 Bitcoin volatility should continue to decline for a long time as it brings maturity, brings adoption, it gains more use and it's doing that. I don't see what will make it stop doing what's been doing for the last 10 years and that's going up. 10x over one year, there's too many players and people involved now I think that for that to happen. Hi everyone, I'm Giovanni, your host. Welcome back to our show. Today we are cutting through the noise of catchy price predictions and speculation and look at Bitcoin and crypto markets from a data-driven research-based perspective. I'm joined by Michael McGlone, Senior Commodity Strategist at Bloomberg Intelligence. It's a pleasure to have you with us, Mike. Hello Giovanni, thanks for having me. So first of all, can you short and introduce yourself and tell us about your background and what you do at Bloomberg Intelligence? You got it right. I'm a Senior Commodity and Crypto Strategist at Bloomberg. I've been in this business, I really started in the trading business and the trading bits in Chicago in the 80s and commodities and crypto is the main thing I really do at Bloomberg. My main focus is the outlook. I'm not a fan of big intros so people can always go to LinkedIn or wherever and find more details but that's my main purpose here is trying to figure out where markets are going and why and I've been quite bullish on Bitcoin for a little while and we can take it from there. Right, so what would be the connection between commodities and crypto? Well, I always go right to gold. To me, Bitcoin has been a digital version of gold since its inception and it's becoming more so every day. So the direct correlation I have is really towards gold and gold is really not a commodity. It's a store value diversifier. Historically it's been considered money and to me that's where the two really connect and that's the most significant place to connect, maybe a little bit to silver and then there's all the other cryptos. It depends how much we want to talk about those. My main focus is really lately because a macro is more Bitcoin. In one of your latest analysis on Bloomberg Intelligence, you said that Bitcoin has the chance to go up to half a million dollars but also completely fail and go to zero. So what are the factors which could lead to these two opposite outcomes? Well, I guess that's a bit of a comp up to say that. I think Bitcoin is going to continue to appreciate in price. It could get to that $500,000 market cap and that was kind of a lift that's the one some analysts have used that level as if it's equivalent to the market cap of gold. And I think the Winklevoss twins recently did a piece of research on that. I don't know what it's going to take to fail and there's so many things with the nascent technology like this that I can't really predict and we can list the number of those. I'd rather not go there so much but I look at it continuing to succeed and appreciate. And the way I look at Bitcoin is every day that goes by, it's succeeded. It's becoming, I see nothing but more adoption, more demand. And the key thing from a commodity standpoint is something I've never ever seen before is the supply is limited by code where it'll never be affected by price. And I see supply declining now. It's been like next year it'll be 2%. It'll increase the year after that it'll be 1.7% and continue to decline. Versus I look at gold, a good way to bring in more gold is to have the price go up. And you can't do that with Bitcoin. So the only thing that matters is adoption. I see those trends quite favorable. Okay, so you compare Bitcoin to gold. So I understand that the difference between gold and Bitcoin is that Bitcoin can potentially fail and gold cannot. Am I correct? Well, there is, I might not have heard of the phone. There used to be a TV show in the US called the Twilight Zone. And it's from the 50s. I remember my famous episode was about a bunch of guys who stole some gold and went to a time machine and went 50 years ahead and gold was worthless. What's that? Gold, that's what he said he was. He wanted to give it to me in exchange for a lift into town. What in the world would he be doing with this gold? I don't know. It's probably off his rocker. So as a historical example from 70 years ago, gold actually not having value anymore. So there's anything, it's a new technology like this, Bitcoin could fail. As gold could become something that people said, oh, we find an asteroid loaded with gold will just massively increase supply and reduce price. The key thing for Bitcoin to me is it's unique technology and it's not the liability of anybody else like gold. You look at all the other 7,000 cryptos of virtually everybody else's project. Bitcoin is neutral and it's the one that's been adopted. It's the first and I'm not so much a fan