#1003 - Will ETFs Put a Floor Under Crypto? | With Noelle Acheson

0:09Will ETFs put a floor under crypto? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Nicole Atchison, author of the Substack newsletter, Crypto is Macro Now. Hi, Noelle. Maggie, so good to see you. How are you? Good, good. So good to see you as always. And we have a ton to catch up with in both the world of macro and crypto, which as we always say when you're on and you were so pressing about this, are really kind of intertwined more than they ever were before. But let's start out on the macro front. We saw stocks, US stocks rebound today and treasury yields dip a little as traders try to weigh, I think the Fed's next move is really hanging over everything, right?

0:48We had some mixed data this week. We get the PCE inflation reading on Friday. What's your outlook for monetary policy? One thing I've been trying to figure out, Maggie, is the Fed insists that its policy is restrictive. We've heard Sharon Powell say this many times, and many of the FMC members repeat that. And I'm trying to figure out what are they talking about? Why do they think it is restrictive? We have the stock market consistently breaking through all-time highs. We have financial conditions as loose as they were at the beginning of 2022 before the rate hikes even started, which is crazy.

1:24You have annualized growth in consumer credit ticking up. It is now higher than it was before the pandemic. Corporate loans perhaps are weak, but corporates are not exactly struggling in the bond market. Credit spreads are close to record lows. And what else? Oh, it's annualized, so not annualized, sorry, but non-financial corporate profits are doing pretty well. They've ticked down maybe a tiny bit, but they're still much higher than they were before the pandemic. So what exactly does the Fed mean that its policy is restrictive? I'm just not seeing that. A better question relevant to what you were asking actually is why would it lower rates in this scenario?

2:03One good answer to that would be because it said it would. But it could argue that its credibility would be even more damaged by lowering and then having to rise again should inflation take up. Another reason why it might lower rates is political pressure to help bring the debt burden down or whatever. But the Fed is obviously adamant that it is not political, and we can fervently hope that that is indeed true. So I don't see the Fed lowering interest rates. I had three cuts this year, maybe one, maybe two, but not three. And the question then is, Maggie, what's the stock market do? And that becomes increasingly obvious.

2:38Yeah, well, that was my next question, because you're right. And by the way, this is a sentiment that was also expressed by Bob Elliott yesterday. I just talked to Andreas today, and he's talking about that as well. But you are all in the minority right now. It is a contrary in view, because we know the market's still pricing in three. Yes, like on the margin, some Fed officials, I think, are floating a balloon here or there that, well, maybe, you know, they always say they're data dependent. But there is a mismatch. And so that really important question, and it's one we're going to keep asking, is where is the market most mispriced, if that's the case?

3:19What area is most vulnerable to having to react to that? So yes, what happens to stocks, maybe that's largely dependent on what happens to bond yields, right? Because that is what really kind of wreaked havoc last year. We know so many people got the bond call wrong. You know, I think there's some data that's been showing that people have been, there have been inflows into treasuries as people, you know, are on the expectation that those rates are going to go down again. So it's very tricky. Nicole, Noelle, rather, do you think that it's a matter of if we're going to see a bond reaction, do we have to think about, But do yields just stay here?

3:59Or do you think there's a threat that they have to adjust higher if the Fed's not easing? I think we're going to see yields go higher, not just for monetary policy reasons, but also for global uncertainty reasons. Let's face it, things are kind of iffy out there. And there's no sign that things are going to get better anytime soon. So yes, we're probably going to see higher yields. Of course, that largely depends on demand for the dollar as well, as well as what other central banks are doing. We're seeing a divergence now in central bank paths. And this is unusual. Normally, central banks are around the world, heathered to the Fed's movement.

4:33But again, it's all Switzerland cut. We're seeing Japan hike, Taiwan hike. It's just getting really, really confusing. And so yields tend to rise in times of great uncertainty. There's more at stake at the moment rather than just, is the Fed going to cut or not? There's a lot going on around the world. Markets are more intertwined than they have ever been. I personally do think we're going to see higher yields. I think we're going to see inflation remain stubborn for the rest of the year. And I think that is going to cause severe strains in the bond market, for sure. In the stock market, Maggie, we've been saying this for some time.

5:06Those of us that are in the minority have been saying for some time the stock market has to correct roundabout here because all the crates are crowded. Everyone says so. And it's betting on three rate hikes that we just don't think are going to happen. But when the market adjusted from the expectations of six rate cuts to three stock market kept going up, my confidence that we have a strong correction has weakened over the past few weeks. It would make sense, but markets don't make a lot of sense these days. Yeah, no, they don't. And it's been really hard because there are all these cross currents, right?

