Bitcoin’s Big Drop Explained And Why It’s Not the End

0:00Hello, everyone. Gold just did the impossible. Retail investors are saving legacy finance firms. and I sat down with Liz Klayman to discuss Bitcoin, crypto, gold, AI, and public equities. We're live today from the desk of Anthony Poppliano.

0:23Before we get into today's show, I need your help. My goal is to get to 1 million subscribers on YouTube. Right now, we have 30 ,700 of you, a nice big fat round number. But if you hit that subscribe button, not only will you get us closer to our goal, but also you'll just be part of the team. Go ahead and hit the button. Let's get into today's show. All right, ladies and gentlemen, gold, the precious metal, it is on a generational run and it's done something that almost no one predicted. Bloomberg's Eric Balchunas writes that GLD, the gold ETF, outperforming SPY, the S &P 500 ETF. The GLD is outperforming since it's launched in 2004 and it's mind-melting.

1:01that flies in the face of so much conventional wisdom, Eric says. Now, here's the thing. Gold is a nonproductive asset. It's not supposed to drive yield. It's not supposed to have earnings. It's not supposed to outperform productive assets like stocks. Warren Buffett, one of the best investors in the world, he hates gold. He's not a fan at all. He doesn't like the fact that it doesn't produce earnings, yield, or dividends. And so why is it that GLD since 2004 is outperforming stocks? Well, probably because monetary policy has completely lost its mind. It's undisciplined. We continue to debase the currency and gold, something that produces no earnings, but continues to protect purchasing power.

1:41That's the thing that investors want. And that's why gold is outperforming stocks over the last 21 years or so. Everyone thinks that retail investors are pitted against the institutions. It's the whole idea of smart money versus dumb money. They think the retail investors are trying to take it to the man, take down the big firms. But something recently happened that completely changed my mind about how the relationship works between retail investors and institutions. Paige Smith over at Bloomberg writes the following, Charles Schwab, one of the oldest financial firms in America, Charles Schwab reported third quarter earnings that beat estimates because the firm benefited from a surge in retail investing activity.

2:18That's right. Now, the firm reported$134 billion in total net new assets. It's a 48 % increase from a year earlier. That's good news for Charles Schwab. That was more than the$130 billion that analysts had forecast. But openings of new brokerage accounts is driving this growth. Those new brokerage account openings topped 1 million accounts for the fourth quarter in a row. Now, here's the thing. Remember I said retail investors versus institutions is how people used to think about it. But the big takeaway from this story is that the retail investors are actually saving the legacy finance firms.

2:51Think about what's happening in finance. These big firms used to be service-based organizations. They sat there and they would go find rich people or find institutions. They'd build a personal relationship. They would provide advice and they would provide access to the market via the personal relationship. Everyone knows about the quintessential banker who's got a bunch of clients they service. But now the finance firms realize that this ultra high net worth, this upper middle class, this self-directed investor cohort, they don't want to talk to people. They don't trust the stockbroker. They don't trust the financial advisor.

3:21So what's happening is these finance firms are transitioning from service-based firms to technology companies. And they're saying to these retail investors, you don't have to talk to us, just use our infrastructure. We'll give you a way to access the market. We'll give you access to information and we will help you better manage your portfolio. But we'll do it through technology rather than that personal relationship. That's why these firms are seeing the retail investors come through and drive growth. And so ultimately, now we are going to see these legacy firms, they're gonna go all in on retail investors.

3:50not because they think these guys are going to go gamble, but because they actually understand that this is where volumes are and this is where future revenue is going to come from. So now what you're going to see is you're going to see every single bank CEO, every financial institution. They're going to talk about this in their earnings report. They're going to talk about this at conferences. They're going to talk about it in internal memos. They have to figure out how do we get to the private wealth channel? How do we get to the retail investor? And how do we get to these self-directed investors who now understand they can learn on the internet and they can access markets on the internet?

4:19Inside of the boardrooms on Wall Street, they're trying to figure out how can they compete with the Robin Hoods, the Publix, the Weebles, the eToros, and many others. That's the future of finance. That's the battle. The fintechs versus the institutions, not the retail investors versus the institutions. Retail is the holy grail, and retail is going to decide who's the winners and losers moving forward. Yesterday, I went over to Fox Business and I sat down with Liz Klayman. Liz is a great reporter, and she grilled me about Bitcoin, crypto, gold, AI and public equities. I really enjoyed the conversation.

4:52Here's what I had to say to Liz. Pomp, I'm not sure it ever was a clear-cut safe haven. And I say that because sometimes it would zig when the other areas that should be zagging weren't. You know what I'm saying? I mean, today, for example, it's not the safe haven. Gold and treasuries are at the moment. Well, I think that first we've got to define what's a safe haven. And for hundreds of millions of people around the world, Bitcoin is the safe haven because it's the only asset they want to take their hard-earned economic value, they want to stick it into Bitcoin, and they never want to sell it.

5:21They want to pass it on to their kids or their grandkids. And the whole thing is that Bitcoin incentivizes long-term thinking. Now, that doesn't mean that gold or other assets don't do the exact same thing. But what I think you're seeing is you're seeing a generational trend where young people want a digital asset. Gold is an analog version of sound money principles. Bitcoin is the digital version. So what I believe is going to happen is that that sound money principles, that debasement trade, is going to continue to be very, very popular in the coming years because people realize that they're never going to stop printing money.