of it. I just reflect as this neutral commodity strategist and that's the key thing I need to bring out is I have no vested interest in either way. At Bloomberg, my main focus is getting it right because I report, the main thing is I publish on the Bloomberg terminal and what I see for Bitcoin is prices continue to appreciate. Something needs to change in this increasing adoption in this world of macroeconomics where the US and virtually every central bank in the world is printing a lot of money and liquidity and yields are near zero that this global decentralized unique electronic money should not appreciate in price. I don't see what would make it stop appreciating price. I don't see what will make it stop doing what's been doing for the last 10 years and that's going up. Right, so you pointed the limited supply of Bitcoin as its core feature because as the demand for Bitcoin increases and the supply of Bitcoin remains fixed then its price is bound to increase. Still, how do we know that this demand for Bitcoin is actually increasing? What are the main indicators which are looking at that shows this increase in demand? So these are some of the charts we'll be able to show. There's a few things I watch. First of all, let's look at some demand indicators. One of the significant indicators is on-chain. On-chain indicators you have addresses used. Addresses used I get from coin metrics and they've been increasing significantly. That was one of the significant. I watched the 30-day average back in 2008 when addresses used plunge as a good indication of the market declining and they've been marching higher. And if I just use a normal analysis, autoscale basis based on addresses used for the last two or three years against the price of Bitcoin, the price should be closer to 15,000 because they've been advancing. Another key indicator I watch is demand from regulated exchanges and investments. And the most significant is the grayscale Bitcoin trust, GBTC. Now that's been advancing rapidly. The total amount in the GBTC is around the equivalent of about 450 Bitcoins, 450,000. And if you look at the amount of inflows and appreciation, just the last six months, three months or so with the having and Bitcoin supply declining, just this one product, which represents something that trades on exchange and is regulated is absorbing about 30% of new supply. So as a strategist, something that's taking that much supply and there's no increase supply, the price by economic rules has to go up. And the third measure I watch a lot is off second measure, I should say a third. There's four is futures. Futures open interest. Now futures open interests are not significant and equivalent of Bitcoins, maybe 50 to 60,000, but the point is they're moving from lower left to upper right and that represents futures represent US regulation getting in the space, meaning they're regulated by US regulator, which has been one of the key issues here for an ETF. So if you look at Bitcoin overlaid with the NASDAQ, they reached the same level about in 2017 at about 6,000. That's when Bitcoin first reached 6,000 and NASDAQ was 6,000. So they basically reached one to one. And since that time, actual volatility on Bitcoin has declined a lot and NASDAQ volatility has gone up. So if you look at the ratio of volatility in Bitcoin, I'm using 260 days or basically an annualized measure to measure apple to apples on an annual basis, the volatility now on Bitcoin is about two times that is of the NASDAQ composite, which means that risk factor is two times. In the past, it's been a high as seven or eight times. So it's pointing out that this new asset class that's only been around for 10 years is becoming less and less volatile and the older asset class, i.e. the stock market is becoming more and more volatile. Now, they're not there completely one to one, but at only two to one, that's the least, I would say, risky on this measure that Bitcoin's ever been versus the NASDAQ. And they're still at about a one to one ratio. The NASDAQ's around 1,100, Bitcoin's just below this 10,000. So that to me gives Bitcoin the upper hand in appreciation. And typically when volatility gets this low, it's never been this low. When it picks up, usually favors Bitcoin. Got it. Okay. But on the other hand, many people see volatility as a positive factor, which could bring huge upsides to Bitcoin. So if volatility decreases, those upsides would be more limited. So do you see decreasing Bitcoin's volatility as a net positive for Bitcoin? What's for this way? Bitcoin's a nascent technology. And when it was first started trading volatility, it was extremely high. Bitcoin volatility should continue to decline for a long time as it trains maturity, it gains adoption, it gains more use, and it's doing that. That depends on which measure