull cycle of what we're going to see over the next 12 to 18 months. I think we saw a run up because the ETF si think we saw some run up because of the H and now we're seeing a little bit of a drawdown, which is totally normal if you look at historical Bitcoin cycles. But I really do think over the next couple of months, we're really going to start to see things ramp up as well. And you know, off the chain, we use a series of different models to help us understand whether Bitcoin's overvalued, fairly valued or undervalued. And our models today, whether it's a trend line analysis, Metcalf's law stock to flow with either us dollars or gold. All of those models indicate that Bitcoin is significantly undervalued today. And so with that, you know, models are, you know, it was a famous quote says all models are wrong, but some can be useful. And so we like to use those to the best of our ability to help us project where Bitcoin could go in the future. But I do believe Bitcoin is very undervalued today. I think we're going to start to see the having pressure build up with the supply shock in the coming months. I believe once we hit over 100,000 Bitcoin, which I think will happen before we know it. I believe we'll start to see retail kick in and they're going to start to really drive the price as well. And then with these Bitcoin ETF S coming online, I mean, there's only so much Bitcoin that's tradable in the market. You know, in recent months, that number has been somewhere around 25 to 35% of the existing Bitcoin is floatable because the rest of the people holding Bitcoin are not selling it. And so because of that, that leaves a very thin market of Bitcoin that you can actually go out and acquire in the market. So as these ETF S ramp up, and we're looking for more acquisition of Bitcoin from the retail and institutional investors. There's going to reach a point where people are going to say, where are we going to get that Bitcoin from? And the only way to be able to acquire it in my opinion is to have a premium build on top of the price to command sellers to say, ok, now it's reached a point where I feel comfortable selling some or all of this. And with that, that's going to happen, I think sooner than we think, probably over the next year to a year and a half. Brian, we talk about the ET F's ramping up very often on this show. But here in the United States, we've seen the slowdown in ETF inflows. What do you think it's going to take to have that number ramp up? And, and what do you think when you see the inflows are slowing down. So I think seeing the inflows slow down is actually a very healthy thing. It's totally normal in any new ETF that's launched. There's a period of time where we see, you know, tremendous inflows and people getting exposure to the asset and then we'll see a point of stagnation and maybe even we'll see a slight drawdown with them as well with some uh outflows. Now, what I think will occur is now that we've reached this point where we're past the Bitcoin having and we're going to see the supply shock start to kick in before long. I think as we continue to progress with the market, we're going to see a more inflow scenario again. And I believe that's probably a function of price and some geopolitical events that are happening right now around the world. But I do believe over the next month or two, we'll start to see things turn around and ramp up again. And I would not be surprised if we saw all time highs again over the next two months. Where do you think the price is going in the next 12 to 18 months? I think we're looking at a floor of somewhere between 150 to 200. And I think on the high end, we'll probably see around a million, it will fall somewhere in between that range. And I think that's largely a function of, of several things. One, I think once we hit 100,000 or more, like I noted before the retail markets will kick in and things will surge even further. I think that uh due to the wars that are going on around the world right now, that has a lot to do with how people are looking at their capital. So if you're an investor in crypto and you look at crypto as a risk on asset, you may be a little more careful depending on how those escalate or not. Um But in reality, how I look at it is Bitcoin is war insurance and that's how people should be looking at it, right? Like if it's a wartime scenario, I wouldn't want to hold anything other than Bitcoin because I'd be able to have property rights and control that asset and move it anywhere around the world. If I was one of these citizens that was in one of these conflict zones and you had to actually take your property and your assets and move them. There's really nothing better than that. And so as more people begin to understand and educate themselves on that concept over time, I think that will drive price as well. Make sense of that for me. You know, we have the ETF now it seems like Bitcoin is a little bit more closely correlated with traditional markets. Um We have the wars, it's looking like we may not see any rate cuts this year when you look at what's going on from a macro perspective. Do you feel like Bitcoin is becoming so closely correlated with traditional markets that maybe that narrative doesn't hold as true as it might have in the past? I actually do not. And the reason I do is do not is because if you look at Bitcoin from a short term perspective, yeah, there's more correlation but when you zoom out with it, the correlation is very, very low to the S and P 500 other uh corresponding assets. So with what's happening with these wars, I think that it largely depends on how they escalate who all gets involved. And it also depends on how the general market is viewing that. So there's a lot of people in the Bitcoin community that are long