 It's the perfect, the most perfect money we've ever had. It's the mother of all bubbles and is also the biggest bubble in human history. Over 50% of my net worth is in Bitcoin. 50%? Shame on you. That's nuts. Bitcoin is the catalyst for the largest financial revolution the world will ever see. Or it's the most dangerous overhyped bubble in the history of modern finance. We bring you both sides of the Bitcoin debate in our point telegraph crypto duel. In this episode, Mike McGlone, senior commodity strategist at Bloomberg Intelligence, meets Francis Coppola, economist and writer. How sound are the economics of Bitcoin? Is that are manipulating the Bitcoin market? Will the crypto bull market continue in 2021? Pick your side in this coin telegraph crypto duel. As soon as I put it in the bin at home, I had a second thought, you know, in the back of my mind. You know, you've never thrown a hard drive eight before. Why start now? I just told people I wanted a pizza and I want to pay with Bitcoin. I want to give you Bitcoin and you give me pizza. This will be the first ever meal that's sitting in your belly, turning in and being a part of your DNA provided to you via Bitcoin. Francis, you are a very harsh critic of Bitcoin. And in a recent interview, you said that the Bitcoin economics don't make sense to you. Can you explain why they don't make sense to you? Okay, can I make something clear to start with? I'm critical mainly of the economic paradigm that's been built, the belief system, if you like, that's been built around Bitcoin. Rather than of the technology itself, I do have some criticism of the technology itself. But there's a minor compared to this kind of hard money economics that's been built around it, which to me doesn't make a great deal of sense. And I'd like to explain why. And I spent my life writing about finance and money and economics, monetary economics. And I think in all the emphasis upon store of value on holding for the long term about Bitcoin as an asset, as a means of saving, I think what tends to get lost in all of that is what the purpose of money is. And there's a fundamental conflict between treating something as a long term store of value, an asset, and treating something as a means of exchange. Because the incentive structure around a long term store of value that you expect to appreciate over that time does not work for a medium of exchange. It disincentivizes the spending, the buying and selling the trade that are the whole basis of how an economy works. And incentivizes what we might term hoarding, hanging on to assets, and not moving goods and services around the economy. And I don't see how that is a recipe for prosperity in the longer term. So that's the fundamental conflict that I see at the heart of the hard money economics of Bitcoin. Lately, the narrative of Bitcoin as a means of exchange has taken a backseat compared to the one as a store of value. But I guess there are still people counting on Bitcoin in the future being as a valuable means of exchange too. But I would like to know what Mike think about it. So what do you think about Francis' criticism? I'm completely neutral in space. I'm a strategist at Bloomberg. My goal is to get markets right, but I'm more of a markets person. And one of the things, articles I like producing is I view Bitcoin as a collectible, a store of value, a reserve asset. I don't view it as money. And one of my favorite articles I penned, I just refreshed recently, was titled Satoshi Nakamoto's Mistake. Bitcoin is a collectible, not cash. Because what I think has been created here, something has declining supply and increasing demand. But you can exchange it much easier. They can virtually any store value in history of mankind, like gold on a universal basis, 24-7 price discovery, all that kind of stuff. That's never existed in history. And to me, that's part of the reason I think as a strategist, I don't really like to focus on is it great or not great, just basically this is where the price is going and why. That's my bottom outlook. And I see this asset being adopted as a store value, reserve asset, by most of the increasing amount of institutions on the planet. And I don't view it as money. It's something I'm going to be using day to day to buy a cup of coffee. You can do that. And the point is, if you want to liquidate it and exchange it, it's readily and easily available 24-7. And to me, that's what Bitcoin solves, is that type of problem in history where you can store some value, transport it easily, transact it easily, and across borders and across countries and over time. Francis, so do you have any criticism towards Bitcoin as a potential store of value? I do a bit, because I think that what's kind of built into Bitcoin is long-running price stability. I know the price of volatility. I know there is this view that with greater market penetration, volatility would decline, but that's really a bit of a punt on demand. Because with a fixed rate of increase of supply, let's put it that way, for the next 120 years, halving at arbitrary intervals, the only thing that can adjust to changes in demand is price. And so you're going to see volatility in Bitcoin price ongoing and continual for forever. Just as, actually, you do with inflation rates under a gold standard, it's a similar kind of problem that some of the only thing that can adjust is price. For a long term, for a store of value, it depends how long you want to hold it for. If you want to hold it for the very long term, then short term or even medium term, volatility potentially isn't a problem. But that's not the only form of store of value. And if people need to liquidate some savings for personal reasons, just at a time when Bitcoin is on one of its downward turns, then they potentially