you watch. Are you watching the big picture? An annualized measure. So that should continue to happen. The point is, historically, when Bitcoin's rallied, it's usually broken out in price and volatility has gone up. When it goes up too much, it gets too speculative. It gets too high, i.e. 2017, and then it crashes. Now that's what's happened since. What we're doing right now in terms of market, as a market person looks at, it's got parabolicly too expensive, just like the Nasdaq did in 2000, 1999, 2000. It's correcting, and it's building a base for the next extension of the bull market. And to do that, typically, volatility has to decline. And oftentimes, what happens historically in markets, you need a period of disdain or underperformance. And we're having that now. It's the third year now, the market hasn't made a new high, which is good. It's building a base, as we would say in markets, building a base for continued appreciation. And for it to not do that, I need signs of negativity, i.e. less adoption, something that would make me tilt my bias negative. And I see the opposite. I see more adoption. So just like Gold did, remember Gold went up to 1900. It crashed to 1,000. It built the base. It was underperformed for five years. And then it started breaking out. To me, Bitcoin's just doing that. And it's following Gold. I had to mention Gold because the correlation between the two, depending on how you measure, is the highest ever. Okay, so that's interesting because a lot of people coming on our show like to make quite daring price predictions. We had Dan Morehead from Pantera Capital explaining me how Bitcoin could go up to 115,000 by August 2021. If you take the stock to flow from the first two halvings and extrapolate it out to the third, it would imply a price of $115,000 for Bitcoin in August of next year. So probably from your point of view, these kind of predictions are not that realistic and not even desirable. Well, there's different reasons for those types of predictions. Number one, there's someone with a bias, someone trying to sell a product on the sell side, and who benefits from that. I don't. I have to have a realistic view. Is it going up or down? And remember, I'm just a strategist and I'm published on Bloomberg. My primary purpose is publishing and getting things right. So sometimes that also gets headlines. It's how you get readership. If Bitcoin was at $100, no one would care. But things like that get headlines, get readership, and gets interest. And so there's ulterior motives there, whether it's right or wrong, that's sometimes subject. But I do think that price is going to appreciate, I don't know how much. I'm getting closer to thinking it might get towards the capitalization of gold. Just before our conversation today, I was comparing Bitcoin to the capitalization of the NASDAQ. It's just a small fraction, which shows you in a way how small the Bitcoin market is, less than $200 billion. That's just my point. Sometimes I'll put out a point, like I recently pointed out, Bitcoin should hold support at $10,000 and appreciate. Right. So according to your sober point of view, Bitcoin's volatility is decreasing. That is why we should expect a gradual appreciation and not something like 10x in one year from now. I'm glad you brought that. It's a good point. In the key narrative, I like to use Bitcoin. It should continue doing what it's been doing, but at a much slower pace at much later. So right now, annualized volatility in Bitcoin, as I'm just pulling up a chart right now, is about 62%. That's just an annual volatility. The high in 2017 when it was on that roar was around 100%. And that's just a measure of volatility. All time low for this measure of volatility was 37%. And that was 2016 right before the breakout. So that's how it works. But remember, when it starts at a penny, and no one knows about it, a lot of people disagree with it and it becomes increasingly adopted, that's the exciting part. Now, this Bitcoin is not a child anymore. It's more of, I would say, a young adult. In terms of assets becoming into the fray. There's probably going to be an ETF soon. I see a lot of institutional investors getting into it. A lot more hedge funds, a lot more traders, like I used to be a trader. Traders are about the volatility. But 10x, maybe over 10 years, that makes a lot of sense. 