5:40So, you know, the traditional maybe one-on-one relationship is really tough. And that's why everyone's grappling with this. And you're right, if they're on different trajectories, that's going to further complicate it because then you do pull currency into it. So it's interesting against this backdrop. One of the questions we get all the time is, you know, how do I structure my portfolio around this? Right. Like, where's the opportunity here? What do I need to be worried about, especially for those who are looking at preservation and are worried about some really nice gains that they're sitting on in some of these stocks, especially if you were overweight technology, let's face it.

6:17And how do I best structure a diversified portfolio? Does that look like it used to? What are the role of bonds in a portfolio? And now increasingly, we're also looking at what about crypto? Should that have a position? What am I doing for that? Is that a differentiation or is there still correlation? So it's gotten really complicated. I'm really curious to get your thoughts, which I will in a second. But this This question came up with Roger and Larry McDonald. Well, they just recently sat down, especially in the wake of the ETF launch. A lot of people are sitting with their financial advisors.

6:53Now it's available through an ETF. So that question about whether it has a place in my portfolio is really, really relevant. Here's some thoughts that Larry shared with Roger. Let's have a listen and we'll talk on the other side. It's kind of like the old 60-40. I mean, gold is like the bond and Bitcoin is like the growth equity, right? Right. I mean, you know, so I mean, what's the negative on Bitcoin? Well, let's let's not you know, let's not hide it. The real fact is the negative. Bitcoin is volatile as all hell. You know, and I mean, we've had four or five 70 percent drawdown. So, you know, I've got a lot of clients and investors who have millions of dollars.

7:26They've got them invested with me. If I put them all the way in Bitcoin and they had a 70 percent drawdown, they'd want to blow their brains out or kill me or both. And so, you know, they just can't handle when you're older. You can't handle that volatility. You can't handle that drawdown. So, yeah, it is like nitroglycerin. You know, gold, the largest drawdown it's ever had is kind of in the 20 percent range. And in most years, it's flat up and it averages up about eight or nine percent a year. So, you know, it's much more widely distributed, 5000 year history, et cetera. So, you know, from a stability point of view, gold is far superior to Bitcoin.

7:58But from a performance and growth point of view, you know, Bitcoin has two things. They both have one thing going for it. OK, they both benefit from the fact that the world governments today, as we currently see them, are locked in a loop where they have to print money. And we can go into that when we talk macro in a few minutes. And because of that, currencies are being debased. And that's why everything costs more expensive. And when I was a teenager, gas cost 25 cents a gallon. Now it's$5, right? And that trend is just going to continue. In 10 years, it's going to be$10 or$15, whatever. And that's because governments print money.

8:32So Bitcoin and gold both benefit from that trend. And that full interview is available on our website. If you are not a full member of RV or you want to upgrade, it is worth it for these kind of conversations. So head over to our website and you can follow directions on how to do that. Super interesting. And Ralph, by the way, just pointing out a new spot ETF, Bitcoin ETF hit the market today. So there's sort of increasing options, which we'll talk about. But Noel, do you think that the, so we heard Larry's opinion there. Do you think the success of the ETFs, because by all accounts, one of the most successful ETF launches ever, the inflows have grown more rapidly than I think anyone would have anticipated and sort of rivaling gold already, you know, where it sits.

9:21And of course, that's been on the market for years. So does the success of the ETF change things? Do we now have some kind of floor under Bitcoin or should we still expect massive price swings to persist? 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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11:52Well, I love that question. Tons to unpack there. First of all, do we now have a floor under Bitcoin? We always have had. I think this is one thing that a lot of people tend to overlook about Bitcoin. There's always been a floor and the floors have been strong and successively higher through cycles. And that will continue. We'll continue to see successively higher and stronger floors as we go through. One of the reasons we have a floor, which is relevant to what Lawrence was talking about. I love the term, you know, the comparison nitroglycerin, very evocative, but I'm going to push back on that because nitroglycerin blows up, you've got nothing left.

12:23With Bitcoin, it cannot really go to zero. And the reason it cannot go to zero is that there will always be some residual demand somewhere in the world for some use of the network. And there's no one who can turn it off. And as long as there is some demand somewhere, it's not zero. But most important things, there is no one who can turn it off. Whereas if you put all of your money in NVIDIA, NVIDIA could go bankrupt, God forbid, but that's not out of the realm of possibility. A bond can totally default when they go to zero. When a stock or a bond goes to zero, it does not come back from that. So, again, slightly different floor equation there.