could lose a lot of money. So I think we need to be clear about in what ways Bitcoin is the store of value, what sort of store of value it is. Maybe a very long term one, but not really a short or medium term one, because of price volatility. First of all, which has fallen earlier, and the simple rules of markets is you have supply and demand, both are uncertain, that's what creates volatility. If you have certain supply and you do, you have a certain supply schedule, that means 50% of that input for volatility is already gone. So by simple rules of economics and markets, volatility has to decline. So let me expand on that. Everything I do in markets is estimate supply and demand. With Bitcoin, I don't have to. I know what supply is, it's fixed. Only thing I have to worry about is demand. So by nature, by laws of economics, volatility and Bitcoin should drop and continue to decline. I think when people are missing, it's not a store of value yet. It's getting there because it's way too small. So I simply look at annualized volatility, 260-day volatility. If you do a simple regression on 260-day volatility for Bitcoin for the last 10 years, it's going to match gold in 2024, which is when the halving will be. The point is probably the price will be much higher. So number one, supply and demand means volatility must decline versus most other assets, partly because it's much easier to measure. Only demand matters. And number two, it's a new asset. It's not we're near the robustness. It doesn't have a lot of futures, not a lot of players, not a lot of people knocking around, been an offer yet that you do in big, robust, established markets, but it's getting there. So that to me is a key thing to remember about supply and demand in volatility. It's just a simple fact of economics. And I point out the actual trends. Volatility has been declining. And a key point also, and the key thing that really got me bullish 2020 was 260-day volatility on Bitcoin declined to the lowest ever versus the stock market, S&P 500 versus gold, and versus Crude Oil. So it's all relative factor. I mean, we had massive, last year was the biggest correction to stock market since 1933. Yet, Bitcoin vowed to decline. So it passed the test again. So I'd like to point that out. And now what's the key thing about scarcity and liquidity, that's the key thing that I think people need to be pointed about Bitcoin. Why it's so unique? It's scarce by measure of the defined, about defined declining supply via code. So it's making it scarce. But it's also liquid, which is why it's so attractive, which is why the whole world of institutions are starting to jump into the space and realizing this has never existed. To me, the key risk then is the technology, which I can't really predict. So I can see there is a stack disagreement between you two guys. You, Francis, think that Bitcoin's volatility is here to stay, and it will prevent it from becoming a reliable store of value. Well, you, Mike, you think that by economic loss, Bitcoin's volatility is bound to decrease over time. If I can just clarify, I agree with Mike that actually, as the market increases in depth, then you would expect volatility to decline. Okay, a bit like a young stream is very fast and furious, but once it becomes a mature river, the currents are bigger and deeper, and it's not so obviously volatile. It's actually a lot more dangerous. Undercurrents in rivers are way more dangerous than anything in mountain streams. But yes, the apparent, the surface volatility is not so obvious, so I agree with that. What I would say, though, is that the volatility is not going to go away. Like I said, it's a bit of a punt on demand this. The best example I can give, perhaps, is a housing market. Now, housing markets are very managed, but they do suffer from really quite severe volatility, wild swings at times, and have done history in a way bigger than any Bitcoin market. And like Bitcoin market and Bitcoin, they have a supply that doesn't easily adjust to a demand. Obviously, the supply of housing is not fixed, but it is quite limited, and it's quite difficult for it to respond. And one of the reasons why, certainly, where I live in the UK, we actually have supply that's practically inelastic because we're so restricted in what we can build. And it's pretty much accepted that the price rises we see in our housing markets are to do with the fact that there's insufficient supply and far too much demand. Now, Bitcoin is not immune from those sorts of laws. So if you have massively rising demand for Bitcoin, you will see massive price rises. And it is possible. You could have sudden reverses. So I, you know, in a way, it's maybe a view of what you consider to be volatility. I might say, yes, your price swings might get less frequent than they are at present. But when they happen, they might be a whole lot bigger than they are at present, and they're already pretty large. So, Mike, as everybody else in the crypto space, you are convinced that Bitcoin's capped supply is set in stone. While you Francis, I was following some of your tweets where you were questioning the immutability of Bitcoin supply. Can you refresh for us this argument? Okay. I think you have to look at Bitcoin as a technology now. And bear in mind that the declining supply, declining rate of increase of Bitcoin, no, the progressive harvings, don't unwind until about the year 2140, by which time Bitcoin will be extremely old technology. The idea that the people 120 years from now, who don't, who aren't even born yet, will decide that what matters to us about the supply of Bitcoin also matters to them. It is a very considerable bet, I would say, on the persistence of a technology unchanged and immutable, because that is what this depends