Jul 28, 2023

Bitcoin (BTC) held above $29,000 early Friday, while Japanese and U.S. government bond yields rose after the Bank of Japan (BOJ) maintained low-interest rates, but announced a slight hawkish tweak to its liquidity-boosting bond-buying program called yield curve control (YCC).

Video transcript

All right. So take a look at Bitcoin 29,000, just a little bit above. But what, what's happening in Japan? Well, the central bank is loosening some of its curve, uh some of its yield curve control that might be bringing in interesting times for the yen and for crypto, maybe we'll find out. Well, by asking bit wise asset management president Teddy Zaro, his mom's favorite son. Welcome Teddy Lawrence Jen. It's great to be with you again. I don't know that I'm my mom's favorite son. She has two others. Uh But I will say last time I was on the show, my in-laws noted that they also hear about my tweets from time to time as well. And so I wanted to mention that off the top. You better call your mom right after the show. Yeah, that's a big thing. Make sure, you know, let her know that you're thinking of her. She should call us. Yeah. Yeah. Get, get to it. Don't do it while we're talking though. Um So, you know, I gotta ask about uh Japan here because Japan of course, is, is, is an economy that uh a lot of people there are excited about crypto. Uh And, you know, they're starting to delve into it again, of course. Uh And now we have this situation where the Bank of Japan uh might have a little bit of a looseness when it comes to uh uh what it's going to do with the uh and not with the, the uh yen itself. But, you know, allowing the, the rates to move up a little bit. will that create a hurdle rate for the Japanese investors to say? You know what? I don't know if I want to speculate on crypto, if I have, if I can just put it in the bank and get that half a percent if not more uh in yields uh buying bonds. But you know what does this do for crypto? Sure, certainly uh across the United States with financial advisors here that our team talks to on a daily basis. We do see the dynamic that higher interest rates make portfolio allocations to fixed income more attractive. And that's something that we've been seeing as a growing dynamic for the last couple of years. But I think the more important story relative to Bitcoin, relative to crypto over the long term, not over the short term, which I agreement may have some impacts on price activity and volatility is that Bitcoin is a fixed supply regimented schedule issued token that doesn't change its inflation schedule based on the management of a central bank. And I think over the long term, that's the big story that we talk about. When we talk about Bitcoin, there's a fixed schedule. Bitcoin is programmatic. There's only ever going to be 21 million Bitcoins in the world. Uh And that's the thing that we think is really interesting for investors over a longer term time horizon, but over a longer period of time, you know, if you don't have demand for something 21 million doesn't mean much. But it, it, it, you know, the question is whether or not people want that Bitcoin and when we look at correlations, let's take a look at correlations with us equities here because I'm noticing that we're uh that this is a chart that you brought in. Uh it, it's a, it's a chart of correlations with the with stocks. Um And you see here, it, it from, from what I from what I'm gathering, that's a 90 day correlation. My favorite way to use it, my favorite uh correlation uh coefficient to use is the 90 day and it's coming down. Uh And which, which for portfolio manager is great because that means, hey, you know, you can, you can spread it out here. But what does it mean ultimately uh for the view about risk in, in general? And what, what, what are we getting out of this uh out of this chart here? Well, I'm glad we were able to make sure that we got your favorite correlation coefficient there. II I won't use anything shorter. My research team aims to please uh what I would say is that what we're seeing uh with Bitcoin in a portfolio setting is more confirmation of what we've been saying for a while. And what we believe, which is that Bitcoin is not a correlated asset and it, it did have a spike in correlation as you can see on the chart uh about a year and a half ago and that persisted for a little bit of time, but it's coming back down to more normal levels. And, and that's what we expect. We see Bitcoin's role in a portfolio as a really important one. We don't think it's a correlated asset, as we said. And I think that summer is a, is sort of an important time where investors and financial advisors step back pause, they reflect, they take a look at what's happening in their portfolios. Uh And you see a really interesting picture related to Bitcoin. One, as we show it on the chart, correlations are breaking down two, you have a year where equities are doing well. S and P 500 is up close to 20%. Um But Bitcoin is up about 75%. Ethereum is up about 50% equities related to the crypto ecosystem, uh where bit wise issues, uh the first and, and, and uh one of the largest ETF SBITQ that holds a basket of crypto equities is up almost 200%. And it more importantly is not just that price action, but it's what's driving it. We see growing real world use cases in crypto. Uh We see major growth, six figure growth in daily active users. Uh on Bitcoin, we see improving layer two scaling solutions on top of Ethereum. So real improvements in what is happening on top of the Ethereum Ethereum ecosystem. And, and, and also I haven't mentioned this, we see some of the largest, most influential financial players in this space are putting their hand behind this market. And so I think that is that is the thing that I would point out correlations down taking a step back. That's what we expect. And Teddy, we have another chart here that you shared with us this morning that points to the share of Bitcoin in profit or loss unpack this for us. Yeah. Really interesting. I wanted to point this one out today too. I think this, this talks a little bit about this. This chart speaks to what's happening with underlying Bitcoin holders. So what's showing here is if you study the Bitcoin Blockchain, and you look to see when Bitcoin was transacted in us dollar terms, whether or not those Bitcoins are in a profit or loss position in us D terms. And as you can see almost all Bitcoin being held in this study, uh over 75% of it is actually in a game position. And I talked about that fixed supply earlier Lawrence, but I'll bring it up here again. Uh People I think 10 to reflect on 2022 and the drawdown that we saw on the market and think that there is a lot of carnage in the price activity. But if you drill down one level further, most investors are in a either slight gain or significant gain position in their Bitcoin holdings. And that's quite an interesting concept to think about as it relates to positioning. I got, I, I, you know, the thing I would want to know is uh not so much the quantity in each wallet, but uh but the quantity of wallets themselves because uh what I would be curious and that, that's for another time. Unfortunately, we're, we're running a long time but how many people got burned over this, that drawdown from 68 to where we are today to 30. Because of course, people jump in at the, at the peaks and they buy with little amounts. And does that ultimately affect the long term prospects of Bitcoin when you have so many people who are burned and say, gosh, I don't want to put money in this again. I got hurt. Whereas all the old school people who have large balances on their, on their accounts because they bought years ago in their wallets. They bought years ago, they could buy a lot more and they're all up and they're all thrilled but those, those people who bought those little bits, they got crushed and it might hurt the long term prospects. No. Yeah. Absolutely. Too many people. And it's not just the price activity, Lawrence, it's also the regulatory environment and the blow ups that we saw in the crypto companies that were participating in the market at that time. And that's why I'm so excited by not just the price action, not just the unchain studies that we have, but some of what's happening in the regulatory environment. Finally, I think the, the eagle has not yet landed when it comes to passing crypto legislation and uh and getting laws passed that will make it safer and better for uh main street users to participate in this market. Uh But that eagle is now circling the nest and has located it. And what we're seeing in the House Financial Services Committee this week in particular uh is cause for a great amount of optimism, something that we're really excited about that we finally see happening uh in Washington DC. Let's hope that's Apollo nine, not Apollo 13. I agree with that, Teddy. We're gonna have to leave it there. Thanks so much for joining the show and call your mom. I will do that. And hello mom. Hi mom. Thanks for having me guys. Thanks for being here. All right. That was bit wise asset management president Teddy Sarro

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