term holders of the asset that have really bought into this long term store of value with Bitcoin. And there's a much smaller percentage in my opinion that view Bitcoin as a risk on asset. And so that could create that small sliver of investors that want to sell off in a scenario which would create some short term volatility. But I think over time, more people will understand that this is the type of asset that you want to be investing in. And the reason that is is because when a war occurs, what do the central banks around the world start to do? They start printing money like crazy so they can help finance the war and the military contractors and everything that goes involved in trying to progress this conflict, which is really unfortunate, but that's just the way things work. And when that happens, the more the money printers turn on, most people in the crypto community understand that that's going to devalue our currency over time, thereby making an asset such as Bitcoin much more valuable in the future. Ok. And Brian, just before I let you go, we talked a lot about Et F's Bitcoin. Uh We've talked a lot about what's going on from a macro perspective. Anything else? It could be absolutely anything uh that you're watching that's making you really excited about crypto right now. Well, there's one other thing, I think it's very interesting that happened, I think it was last Friday and it was with the DTCC and the DTCC came out and basically noted that they will not allow for people with uh Bitcoin ETF S to use that as collateral for loans. And this caused a kind of resurgence of comments within the crypto community. And I think most people didn't fully understand what was happening there because they were coming out thinking it was like this attack on crypto and Bitcoin in reality, that is no deviation from what's actually in place right now because as an example, if you're in a securities trading account and you want to use your Bitcoin ETF stock as collateral to take out leverage for investments, they won't allow that now is what they're saying. But if you were to go get a mortgage for a house and let's say you have $10 million in Bitcoin and $100,000 in cash as part of your portfolio. The bank is not going to use that $10 million in Bitcoin as a calculable opportunity to use as collateral for that mortgage. They're not allowing it today. They really haven't ever done that. And that's kind of what the DTCC is doing as well from securities trading perspective as they're saying, the banks aren't doing this. We're not going to allow it either. And a lot of people got pretty upset thinking that, oh, this is this big attack on crypto and this, but in reality, that's how things have always kind of been when it comes to digital assets. Unfortunately, at this point in time, banks and lending institutions are not extending credit based on your crypto portfolio, right? It's not a calculable thing that they can allocate to. Um so they got to look at your other assets that you have that are more traditional. And I think that's uh basically what's happening with the DTCC. So I think that's something that was just misunderstood in the markets last week and is now starting to get cleared up. But in terms of things that I think are very exciting, I think it's just much more interesting to see the use cases that are being developed in the digital asset markets at large. And another thing I think is fascinating is the resurgence of use cases on top of Bitcoin, right. So right now we have Bitcoin that solves this very finite use case and we have the rest of the digital asset ecosystem that has these all these different utilities that you can build upon. And now we're seeing much more opportunity build on top of Bitcoin, whether that's ordinals, whether that's transcriptions or excuse me inscriptions. Um All these new use cases that can be built to further advance Bitcoin as a protocol. And one thing I pay very close attention to is if you look historically back at the internet, there was all these competing protocols when the internet launched. Um But IP internet protocol became the dominant software platform that everybody even today built their software applications and businesses on top of. So what we don't know in the future is, are we going to have all these different blockchains that serve all these different uses cases that's possible or are we going to have one dominant Blockchain where the rest of the digital asset ecosystem collapses on top of it? And so it'll be really interesting and something I pay close attention to whether we do have this multi chain universe in the future, which I'm totally open to or if everything collapses on top of something like Bitcoin, do you think it's gonna all collapse onto something like Bitcoin or Ethereum or are your, are your bets on a multi chain future? So we, we uh diversify in a variety of different areas with off the chain strategy. Um But I'm really open to a universe of either. I mean, if we look historically how the internet played that all collapsed onto one particular protocol and IP back in the day was not the smartest and fastest technology at the time, there were others that were probably superior, but it's where the adoption happened. And what have we seen today? The mass adoption of the digital asset ecosystem is on Bitcoin today. And so history may repeat itself in that regard or the ecosystem may not develop fast enough. And we may see some of these other chains that have much faster and more efficient transaction times and speeds for different use cases evolve as well. And it could be a, a large multi chain universe. I'm really open to any of those, but I do think it's an interesting thing to pay attention to because we just don't know yet. It's too early to figure that out.