upon over the course of more than a century, and I don't really buy that. So, my guess would be either that the $21 million cap just will become irrelevant because the technology will be obsolete. Or that the community will say, actually, we don't want sky-high transaction fees. So, we'll lift the cap because, hey, these guys, they were a bit obsessed about that back in the early 21st century. But we don't care very much. So, Mike, are you not concerned that the technology of Bitcoin might eventually be modified by the future generations and thus this fixed supply will no longer actually exist? So, we're at a really early stage in Bitcoin. And I'm thinking 10, 20 years, price much more like to go higher. Technology shifting, technology always adjusts. Like Ethereum had issues, other cryptos had issues. One thing I hear from the technology people is, you never get it right the first time. And Bitcoin has been through a lot of those knock them down issues which it bounced right back. So, big picture, that's a great point. Short-term, it's in early stages of adoption. I mean, I think that's the kind of thing we worry about when or when it becomes part of the gold standard and being bought by central banks, which is evidence that's happening in some of the peripheral central banks already. Most notably in China. Yeah, I guess that your argument reminds me of some people that are already worried about Bitcoin being banned by some governments. And usually Bitcoin supporters would respond to that saying, let's wait Bitcoin to become really big actually because only if it becomes big then it might become a problem for governments. And then in that case, people should be worried about whether it could be banned. But right now, I guess it's too early for worrying for that. But moving on to the following topic. So, let's talk about institutional involvement in the Bitcoin market. Because as we saw, probably one of the main triggers of the latest Bitcoin surge is actually institutional involvement. Mike, in your analysis, in your latest analysis, you said that GBTC, the main investment vehicle used by institutions to get Bitcoin exposure, is showing a rising tide supporting Bitcoin price. But what if these institutions are actually buying Bitcoin only for speculation purposes and then they will be taking some profits at a certain point? And don't you think that that would cause a major price collapse? Mike? Well, that's one of the lessons I learned day one in the trading pits in the 80s is separating the trees from the forts. You're talking about a few potential iterations in trees that are unlikely. Now, first of all, GBTC is not the best way to measure what institutions are doing. That's really the U.S. massive amount of wealth in wealth managers and people like my parents who are retired in 401Ks, just getting in the space. It's their only vehicle. They don't typically trade. They buy and hold in a timeframe usually five, 10 years. That's what I see in GBTC. Now, if you want to see the shorter-term, you look at futures. But from an institutional standpoint, not only is the anecdotal like we have Fidelity, we have the major places in the world, the Bloomberg Galaxy Crypto Index. Every day I hear about more money tracking this index. Lately, it's been BlackRock. It's the days that ticking off corporate treasuries like microstrategy, things like that. These kind of places don't look to sell in the short-term. And one thing you have to remember, if price goes down and there's increasing demand, that increases demand. That's one thing, the bottom line, that Frances might be able to relate to is a classic economist. I come from a farm background. When prices are low or corn, I might plant beans. And if they're high for something else, I plant there. Prices really are part of that supply-demand mix. Prices go down here. That's what I'm expecting. Bitcoin to probe around 30 and find more of those institutions getting back in or looking to join versus around 40. They'll mostly say now I'll wait and scale in. So that's the key thing to remember is, yeah, if there's more sellers, price go down. But I'm a strategy, so I see more buyers. So, Frances, don't you think that this massive involvement of institutional capital into Bitcoin is a reason good enough for retail investors to sleep better at night? No, I honestly don't. And I'm going to explain why. That big institutional investors at the moment, I mean, you have to look at the dynamics of the last year, what's been going on in monetary policy, what's been going on with governments and what's happening to interest rates. And Bitcoin cryptocurrencies, like all other assets, have been driven up by the extraordinary amounts of QE the central banks have been doing. So we've got institutional investors who are desperately looking for yield. They're looking for high-yield assets to spice up portfolios that aren't earning anything. And Bitcoin is one way of adding some yield to a portfolio that's otherwise earning nothing. So you have to bear in mind that that's what's going through the minds of institutional investors, really, is how they're going to deliver the returns they promised to their investors, to their, yeah. And price is moving in the wrong directions. They will run because that's what they do. They'll run to something else, as Mike said. Now, retail investors may not be able to get out that easily. They may not be able to protect themselves. I didn't think right now that crypto is a good place for retail investors who don't know what they're doing. Yes, I want to expound on that. I view Bitcoin as the one word to describe it, accumulate. And I think everyone in the planet has to accumulate Bitcoin and never think of selling. And let's think of, remember, we're both speaking