13:00And as to the question, the role that ETFs play in the floor, they do play an important role in the sense that they broaden the diversity of demand. And it's the diversity of demand, as I mentioned before. That creates the floor. The ETFs themselves, no, they don't. And I'm sure I'm going to upset a lot of people in the market when I say that. But what I mean is the ETFs are an on-ramp. I mean, I could say just an on-ramp, but they're a massive on-ramp. So I don't want to diminish their importance. But they are an on-ramp. If people don't have an interest in holding Bitcoin, the ETFs aren't really going to help.

13:36The ETF issuers are playing a very big role in spreading the education, in getting Bitcoin understanding out to a more diverse demographic, if you will. And that contributes to the floor. But the ETFs themselves, they add liquidity. They bring in new players in the market. Very positive force. But they themselves are not going to be giving Bitcoin a floor. That comes from diversity of demand. That is a just phenomenal explanation for that. And I love the way that you broke it down. And I think really importantly, you're talking about it as a network. Because one thing that comes up all the time is we call them cryptocurrencies, but it's not the same thing as we are traditionally used to when we're talking about something.

14:21This is a protocol, right? This is a network that people do all sorts of things with. And I just had a great conversation with Kevin Kelly and Sergio. You all, Daily Briefing viewers, saw Kevin. And Sergio came in for our event and we had a conversation. I'm trying to see if I can get that posted somewhere for you all. I've been working on that. But it was a great explanation of the ecosystem. And that's really a better way to think of it. So when we're talking about a floor, I think that's a great explainer on that diversification of demand. It's like a different way of thinking about it. And it's so good.

14:58I'm going to imprint that on my brain. So we will potentially see more volatility. So do you think, sorry, we will still see some volatility. That's not going to go away necessarily. It seems like that's the sort of nature of this asset class right now, which let's remember is still very young and in its infancy. Do you feel like we are seeing more global demand for these ETFs? Yes, absolutely. And on the two things to pull on there, I'll start with the volatility thing. I am an outlier in that I don't think that the ETFs are necessarily going to bring down Bitcoin's volatility significantly because volatility in Bitcoin, it's a feature.

15:43It's not a bug. Trading on crypto markets tends to be more expensive than trading on traditional markets. So to bring the market makers and the high frequency traders in, the liquidity providers in, you need some sort of volatility for them to be able to make enough money trading the small margins to be able to cover their costs. So without more volatility, those are problems that we've had during most of the winter. There was not enough volatility for there to be liquidity. Now that volatility is coming back, the market makers and the liquidity providers are coming back. The market is picking up again.

16:13More people are doing more things. And that actually adds to volatility. I think this is something that a lot of people are overlooking. And one more thing to say on the volatility that I think also is overlooked, ETFs can add to Bitcoin volatility because they don't trade 24-7, 365. And Maggie, just imagine a scenario where it's Friday evening, Bitcoin plummets for whatever reason, and the sell orders that would be building up to just launch on the open on Monday would send the volatility up to an entirely new level. We're, of course, able to trade over the weekend. We would still see movements, but perhaps not quite as sharp.

16:51So my theory is that the ETFs do potentially add volatility. Bitcoin is a very counterintuitive market in this respect. We're used to understanding that more liquidity brings volatility down. I would say yes in everything except crypto assets. And then on the global demand question, absolutely. We're seeing now Hong Kong is getting closer to issuing crypto ETFs, sorry, Bitcoin spot ETFs, which would be absolutely massive for the region. Not only because Hong Kong is a sort of conduit between China and Western style markets. Obviously, there would probably be some restrictions, but the market, even just a tiny percentage of Chinese investors being able to put crypto ETFs in their portfolios, that's a massive potential inflow.

17:39We're seeing Japan start to reconsider their rejection of the idea of spot ETS because they don't want to see all of the Asian funds heading over to Hong Kong. And we're going to start to see the spread around the world. The key markets realize that if I don't, like the USA, if we don't do something about it, the funds are going to go somewhere else, especially when, as we referred to earlier, Maggie, there are increasing use cases, not so much use cases, increasing narratives to justify holding Bitcoin in a portfolio as the sort of insurance asset, even as Lawrence was referring to. Yeah, and we've got a question on that.

18:16But I want to ask, since we're on this adoption issue, about an ETH ETF. So since we've seen now this track record building, I think there was a feeling that ETH would be soon to follow. But it seemed like the SEC maybe threw some cold water on that. People don't know if that's just last minute posturing. Does it seem inevitable that we will also get an Ethereum ETF? Or is that still an open question in your mind? It's inevitable we will get an Ethereum ETF. I personally have no doubt about that. I just don't think we're going to be getting it within the time frame that most people would hope.

