#1000 - What’s the best trade now? | With Kevin Kelly

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0:54Welcome to the Real Vision Daily Briefing, where our team of journalists analyze the most important events of the day within the framework of key Real Vision themes, macro, market structure, retirement. and economic history, we cover it all. I'm Ed Harrison, and let me say, we've started this briefing format because we felt you needed a timely update in this time of crisis. We have no idea how long the crisis will last and therefore how long the daily briefing will last. But we all appreciate, and I especially appreciate your feedback and kind words about the usefulness of these reports. Ben. There you go.

1:35Ben.

1:38That was Zen. This is Now. Hi, everybody. Welcome to the Real Vision Daily Briefing, live from New York City. This is a special edition. We are celebrating episode 1000. We are wrapping up our two-week series. We finished a day of workshops, and we have no other than Kevin Kelly, co-founder of Delphi Digital with us. So it's going to be a fantastic show. Welcome to all of you. And guess what? We're not alone. you can't see them but we have some RV I peas with us because we're getting ready for an event that's gonna happen here right afterwards we got a lot of fun stuff planned so behave yourselves everybody and Ash Bennington's here so hey Kevin how's it going one person is not gonna be already already gone through no but we're super psyched to have you here and it's such a great time we were just talking ahead of this that my gosh first of all so much it's changed 1000 episodes in from where we were with both macro and crypto.

2:33I mean, the depths of the pandemic is when we launched this. And we've seen huge changes, huge volatility, big happenings in both macro and crypto. And you've cross straddled both. So just kind of give us a set the table for us. What are you seeing right now? And what are you hearing from people? Yeah, I think it's great context to a thousand episodes first off congratulations because that's incredible um and i do remember when this this uh had launched right and as you mentioned the depths of the pandemic amazing how far we've come amazing how different the kind of regime is right now that we're in i think the last time i was on this program was probably two or three months ago i think it was towards the beginning of december and we talked a lot about global liquidity how that has impacts on not just crypto and risk assets but broader markets more broadly um and And so to be honest, that is still very much the heart or the crux behind how we kind of set our outlook for different asset classes.

3:30And again, we cover primarily crypto and digital assets, but macro is a massive part of that, right? I think there's a lot of correlations you still see between crypto and Bitcoin and stocks, for example, because all those macro headwinds way back in the day are now big tailwinds. And liquidity is obviously the biggest one of that. But so rather than kind of reinvent the wheel, I think in terms of where if we fast forward to where we are today, I think what's interesting is just check the markets. We're closing for another kind of weekly all time high, right? And the S &P 500 risk continues to perform really well.

4:01We have seen a bit of a plateauing, I would say, in the liquidity indices and the liquidity indicators that we track. That really started probably seven, eight weeks ago. And typically you tend to see stocks and risk assets that can perform pretty well in the weeks after that. I think that might be, if we're thinking about risks that we had in the Q2, that might be one of the bigger ones. If we do see a continued kind of slowdown or even contraction in some of those liquidity indices, that could cause some volatilities we had in the Q2. But I mean, so far, absolutely no complaints with how the start of the year has gone.

4:37And I think the start of the year has gone pretty closely to how we expected it. Last time I was on, we were talking about what the big factors would be to be driving the market at this point. Yeah, that's so interesting. Do you feel, so you still see a correlation? Because that's come up, right? We've seen a lot of changes. We saw the Bitcoin ETF. And people are kind of saying, okay, is this still kind of in lockstep with the triple Qs, with the Nasdaq in particular and risk assets? Or are we starting to see a differentiation? You kind of feel like it's still that kind of correlations in place?

5:06Yeah, if you zoom out, the correlations are still pretty tight. I would say if you zoom in the last couple of weeks, we've definitely seen a bit of a divergence. I mean, this week, for example, you had Bitcoin just in the last 10 days or so, reached new all-time highs, break above 72, 73 ,000, has since pulled back quite considerably. And as we've talked about many times, these types of pullbacks aren't uncommon, even during bull markets, right? They're necessary healthy resets more often than not. So we have seen a bit of a divergence more recently, because as we mentioned, stocks continue to plow higher.