from countries that have major currencies. My friend Cliff over here, he's from Zimbabwe. He loves Bitcoin. There's a good reason. And there's a reason because it's been one of the few safe places that him and his relatives have been able to hold their wealth versus all these currencies in the planet that had depreciated. But I think what you described to me, Francis, is a bit of the perfect storm that's hitting Bitcoin is insurance companies. I mean, you're not getting anything in your t-bonds anymore. So you've got to diversify. And what I sense is the world's investment community has realized I probably should put one or two percent in this space because if I lose it, it doesn't matter. But if it keeps doing what it has been doing, which I don't see why it should stop, it'll make a difference for my portfolio and for my clients. So we all know that there are some very harsh Bitcoin critics who are convinced that Bitcoin will eventually fail and its value will go to zero. So Francis, what do you think? Can Bitcoin go to zero? I did not think that its price would crash to zero. You'll find that on a PSI vote for another complication. Because Bitcoin's price ultimately is held up by faith, by belief. And there is a strong core of communities, and we do have to thank the maximalists for this, whose belief is strong enough, I think, to maintain a floor on Bitcoin's price, which is above zero. I don't know where it is exactly, but it's above zero. And I think we've seen that with every previous crash that it has not gone to zero. Because at the bottom of the pile, there's always been some people who will hang on to it. This is where we hold them! Can I expand on that? One thing I've been impressed by, I was no zelt like a convert. I was very much against, didn't really agree with Bitcoin five, six, seven years ago when I heard about it, when it first got the price of gold. But every day that goes by, and you look, I look at coinmarketcap.com, and I see all these coins. There's 8,000 of them now. Most of them to me are just complete bogus. I get that. But they hold their value. Why? I don't know, but they're holding their value. It's things like Dogecoin. There's just so many of these bogus things that are holding their value. So the space is very comparable. And Bitcoin is unique and different. It's no one else's project, it's no one else's liability. But I keep, I've seen this happen. And one thing I want to bring in this conversation is this concept of crypto savings. Now I have Millennial Sons. And the first crypto savings account was launched in 2017. And every day that goes by, that they pay 6% to 8% on holding Bitcoin, money has to flow that way. Now I understand it's close. There's four or five big ones now. It's close to $15 billion. But Millennials, a lot of Millennials who know a little bit about the space, when they hear value stocks, they say, excuse me, but I'm getting 6% to 8% of my Bitcoin and my crypto savings. Why would I consider that? Yes, there's risks. Life is about risks. But money will always flow to where it's treated best. And every day these things don't fail. It keeps going that way. It's sec lending, from what I understand. I have small amounts in these accounts just because I need to learn about them. But they're paying me 6% to 8% on my Bitcoin. That means if you hold a one Bitcoin and it's paying you 7% a year, 10 years from now, you have two Bitcoins. Mike, in your latest Bitcoin outlook at Bloomberg Intelligence, you said that the only threat that you see to Bitcoin at this point might be a technological glitch or something similar to a risk-off environment like the one we saw at the beginning of 2020. So these, according to you, are the only two things that could prevent Bitcoin continue its rise. Francis, do you see any other threats apart from these two that could prevent Bitcoin going up in 2021? I'm personally of the opinion that while we have the environment that we do, while the pandemic continues, while we continue to have governments, the central banks, pouring money into the financial system, everything's going to go up, including cryptocurrencies. So the risk I see actually comes from things like Tether, where I think that those, and also the excessive type of leverage that we're seeing in Duffy, things like that actually, because those things can end very badly. And when they do, you tend to get a crash in the underlying assets. So the question is whether we're building up the kind of fragilities that we had in the housing market in 2008, really. A lot of people are concerned that the Bitcoin market could be manipulated and that there are a lot of allegations around saying that actually Tether, the main stablecoin, could be behind a sort of fraudulent scheme that it's aimed at pumping artificially the price of Bitcoin. So I guess that you partly refer to this kind of allegations. I would like to know what Mike thinks about it. Let's first of all look at the facts. Tether has been exist on the back of Bitcoin. Bitcoin was first. It's the first blockchain, first cryptocurrency. Tether right now is number three listed on coinmarketcap.com. It's about $25 billion. The significance is it's a small fraction of about the $600 billion in Bitcoin. So the fact that Tether might be manipulating the price of Bitcoin does not make sense. It's like saying that little fish has put kick in the whale around. So number one, that does not make sense. And number two, look at volume on Tether. That's indicative of what the market wants. Volume on Tether is averaging $118 billion. Let's compare. That's almost 70% more than Bitcoin. So most of everything, that's just an example of what the market wants. It wants a digital version of the dollar. It also solves a potential problem of CBDC, Central