18:48This SEC is very much against the idea. And this SEC may not have any grounds to reject them because in theory, what holds for the Bitcoin spot ETF holds for the ETH spot ETFs. But it doesn't necessarily mean that it's going to just check the boxes and maybe it's going to come down to another lawsuit to get that. The SEC does have one thread to pull on here, and that is staking. And a couple of the issuers have added the redistribution of staking returns to the ETF holders. And that could end up being designated as security. And the Coinbase suit that we saw today is actually going to go ahead.

19:27So on that, we could see some pushback. And another point, though, Maggie, about the staking, even if the SEC says, all right, but take the staking out, that makes the ETH spot ETF not a good product because any holder would earn more by holding the ETH and staking it themselves than by putting their money in the ETH spot ETF if they can't get access to the staking. So it's not going to be a great product. And we even saw BlackRock say just last week, I think it was, they're not seeing much demand for this anyway. So it doesn't sound like it's going to be a kind of something that BlackRock is going to want to fight the SEC on energetically.

20:09I don't think this SEC will approve an ETH ETF unless it finds itself blocked into a corner. But this SEC is not necessarily going to be around forever. So things will change. We will get an ETH spot ETF, just not as soon as the market would like. I think we should get one. I think there's no reason to deny it. But I don't think, I think there will, the SEC will find reasons. And even if they were to go ahead, there wouldn't be nearly as much demand as we saw for the Bitcoin ones. Yeah, and it's so interesting. I mean, it just seems like there's so much momentum that at some point. So that Coinbase headline did catch a lot of people, people's attention, because we know a lot of people.

20:50And if they weren't, they're holding Coinbase because it was one of the outperformers of the recent rally. Right. I checked up 30 % in the last month, 262 % in the last six years. Even if you didn't get on that first wave, when it started to get that momentum, a lot of people jumped in and are holding coin in their portfolios. What did you make of that headline on that case? Is that a worry? It didn't seem like it hit the stock that much, but it did fall a little bit. And crypto assets dropped sharply when the news came out as well. It seems to be like an overreaction, to be honest, Maggie, because it's not a surprise.

21:29I mean, nobody really expected the judge to throw out the SEC's suit. I mean, that would be very hostile. I mean, we could hope, right? We could hope. But so it wasn't much of a surprise. And there was some good news embedded in there. Judge Fahela did tell the SEC that you cannot claim that Coinbase wallet is a securities broker. That's one good, you know, that's one blow. I wouldn't say blow. So that's one thing in favor of DeFi that's going to help the DeFi ecosystem quite a lot. But no, it's not great news. I mean, the judge did sound somewhat sympathetic to the SEC's arguments that some of the securities traded on Coinbase could be securities.

22:07But obviously, that's going to be decided when the case actually goes forward. But again, what's the worst case here? The worst case is that Coinbase loses and gets slapped with the potentially significant fine. But Coinbase is doing very well at the moment, especially with the market pickup and with the ETFs. So it wouldn't necessarily impact or put in danger Coinbase's core business. Meanwhile, Coinbase continues to expand internationally as well as international markets are picking up in volumes. So bad news. I think the market seems to be overreacting. Yeah, absolutely. I'm sure their legal fund is looking better these days with that kind of gain on their equity, putting it away for a rainy day.

22:49The judge did say very nice things about Coinbase's legal team. So there's that. Well, there you go. So Paul has a really interesting question. Do you think the availability of Bitcoin spot ETFs and their popularity undermines the adoption of Bitcoin as a currency and a store of value? Are the ETFs really good for Bitcoin? We're going to take another quick break 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. Few investments make a better long-term hedge against inflation, depression, and economic downturns than precious metals like gold and silver.

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24:08Invest in something you can hold. Go to noblegoldinvestments.com slash vision to get started. Don't wait. That's noblegoldinvestments.com slash vision. Yes, they are. One, because they bring choice to the market. And Bitcoin from day one has been about choice. If you want Bitcoin to be a currency, use it as a currency. Don't hold an ETF, but use it as a currency if you want it to be a currency. If you want it to be a store of value, you can hold it in the ETF. You can hold it in self-custody. You can do what you want with it. Bitcoin can be whatever you want it to be. If you want to hold the ETFs because you think Bitcoin is a new technology that has ASEAN and yet tested use cases, you can do that too.

24:49Bitcoin is all about choice. And we can choose the convenience of centralized market infrastructure players if we want. There's the age old choice between convenience and security. Or we can go totally self-starred if we don't want to go through the centralized holdings. I get so frustrated, Paul, when people say that, oh, now Bitcoin is centralized because they're ETFs. No, you can use centralized services if you want to. You don't have to, though. It's about choice. Yeah, that's a great way to put it. So I wanted to flag something else. And it was in your substack today. It had a great section on something called Project Guardian and the way Singapore is using blockchain to position itself geopolitically.