It's, the perfect, the most perfect wealth we've ever had it's, the mother of all bubbles, and it's, also the biggest bubble in human history. Over 50 of my net worth 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 coin.
Telegraph, altcoins duel in this episode, mike mcloan senior commodity strategist, at bloomberg. Intelligence meets francis coppola, economist and writer. How sound are the economics of bitcoin is stature, manipulating the bitcoin market? Will the altcoins bull market continue in 2021? Pick your side in this coin, telegraph altcoins duel as soon as i put it in the bin at home.
I had a second thought. You recognise. In the back of my mind, you recognise you've, never thrown a hard drive before. Why start? Now, i just told people i wanted a p design. I want to pay with bitcoin. I want to give you bitcoin, and you give me pizza, [, Music ].
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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 those are minor compared to this kind of hard wealth economics that's being built around it, which to me doesn't, make a great deal of sense, and i'D like to explain why - and i spend my life writing about finance and wealth and and economics, monetary economics um, and i think in all the um emphasis upon story, value on hoddling for the long term about um 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 wealth is um 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 wealth economics of bitcoin lately, the narrative of bitcoin as a mean of exchange, has taken like a back seat compared to the one as a storm value.
But i guess there are still people counting on bitcoin in the future being as a valuable mean of exchange too, but i would like to recognise what mike think about it. So what do you think about francis criticism? I'm completely neutral in space.
I'm. I'm um. I'm a strategist at bloomberg. My goal is to get markets right, but i'm, more of a markets, person and um. One of the things about articles i like producing is, i view bitcoin as a collectible um a store of value, a reserve asset.
I don't view it as wealth and one of my favorite um articles. I pen and i just refreshed recently - was titled satoshi nakamoto's. Mistake, bitcoins are collectible, not cash, because what i think, what's been created here? Something has declining supply and increasing demand, but you can exchange it much easier than can virtually any store value in history of mankind like gold on a universal basis.
Um 24. 7 price discovery all that kind of stuff. That's, never existed in 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 um increasing amount institutions on the planet, and i don't view it as wealth. 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, transported easily transacting these 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 recognise it price volatility.
I recognise there is this view that, with greater market, penetration, volatility would decline, but that's, really a bit of a punt on on demand um, because, with a um, a fixed rate of increase of supply, let's.
Put it that way for the next 120 years, halving at arbitrary intervals um. The only thing that can adjust to changes in demand is price, and so you're, going to see um 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 um, 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 soaring value, and you recognise if people need to liquidate their some savings for for personal reasons. Just at a time when bitcoin is on one of its downward turns and they potentially could lose a lot of wealth, so i think we need to be clear about in what ways bitcoin is destroyed value, what sort of store of value it is um, maybe a Very long term, one, but not really a short or medium term, one because the price volatility first of all, which has followed earlier and the simple rules of markets, is um.
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 percent of that that that inputs for volatility is already gone so by real simple rules, 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 recognise what supplies 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 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 having will be.
The point is, probably the price will be much higher, so number one um supply demand means volatility, must decline, um 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 where near the the robustness it doesn & # 39. 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, demand and volatility. It's, just a simple fact of economics and i point out the actual trends volatility has been declining and the key point also in 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 in the stock market since 1933, yet about that bitcoin volatility declined, so it passed the test again.
So i like to point that out now what's, the key thing about uh scarcity and liquidity, that's. The key thing that i think people are needs to be pointed about about 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 the 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 thinks that bitcoin's. Volatility is here to stay and it will prevent it from becoming a reliable store of value.
While you mike, you think that by economic loss, bitcoin volatility is bound to decrease over time. If i can just clarify, i agree with mike that, actually, as the market increases in in depth, then you would expect volatility to decline.
Okay, bit, like kind of a young stream, is very fast and furious, but once it becomes a mature river um, you recognise the currents are bigger and deeper and it's. Not so obviously volatile it's, actually a lot more dangerous.
Um you recognise, undercurrents in rivers are way more dangerous than anything in mountain streams um. But yes, the apparent the surface volatility is not so obvious. I agree with that um. What i would say, though, is that um the volatility is not going to go away.
Um, like i said it's, a bit of a punt on demand, this um. The best example i can give perhaps is a housing market. So we are housing. Markets are very managed um, but they do suffer from really quite severe volatility.
Wild swings at times and have done throughout history, and they're 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 - and we actually have supply that's.