5:38but I do think those big kind of tailwinds those drivers are still very similar I think what's interesting is when you chart for example you know last time we talked about Fed liquidity and the PBOC in China really being the two big central banks right that that not to say they're the only ones right but I would put them in the camps of being the most important ones when you put those two and their liquidity against the price of Bitcoin for example the correlation even just over the last three years is extremely positively correlated what was interesting is that as you started to see those two kind of plateau on the liquidity front that was right around the exact time second week of january when these etfs launched right which created a whole new kind of wave of hype and excitement and lots of inflows after we got through some of those gbtc outflows lots of um daily inflows into those funds which i think help kind of boost or push pull so that demand forward push bitcoin to new all-time highs now we're seeing a bit of that kind of um unwind or a bit more price consolidation, which isn't, again, uncommon when we get back to all-time highs in previous cycles.

6:39You typically tend to see this type of volatility around this point. Yeah, and I want to talk about volatility. We have the halving coming for those. So we know this audience, we've got a really broad group of people. We have some people who are deep into crypto and have been watching it, have been very happy with how their portfolios are looking. We have people who aren't in it yet but are wondering because now it's an ETF, right? So suddenly this conversation is different. And then we have people who still have a lot of, I think, worries or concerns. So we're going to sort of cross the board for everybody.

7:09And if you have any questions, put them in the chat. I'm not saying it's going to be as smooth as usual, but I got my computer here. We're going to try to see. I'll see how many I can get to. First off, what about the ETFs? How are you feeling about how has that changed the game, if it has at all? Yeah, I think one of the big things is there's a lot of discussion around whether or not that would be a sell the news type of thing when they were approved, right? And like we've talked about, I think there was a lot of anticipation of these, which created a lot of hype and obviously positive price appreciation in Bitcoin and broader crypto leading up to it.

7:45The flows themselves, though, were very difficult to argue that those were priced in because by definition they hadn't happened yet, right? So when we were initially, when those initially got launched, we said, depending on where these flows come in, if they come in above expectations, or if there is more demand for this, we see more net inflows than the market is expecting, that should have positive effect on the price of Bitcoin. And what you can see is since they've launched, and this is why everybody now is basically tracking those daily net flow counts, right? And staying up late because a lot of those numbers, especially for IBIT don't come in until I think nine or 10 o 'clock at night, is seeing where those flows kind of shook out during the day is because it's created very strong correlations with whatever that net flow is during that day.

8:27Usually that's what happens with Bitcoin's price, right? So it's kind of changed the dynamic of what I think a lot of people are looking at or focusing on in the short term. What I will say from a kind of broader perspective is what I think these ETFs did is not only added more credibility, more legitimacy to this emerging asset class, if you want to call it that, it also kind of serves as a forcing function for traditional investors, institutions, RIAs, not to say that everyone's going to start plowing into this just because these vehicles are available, but it almost is a forcing function for you to have an informed opinion on it, right?

9:02Not to say you come out of that due diligence process like you would with any other type of asset or you're thinking about reallocating from maybe treasuries to stocks to commodities. Not to say you come out with a bullish taker, that is an allocation decision you want to make, but it forces you to actually do the work now at this point, I think. It's no longer okay, or you could argue that that kind of ignorance around not having some type of opinion on it. Yeah, I'm just not going to deal with it. It's like... Those excuses kind of have started to evaporate, and I think the ETF launching was the last kind of big one that makes a lot of those excuses no longer really acceptable, right?

9:36Especially if you're investing with an RA, for example, you want them to have an opinion on, you know, if you're coming and saying, hey, should I get into Bitcoin? you can no longer just say, hey, it's crypto, some type of scam or insert some type of excuse here. I think it was a forcing function. And that's just based on conversations we're having too. I mean, some traditional institutions you wouldn't think would be interested in this space or even some RIAs that maybe we were trying to talk to or pitch our research to, for example, 12 months ago, now that they have a way in which they can actually get into this space, we're seeing a lot more increased interest right from those those types of those types of players and i also think it coincides at a time when this currency debasement narrative that we've talked so much about especially on real vision and ral and i you know and ash every month we talk about these types of things that's also becoming much more it seems like becoming much more front and center for a lot of big institutions a lot of investor circles are talking about the unsustainability of the debt profile of the U.S.