10x over one year, there's too many players and people involved now, I think, for that to happen. And it's already had massive appreciation. So I think it's just going to do what it's been doing, but slower. So a lot of price predictions are based on the past performance of Bitcoin after the halvings. So people look at the previous behaviors of Bitcoin following the halving and they see this massive appreciation and they say, oh, Bitcoin will do the same after this last halving. However, the sample of previous halvings is too small to base some price prediction on this. Am I correct? I like that analogy. We basically have to use past performance may rhyme with current conditions, may rhyme the history, will rhyme with history, but we have to factor in the fact that how new and nascent the market was. And the halving meant actual annualized supply was going from, let's say, 20%, increasing 20% annual basis to 10%. Now, last few years, it was 4% or 5%. Now it's dropping to 2%. You see, that's going fractionally towards zero, 100 years from now. So it's just part of the maturity of how it was set up, which I'm somewhat impressed by, that those examples in the past are history. So I recently had a big investor ask me about supply and the mining, and I said, it doesn't matter. He said, why? Well, it doesn't matter anymore. Now it used to, because before this year, there was 1,800 coins a day that was produced. Now it's only 900. Four years from now, it's only going to be 450. That's done. Unless something changes with that, that I can't predict, that's just it. That's how the supply is. So as a strategist, I can see where that's going. It's increasing. It used to increase like this on an annual basis. Now it's increasing like this, and that's going to increase like this. So all that matters is demand because supply is fixed. So that's why I always go back to the history. Doesn't matter as much anymore. It's looking forward and trying to extrapolate what that means compared to when it was much of a younger asset. So in the same analysis we were talking about, you predicted that stablecoin tether will overtake Ethereum as number two crypto by market cap next year. Why do you think so? I appreciate you mentioning this. This is a simple analysis of the linear regression of the facts. Unless the pace of increasing market capitalization of tether changes, unless keeping at the same pace, come with less than a year, tether, around 14 billion right now, will surpass the market cap of the second number two, Ethereum, which is around 30 billion. And to me, that's significant because first of all, you have to analyze this is simple pattern recognition, trend analysis of what's happening. Tether and stablecoins are becoming increasingly adopted at an exponential pace, and they have a lot of fundamental backing behind them, i.e. every central bank in the world is considering going digital central bank digital currencies. This is just an indication where they're going. The thing about Ethereum is I see it's getting increasing demand from Dexes and decentralized finance and things. But the issue with Ethereum is there's 7,000 other cryptocurrencies and 7,000 other platforms. There's many other platforms that are competing against it's for its business. Now, it might be the main one, it might win, might be like an Amazon, but the point is I like the difference rate. There's Bitcoin in the cryptocurrencies markets, and then there's everything else. Bitcoin is number one, Ethereum is number two, with like one fifth the size, and tether is number three. Soon it's going to be tether, less things change, which will define really what cryptocurrencies are becoming. There's gold. There's the US tower becoming the world's stable currency, becoming transactable via the blockchain, and then there's everything else, and there's 7,000 everything else, which is kind of where I get somewhat confused. I wouldn't say so confused, I measure the market, and I view that's a whole different place. When there's so many of them, I only focus on the one or two that matter. The key thing recently for me was Ethereum got a little showed indications of speculative excess, but it got around to around 5,000. It was really expensive up there. It had big gaps below and just way too much excess. At the same time, the same thing with the NASDAQ. Now, they're very highly correlated, and now it dropped back to around 350. I view 350 as a first good support for the market to continue to advance, but I don't follow as much. I know less about it, and I'm more focused on the macro supplying demand factors of Bitcoin. You also said that the rise of Tether will have a negative impact on altcoins in general, but a positive impact on Bitcoin. Why do you think so? It has been. That's just what's focused on what it has been doing. Altcoins have been declining in value. Maybe it was certainly since the 2017 peak. Tether has been appreciating exponentially. Around that time it was 1 or 2 billion, now it's 14. And the reason is there's... I like to use the word crypto assets, because oftentimes they like to call themselves crypto currencies. Well, they're not really currencies. They're not stores of value, units of exchange, and mediums of exchange. They're highly speculative