Very that's practically inelastic, because we're, so restricted in what we can build um and it's, pretty much accepted at the the wild. The price rises we see in our 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 sort 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 um. So i you recognise in a way it's, maybe a a view of what you consider to be volatility.
I i i might say yes, your price swings might get less frequent than they are at presents, 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 altcoins 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 um the declining supply declining rate of increase of bitcoin. You recognise the heart progressive, halvings, um don't unwind for until about the year 2140, by which time bitcoin will be extremely old technology.
The idea that that the people 120 years from now who don't, who aren't even born yet will decide that what matters to us about 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 100, the 21 million cap just will become irrelevant because the technology will be obsolete, um or that the community will say. Actually we don't want sky high transaction fees um, so we'll.
Lift the cap, because hey these guys, you recognise they were a bit obsessed about that back in you recognise the early 20 early 21st century, but we don't care very much so mike. Are you not concerned that uh, the technology of bitcoin might eventually be modified by the future generations, and does this fixed market uh, this fixed supply will 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 likely to go higher technology. Shifting technology always adjusts now take like ethereum. It has issues other other altcoinss have had issues.
One thing i hear from the technology people is you never get it right? The first time and bitcoin's been a lot through a lot of those. You recognise knock them down issues which it bounced right back, so um big picture, that's, a great point, shorter term.
It's in early stages of adoption. I mean i think, that's, the kind of thing we worry about when, if and 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, uh and usually like 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 about whether it could be banned.
But right now i guess it's too early for forwarding for that, but um moving on to the following topic. So let's. Talk about institutional involvement in the bitcoin market because, as we saw uh, probably one of the main triggers of the latest bitcoin search is actually institutional involvement.
Uh 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 what? If these institutions are actually buying bitcoin only for speculation purposes, and then they will be taking some uh 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 treats from the force you're talking about a few potential iterations and 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 and 401ks just getting into space it's. Their only vehicle they don't, typically trade. They buy and hold in their time frames usually 5-10 years.
That's. What i've, see in gptc. 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 altcoins index every day.
I hear about more wealth tracking this index. Lately it's been blackrock. It's. The days that ticking off corporate treasuries, like um 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 francis might be able to relate to the 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 it's. 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 are looking to join versus around 40 and they'll, mostly say now away and scale in so that's.
The key thing to remember is um yeah. If there's more sellers price go down, but i'm a strategist. I see more buyers, so friends 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 - and i'm, going to explain why that and big institutional investors at the moment. Um 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 um in with governments, and what's happening to interest rates and um bitcoin altcoinscurrencies, like, unlike all other assets, have been driven up by the extraordinary amounts of qe the central bank's, been Doing um, so we & # 39.
Ve got institutional investors who are desperately 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 yields to an otherwise to portfolios, otherwise earning nothing um.
So you have to bear in mind that that's. What's, going it through the minds of institutional investors? Um really um is how they're, going to deliver the returns they promised to their investors to their um, yeah and um, and they will, if prices, move in the wrong directions.
They will run because that's. What they do. Don't 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 altcoins is a good place for retail investors, who don't recognise what they're doing.
Just i want to expound on that. I i view bitcoin as the kind of the one word to describe it accumulate and i think everybody on the planet should accumulate um, bitcoin, um and never think of selling it.
Let's. Think of remember: we're, both speaking from countries that have major currencies. My friend cliff over here he's from um zimbabwe. He loves bitcoin, it's, a good reason and there's, a reason because it's been one of the few safe places that him and his relatives been able to hold their wealth versus all these currencies in the Planet that are depreciating, 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 don't, get anything in your t-bonds anymore, so you got to diversify. What i sense is the world's. Investing community has realized. I probably should put one or two percent in this space, because if i lose 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 recognise 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 piece i vote for another publication um because of because bitcoin's. Price, ultimately, is is held up by faith by belief, um, 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 flaw on bitcoin's, price, which is above zero. I don't recognise where it is exactly, but it's above zero, and i think we've, seen that with every previous crash, that it has not on 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 zelda like a convert. I was very much um against didn't, really agree with bitcoin five six seven years ago, when i heard about it when i first got the price of gold, but every day that goes by and you look, i look at coinmarketcamp.
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 recognise, but they're holding their values. Things like dogecoin there's just so many of these bogus things that are holding their values, so the space is very comparable.
The bitcoin is unique and different. It's. No one else's. Project is no one else's, liability um, but i keep i seen this happen, and one thing i want to bring in this conversation is this concept of altcoins savings.