10:39and the U.S. isn't the only one going through this but obviously it's much more front and center being here treasury debt increases the expectations or fiscal deficits even when we're not in recessionary times what that means for eventually if the Fed has to come back in because more debt requires more U.S. dollar liquidity to basically service it there's all these conversations that really strike I think at the heart of what the value proposition of Bitcoin has always been in our opinion which is that currency debasement narrative and so there's There's a confluence of things, I think, with these ETFs launching that really pulled, maybe pulled forward some of that demand in the short term, but really has put that in front of a lot of investors who otherwise probably wouldn't be talking about this or wouldn't be kind of doing the work to figure out if they should have a position in it or not.

11:21Well, the fact that you're getting incoming from those kinds of people, I think that speaks volumes, short-term price action aside, about the longevity. would you say that there is less skepticism? Well, let me put it this way. Does it feel like we are in a different cycle now based on the fact that you now have this starting to be accessible, albeit through an ETF? I would say when it comes to the cycles themselves, I still think crypto is going to be very sickle over time. I still think we're going to go through these kind of winter type of bear market periods, right? Hopefully not as prolonged as the last one we just saw, but you're going to see 40, maybe even 50 plus percent drawdowns at some point, right?

12:05Especially just given how volatile this asset class will continue to be. So I think it'll still remain cyclical. What I do think is given this is the first cycle, at least in my experience, where those big kind of macro narratives we're just talking about, currency debasement obviously being front and center, are now coming to a head at the exact moment when you now have the vehicles in which institutions can get into this space. And also the argument for Bitcoin has – it's arguably never been stronger than what we're seeing or we're going through and experiencing right now. Now, that's not to say when it comes to skepticism, right?

12:38It's not to say that prices are going to go up and to the right forever, right? That could be Bitcoin. That could be stocks. It could be every pretty asset class that's outperforming right now. We get this question all the time on NVIDIA. Right, exactly. And so it's not to say, again, you're not going to have these drawdowns. You're not going to have these cyclical periods. But I do think we're in a bit of a different paradigm this cycle than we were previous cycles for sure. Do you think that the institution – so first of all, I can't imagine. I would love for you to put in the chat if you've asked your advisor or you've contemplated yourself whether this should be in your portfolio or not.

13:13Because I can't imagine that that's not going to be a conversation that every RIA or financial advisor is not going to have to think about in the same way people get, especially if they get nervous and ask about gold or bonds. This has got to be something that's going to come up as they hear about it. And it doesn't help that we've had the gains. So I'd love to hear if a lot of you who have not been in it are thinking about that. But do you think that that is, even though the price is going to be volatile, do you think we're just going to continue to see those institutional flows come into this space?

13:49Is that just on a steady climb now, or do you think that will peak and valley along with the volatile price selection? Yeah, yeah. No, it's a great question. I think overall, for looking out the next, call it six, nine, maybe 12 months, let's call it through the end of the year, I think those flows will net continue. you again you're gonna have days or weeks or even multiple weeks in a row where you see outflows just like any other right you look at the spy you'll get tlt you'll get any other etf right um and that can be based on just again allocation decisions and and um and the individual strategies of who it is that is investing in these i do think that and i think it's also potentially going to be a bit more correlated with as you have more institutions come in typically you tend to see institutions are they're more like those giant kind of oil tankers right that when they start to move they don't move fast when they start to move they move a lot of momentum right and they and they come in displays a lot of water right exactly they come in and they come in usually in size right and so what we we know is yes there are some that have already come in but a lot of them either haven't had the ability to do it yet or are still formulating their thesis around now there is a way to do it that it's one of the reasons why i think going into q2 maybe more so So back half of the year, Q3, Q4, as more institutions come around to and build their own thesis, formula and thesis around this, they have the vehicle to do it.