5:47Where are the buy on the dippers right now? Because Bitcoin ain't seeing it at the moment. Well, here's the thing is if you go back to November of last year, right? So about one year ago, Bitcoin was at like$70 ,000. Yeah, I mean, it's still had incredible performance. You go back to 2020, it's up 1500%, right? So one of the things that I like to do is I like to take assets and denominate them in Bitcoin. So anyone can make money when you compare it to the dollar. The dollar only goes down. And The S &P is up 100 % since January of 2020. In Bitcoin terms, it's down 88%. So while stock investors think they're winning, when you compare it to a finite asset that can't be debased, they're actually down significantly.

6:24When you look at gold, similar story, is gold is actually up about 150 % since January of 2020. But when you denominate it in Bitcoin price, it's down 84%. And so again, it kind of comes back to this idea of what is your hurdle rate? Are you trying to outperform dollars? Or are you trying to outperform a finite asset? For me, I think of Bitcoin as the hurdle rate. And as many people know, the hurdle rate, if you can't beat it, I think you've got to buy it. What do you make of this anecdotal evidence that Bitcoin and crypto holders are actually using Bitcoin to now buy gold? Well, one of the interesting stories I think happening in finance right now is Tether, which makes the USDT stablecoin, most popular stablecoin in the world.

7:02They've actually gone and tokenized gold. And they have this thing, I think it's XAUD. And when you look at that, they're basically saying in this digital world, people are still going to want all the same assets. They're going to want to have stocks. They're going to want to have Bitcoin. They're going to want to have dollars. You want to have gold, et cetera. It's just they want to do it in the digital rails. And so I think that there's a lot of people who are looking at that. Why the$19 billion liquidation in crypto assets last week? Can you just tell me if you were sitting around a dinner table with a bunch of guys and women who are involved in crypto and you've been doing this for a long time?

7:35Why do you think that happened? I mean, that's a chunk of change. to see in one single week flee this area? I think there's three things that happened, right? So first of all, is President Trump is very smart. He understands markets very well. There's a reason why he said what he said after market hours. So he waited for the stock market to close and then he said this. Obviously there's some after hours trading that happens and you saw stocks trade down. But really the only market that was open was Bitcoin and cryptocurrency. And that's where you went ahead and you saw that sell off. Then Sunday night, he went abracadabra, let's make the market go back up.

8:04And he stepped in about an hour before futures opened and he went and he actually revived the market. And so I think that's a big part of it is just he's doing things in hours where the stock market isn't open. The second thing is that you're starting to get some frothiness in the market. If Bitcoin's price is going up and people think Q4 is going to be really positive, as it historically is, average returning Q4 for Bitcoin is 60 percent. Then people start to put leverage on. And so getting that reset is really important. I know you long enough to know that you don't love putting in year end targets and things like that.

8:31Higher, higher, going higher. OK, what about stocks as they pertain to the overall investment package? Tell me about the stocks that you invest in. Yeah, so one of the stocks I've been pretty heavily involved in is Open Door. And one of the things I really like about Open Door is there's some macro trends. You obviously have interest rates coming down. That should bring back a lot of volume in the housing market. I think that's good. The second thing is there's a massive pain point is that buying and selling a home in America is broken. And what that company has done is retail investors got involved.

9:02They held very involved. If you stretch out this chart here, forget the week to date, folks. If you do a year to date or a one year, you'll see it's been nuts. So what I think very interesting about the open door story is that the retail investors basically held their first activist campaign. They stepped into a stock. The CEO stepped down. Management committed to stop selling stock. They went and they got a new CEO who is the former COO of Shopify to come in. They've completely changed the culture inside that business. And they also brought back two of the founders onto the board of directors.

9:30So you have a macro tailwind in terms of interest rates coming down, housing volumes coming back. But you also now have a business that basically went from a bloated bureaucratic company to now you have tech leaders stepping in and saying, we're going to run this like a startup. I'll bet on that all day long. And so I think that the energy of the retail investors plus the changes in the business, something like Opendoor is really exciting. There is so much talk about whether this ramp up in massive spending in the AI space is a bubble. if it were, I'm not saying it is, but if it were and the bubble had an interim pop and the market sold off, how do you think Bitcoin would behave?

10:06I think that, first of all, in the AI space, it's really hard to create a bubble when companies like, you know, Meta, a trillion dollar business are still growing 25, 30 percent euro per year. Right. So I think that's one of the things that we're seeing is there is very real growth, both in top line revenue, but also in profit. But does the growth match the amount that they say they're going to spend? Mark Zuckerberg says he'll spend$600 billion in the next couple of years. It all depends on your timeline, right? So from my standpoint, I'm a very, very long-term oriented investor. I think that every single one of these businesses is undervalued today because people are, you know, it's the old Bill Gates quote.

10:41People overestimate what can happen in one year and they underestimate what can happen in 10 years. And so if you just think back since ChatGPT came out and changed the world, look at how pervasive it is. They have hundreds of millions, 800 million monthly active users. These things go at an accelerated rate today. And so if you look and you say, OK, three to five years from now, are these companies going to be bigger or not? It is very hard to make an argument that they are not going to be significantly bigger than they are today, which means they're likely underpriced compared to where they'll be.

11:08Wow. Pomp, it's been too long. We love to see you every single month. So please come back. Thank you very much. Absolutely. Thank you so much for having me. I always enjoy talking to Liz because she's fast and furious. She asks great questions and she always brings up things that make me think more deeply. So I hope you enjoyed that conversation. That's it for today's show. Thank you guys so much for watching. Remember, my goal is 1 million subscribers on YouTube. If you want to join our team and you want to help us reach that goal, hit the subscribe button and I'll see you guys on Monday live from the desk of Anthony Pompliano.