Now i have millennial sons and the first altcoins savings account was launched in 2017 and every day that goes by that they pay six to eight percent and holding bitcoin wealth 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 dollars, but millennials a lot of millennials, who recognise a little bit about the space when they hear value stocks. They say, excuse me, but i'm, getting six to eight percent of my bitcoin in my altcoins savings.
Why would i consider that? Yes, there's. Risks life is about risks, but wealth is always flow to what's treated best and every day these things don't fail. It keeps going that way. It's, sec lending from understand.
I have. I have small amounts in these accounts just because i need to learn about them, but they're, paying me six to eight percent of my on my bitcoin. That means, if you hold a one bitcoin and it's, paying you seven percent a year and ten 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 an off 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 go continue its uh its rise uh francis. Do you see any other threats apart from these two that could prevent bitcoin going up in 2021? I'm personally, obviously opinion that while we have the environment that we do while the pandemic continues, while we continue to have um governments and central banks pouring wealth into the financial system, um everything's going to go up, including altcoinscurrencies Um, so the risk i see actually comes from things like tether, where i think that those and and also the excessive type of leverage that we're, seeing in in 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 of um 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 there are a lot of allegations around saying that actual tether. The main, stable coin could be like 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 recognise what mike thinks about it. Let's. First of all, look at the facts. Tether has been um exists on the back of bitcoin. Bitcoin was first it's.
The first blockchain first altcoinscurrency 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 is kicking the whale around so number one. That does not make sense and number two look. Let's, look at volume and tether that's. Indicative of what the market wants.
Volume on tether is averaging 100 right now, 118 billion dollars. Let's. Compare that's almost 70 more than bitcoin. It's, the most 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. They want to track every single transaction you make and by law they can't in most of the western countries.
Certainly us there's. Privacy laws. Heather might be solving that problem, allowing people to transact in the dollar without um having to have um issues like banks or banks, just kind of allowing what fed does is allow the government allows banks to trade in dollars.
So to me the key point for me was heather was really hit me, i was in 2018 market was collapsed and i was in hong kong and every market was going down except tether. Market cap was going up and everybody i spoke to poo poo'd, it and then in 2019 the new york attorney general came down and crushed.
You recognise like they were gonna. It was all 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 two billion dollars. So to me, when the market doesn't care, i don't care and i've heard people crushing 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 exchanges. 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 every things are going to digital currencies.
Maybe cbdc's, but this might solve the us dollar problem of privacy and francis probably has some good comments on that one i & # 39. Ve got quite a lot of comments on that first, one i want to pick you up on.
Is your market cap point because 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 you. What tether is influencing is your flow? Not your stock, and so you need to be careful to compare like with 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 um the way in which it does so.
I i think, is jury's out on this manipulation thing. My own analysis is slightly different, uh mike, and you might be interested in this because my own view of tether is it does um affect price, or rather bitcoin price affects tether um because it's about because it's.
A volatility play and 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 um.
I wrote about that recently, but it was a bit of a nerdy point to be honest. Um one thing about tether facilitates trading amongst altcoinss, which i'm, not a fan of not a fan of trading at all, but key question i like to ask ourselves what's.
Tyler fails tomorrow. What does that mean sure? The home market would collapse, it means there's. Only one safe store value left bitcoin. All that wealth 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 number a number of times that if, if teddy did go down tomorrow, then it 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 um, you recognise.
I recognise people have decided if you actually look at tethers legal documentation, they don't guarantee to redeem um. Usdt in the form of us dollars at all. Well, i think tether has some serious tests coming up.
Actually, because it's, got a lawsuit hanging over it and and a further investigation by the new york. The nyu ag investigation is ongoing and it keeps on um coming up with delaying tactics. It's, just come up with another delaying tactic to try and you recognise, sort of 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 for bitcoin and um. Like i said the question there were two things one is.
I'm completely clear for me that there is no responsibility whatsoever from the fed or anyone else to um honor the to support the tether peg if usd. If the turn the 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 with their tethers and whether they can buy bitcoin with them. When anybody will buy ust - because i mean this - you recognise you & # 39. Ve got to look at both sides of the trade here, so i think it would be incredibly disruptive for altcoins markets because so much is built upon tether.
It's. Quite hard to see how it would play out um, 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 his financial stability risk at the moment, but the banks might embrace stable coins, which i heard has been recently part of regis legislation.
I don't disagree, so there's um. We can consider one huge site of the um. You recognise the normal um 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 um and have a major issue with the reserve currency, which is the dollar we can make 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.