15:08Some of those inflows will come in because they're not the fastest movers in the world. But when they do move, they come in in size. Have you guys seen any interest from corporates? That's still an area where people have to hedge currencies. They have to think about all that stuff. They have global operations. Have you seen any interest coming in from them? Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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18:16yeah not not so much directly i mean you've got obviously your micro strategy probably the most quintessential example of that right which is coming to basically get turned into a bitcoin etf proxy in a sense um you've got other companies like tesla etc i i still think that Bitcoin small allocation can make a lot of sense it's still very volatile I think the skepticism there especially for corporate treasurer is probably around the opportunity cost of just sticking your capital in you know a money market fund or you're getting you know four and a half on a t-bill like that is still with rates where they are I think maybe creates a bit um a bit of a hurdle for getting into a volatile asset like like BTC um so directly no but I would not be surprised if there are a lot more corporates that are now it's at least on their radar yeah i think that's kind of i would think it'd be irresponsible that's kind of the big thing right with ria's corporates it's not to say again that they're all coming in at once it's this big flood of institutional capital or call it non-crypto native capital in a sense it's now all of a sudden going to come in because these vehicles exist it's more that it's now on the radar you have to kind of keep track of it you have to do the work to formulate a thesis around it and maybe when the opportunity is ripe, let's say Bitcoin takes another 20, 25 % drawdown, maybe the new dip buyers might be some of these institutions, right?

19:35Or some of these RAs or some of these eventually corporates potentially. It's more so that it has to be on the radar of a lot more players, investor types of investors that I think can give it, you know, the legs in terms of flows throughout the rest of the year. Yeah. Thanks for all the well wishes in the chat, everybody, by the way. A lot of congratulations on episode 1000 we appreciate that and one of our contributors David slushers in the in the chat which we appreciate you showing up Charles asking hey guys what's your take on the end of this cycle like we're already talking about the end of the cycle Charles will this time be different because of ETF flows we inflows we talked about that a little bit but what do you make about the fact that we're talking about the end of the cycle already is that condition for people who've been through this before yeah and there's a and it's not it's a great question because it's a question we're getting a lot more of right now too, right?

20:26Especially as - Is that a sentiment indicator? Which is interesting because yeah, once he gets all time highs, you would think that that's usually that's kind of the start of the next leg of the cycle, right? But again, I think just given even being in this, you know, for years and years now, I'm always surprised at how fast crypto can, the drawdowns of crypto can be, and even the upside, right? How swift those moves can be and how volatile it can be. So I think part of it is just near-term sentiment, getting a bit over at skis. you have seen a pretty sizable increase in leverage in terms of open interest uh funding rate so even on the kind of trading side of things there's definitely a number of indicators that have pointed to this being a very logical place for us to see some consolidation um which again very natural and something we would expect and actually something we would want to see right because prices can't go up forever uh i do think that this cycle will continue i don't i don't wouldn't say we're in the first inning or first or second innings by any means at this point we were way back when we started talking about this after liquidity bottoms um but what's interesting is if you look back at prior cycles things like this meme coin craze right which we can get into and there's all sorts of um takes on both sides of whether or not that's you know good for the space that's just good for people into our society in general what's interesting though if you just kind of take a step back we've seen meme coins before there's you know you have your your original ones that have been around for as long as ethereum has at this point and what you're typically trying to see is they're proxies for that most kind of pure speculative gauge, right, of sentiment and also inflows.

21:57And last cycle, for example, wasn't actually until Bitcoin broke to its new all-time high, solid-winded consolidation, that next leg higher in the bull cycle was really where you saw more of this kind of alt season, right, or non-BTC assets really starting to outperform. So that's kind of right in line with what we've already been seeing. It's tough to kind of put yourself in that position 12 months from now. And hindsight will always be 2020. But no, I don't. Short answer is no, I don't think this cycle is over. And I look at these kind of drawdowns as opportunities if you have the cash on the sidelines.