digital assets, which is okay. Remember, look at my hair. I used to be a speculator. I used to be in the trading pits. I get speculation. But let's point out what they are. Most of them are copycats and wannabes of Bitcoin. And Tether, the key thing it has going for it, is adoption. So here's the key trigger point for Tether. It was last year around April, when the New York Attorney General came down and Tether was some allegations, I don't know, through or false, about them not actually holding the full amount one-to-one basis. And the market initially dipped and came right back and then started appreciating more. To me, that was a good indication. The market doesn't care. It wants a central bank digital currency. It views Tether as the one that's being adopted. It wants a way to be able to transact without into intermediary, globally without credit cards and things, dollar-based, and Tether's winning that. It's based on that world's reserve currency. And then the next to Tether is gold. You have gold and you have al-Fiat currencies. Gold, in my main terms in current cryptos, is digital. There's Bitcoin, there's Tether, and everything else. Bitcoin is the digital version. It's gold, where there's no one else's project. It's the one being adopted. It has the depth. It has the size behind it. And it represents the macro alternative to Fiat currencies. So don't you think that the massive growth that we are seeing in DeFi will have a very positive impact on Ethereum? Because, I mean, most of DeFi is built on Ethereum. It is, it has. Agreed. So it's one of those known knowns in the market. So I look at a known known, but then why is Tether still, no, I'm sorry, why is Ethereum? It's appreciating. It's appreciated a lot this year. But it's gone up a lot. So a lot of that's priced in, because we all know that. It's a known known. DeFi is picking up. DeFi is not going to go backwards. I think it's in unlikely. Ethereum is one of the first, it's a primary platform for DeFi. I get that. But if you look at the actual pace of appreciation in assets in market cap, it's nowhere near an percentage basis as much as Tether. Yet Tether has the same old story. And that is, it's what I think is happening to paper money two, 300 years ago is, but it couldn't go in digital. So we have a lot of guests that jump on our channel and predict the end of the US dollar as the reserve currency of the world. Max Kaiser even said that the dollar is going to end up like the Venezuelan Bolivar. So they say that people will last, we lose trust in the central banks. And the whole world will unite around the centralized system based on Bitcoin. What do you think about the scenario? Is it something realistic to you? Oh, there's a lot of potential behind it. I love that term Bitcoin maximalist. I do believe that that narrative fits into what I think is happening. And that is the Bitcoin price should continue to appreciate. The market cap of Tether should just continue doing what it's been doing, appreciate it much more rapidly. But as far as this narrative about the dollar collapse, I've heard that I'm 55. I've heard it most of my life. And America is still the dominant police of the world. And as my son, who's a Marine, likes to wear this shirt that says two times more than two champions, you know, it's still a bit of a dominance there. And then there's the whole back behind the dollar. Now, the key thing I point out is there's needs to be alternatives to it because of what's happening on a global basis. And that is massive amount of liquidity providing every country in the world, zero interest rates, which means a neutral digital currency has by default has to win. And I believe in that narrative to extent, but what do you pay your taxes in? Bottom line, that's what matters. What do you pay your taxes in? Paper money. And you need to have some of that paper money. But you always want to convert a lot of that piece of paper money into relatively secure assets, real estate, stocks, maybe bonds not anymore. Alternative currencies, gold, Bitcoin. It's just called proper diversification. Taking that piece of paper we earn, making sure you pay your taxes with it, but also diversifying it properly. And I think Bitcoin is part of that, like real estate. Young, my kids are at that age, I said buy, borrow as much as you can of that paper and buy a decent home or piece of property. And make sure Bitcoin is part of that portfolio. Great, awesome. That was very interesting, Mike. Thanks a lot for being with us today. Giovanni, thank you very much. It was a pleasure meeting you and I'm looking forward to speaking with you again in the future. That was Mike McGlone, senior commodity strategist at Bloomberg. I'm Giovanni, your host. If you enjoyed the interview, hit the like button and subscribe to our channel.