Bank Digital Currencies. China wants it white because they're communist country and they want to track every single transaction you make and by law they can. In most of the western countries, certainly U.S., there's privacy laws. Tether might be solving that problem, allowing people to transact in the dollar without having to have issues like banks, or banks just kind of allow, what Fed does is allow, the government allows banks to trade in dollars. So to me, the key point for me was Tether was, it really hit me. I was in 2018, the market was collapsed and I was in Hong Kong. Every market was going down except Tether market cap was going up and everybody I spoke to poo pooed it. And then in 2019, the New York Attorney General came down and crushed like they were gonna, it wasn't holding its funds or whatever it was all, just came down and guess what? The market didn't matter. That's when it was about $2 billion. So to me, when the market doesn't care, I don't care. And I've heard people pressing Tether forever, I've heard interviews, but it's being held by clients who want to use it and do use it. It's not exchange, it's people, it's the global infrastructure like Bitcoin. People want to use this and they're using it. And to me, it's indicative of where everything's are going to digital currencies, maybe CBDCs, but this might solve the US dollar problem of privacy. And Francis probably has some good comments on that one. Got quite a lot of comments on that. The first one I want to pick you up on is your market cap point because in the market cap Bitcoin also includes, of course, quite a lot of Bitcoins, rather a lot of Bitcoins that are not in circulation. They never move and some of them have been lost. So yeah, what Tether is influencing is your flow. Not your stock. So you need to be careful to compare like we like here, the actual influence of Tether is on the flow, not on the stock. So I actually think that Tether could move the price. That said, the way in which it does so, I think is, it juries out on this manipulation thing. My own analysis is slightly different. Mike, and you might be interested in this because my own view of Tether is it does affect price or rather Bitcoin price affects Tether because it's a volatility play. Yeah, and so you're going to have Tether issuance increasing on both sides of a price swing. So it will tend to amplify price moves in Bitcoin. It might not start them, but it will amplify. I wrote about that recently, but it was a bit of a nerdy point to be honest. But one thing about Tether facilitates trading amongst cryptos, which I'm not a fan of, not a fan of trading at all. But key question I'd like to ask ourselves, what's Tether fails tomorrow? What does that mean? Sure, the whole market would collapse. It means there's only one safe store value left, Bitcoin. All that money that's left would probably go flow to Bitcoin. It's not going to XRP. That's true. And I think that's a very fair point. I've seen that made a number of times that if Tether did go down tomorrow, then the price of Bitcoin would go up, not down. And I tend to agree with that, mainly because actually, I suspect it is damn difficult to get your Tethers out in the form of dollars. I know people have decided, if you actually look at Tether's legal documentation, they don't guarantee to redeem USDT in the form of US dollars at all. Well, I think Tether has some serious tests coming up actually, because he's got a lawsuit hanging over it. And further investigation by the NYAG investigation is ongoing, and it keeps on coming up with delaying tactics. It's just come up with another delaying tactic to try and delay having to produce some documents, which he can't actually produce. So I wouldn't be too sure that Tether wouldn't be clamped down on yet. I think it's distinctly possible that it might be. The question is what that means for Bitcoin. And like I said, the question, there are two things. One is I'm completely clear for me that there is no responsibility whatsoever from the Fed or anyone else to honor the, to support the Tether peg. If the Tether peg breaks, nobody, absolutely nobody, is going to bail out the holders of USDT in dollars. So then it's just a question of where they go with their Tethers and whether they can buy Bitcoin with them, whether anybody will buy USDT. Because I mean, you've got to look at both sides of the trade here. So I think it would be incredibly disruptive for crypto markets because so much is built upon Tether. It's quite hard to see how it would play out. But what I want to get across to people is no way could this be regarded as something that the Fed would bail out as it did in the shadow banking crisis for 2008. It's just not big enough and it doesn't pose enough of a financial stability risk at the moment. But the banks might embrace stablecoins, which I heard has been recently part of legislation. I don't disagree. We can consider one huge side of the normal bell curve of risk. How about the other side or something in between? Embrace it with regulation. To me, that's more likely. And I think that's really what's going to happen with Bitcoin is it's with the US, particularly because countries like China are against it. And those are countries that are major arch rivals and have a major issue with the reserve currency, which is the dollar. We can remain many of the other ones. Thanks a lot, Francis and Mike, for the great discussion. I look forward to have you on again on our show. Thanks for having me. It's been a pleasure. That was Mike McGlone, senior commodity strategist at Bloomberg Intelligence and Francis Coppola, author and economist. I'm Giovanni, your host. If you enjoyed the interview, don't forget to smash the like button and subscribe to our channel.