22:30Well, and it's going to be interesting because now more people are watching and we have an entire generation that is schooled on if things are running away, waiting to get a better opportunity to go in. So we don't know how many people wanted to see how the launch went and are waiting now. And if you get a pullback, will think about going into it or having that conversation with their, you know, I know we all, nobody wants to chase anything higher, right? And so if you miss that. Absolutely. And it's the same thing with stocks, right? So if you look back at, you know, historically when the S &P 500, for example, has gone through some type of bear drawdown, significant bear drawdown, when it breaks into all-time highs, the 12 months after that, actually typically result in above average returns and below average volatility.

23:11So, And it seems a bit counterintuitive. This is where the psychological aspects of investing can really hurt people sometimes is when it breaks from an all-time high, any type of asset. Typically that's strong momentum. That's in your favor. That's a good thing. You typically tend to see above average turns after that happens. But sometimes it's hard to, again, put yourself in that space because you're thinking things have already run up so much. We're now quite literally at all-time highs. How much higher can things run? And sometimes you can be surprised at just how long and how high things can go.

23:42We talk about this all the time when we do the psychology of trading. And this is a huge overhang, I think, from the dot-com for those who got caught up in that. You know, you don't want to be the full, the last one in. It's usually retail. But we talk a lot about strategy with the traders, Tony, Jared. Tony's going to be here later. And just pulling that right side of the screen out a little bit further. Raoul always talks about Jared talking to him about that. So you're right. It is tricky. And you always have to know your risk profile when you need the money. That goes without saying. Absolutely.

24:17We're talking about stuff here. Having a process. That's why having a process is so important and why the work that all of you do here. And again, I've known Raoul for a long time now, and he's informed a lot of my own views on certain things. Why having a process is so important? Because you can make the flip side of the argument, right? If we're going to say the cycle is topping out, well, what are the things that we're we would look for that tell us that this cycle or things might have gotten too over their skis and we are in for six, maybe 12 months of downward price action. We'll talk about risk assets specifically, right?

24:49And it would be if you were seeing global liquidity, not only topping out, but contracting in your outlook, the expectations for liquidity going forward were down and to the right. On the opposite side, we're really kind of seeing potentially what could be the early innings of a global central bank cutting rate cutting cycle right so our liquidity outlook and the outlook for rates right now um doesn't tell us that we're you know near all-time high at least compared to prior cycles are there risks around inflation still being sticky the fed coming out and saying okay we thought we were going to do three hikes we updated that apply three months from now maybe uh the argument about rolling off qt gets extended a little bit because they actually They have the ability to do that.

25:30Those are things that certainly can play into short-term volatility or can cause people to de-risk and take some chips off the table. But when it comes to those kind of bigger, broader cycles, the big things that we would look for that tell us where the bottom is happening, it's never perfect, right? You never time the market perfectly. When the bottom is roughly probably going to happen, where that new cycle top is, we're not seeing anything that tells us that we're at those kind of egregious levels yet. uh ralph asking do you have any thoughts about the launch of you want to drink i'm gonna do it yeah i told you i don't want to i don't want to camel when it comes to fast and furious we're all we're also dying it's allergy season here i don't know if you're suffering where you are but um i'll just keep it on my hand the whole time yeah it's okay um we'll get you something stronger in a little bit uh so does ralph asking does kevin have any thoughts about the launch of black rock's money market like fund and their investment in securitize we're going to take another quick break to hear a word from our partners.

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27:09Its value doesn't just hold, it increases during inflationary periods. And unlike money, gold can't be printed. It's your shield in times of economic uncertainty. Invest in something you can hold. Go to noblegoldinvestments.com slash vision to get started. Don't wait. That's noblegoldinvestments.com slash vision. Yeah, I think it's a really, I think it's a really significant event. And I think Larry Fink was on, I figured it was, maybe CNBC earlier this week talking about how the Bitcoin ETF, and I don't want to directly quote him, but I think he said something along the lines of the Bitcoin ETF is really just the start of what their plans are.