#979 - When Institutions Come for Bitcoin with Martin Burgherr

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0:56Hi, everyone. Welcome to the Real Vision Daily Briefing. If you're wondering where we've been all day, we're hanging out over at the Crypto Gathering. If you want to join us, it's free. Just register at realvision.com slash crypto gathering. And much of the talk on day one was about the impact of the Bitcoin ETFs. In case you missed it, nine ETFs launched with BlackRock and Fidelity among the most popular. Both topped$1 billion of inflows within five days. And they're the only two funds across the ETF universe to attract more than$3 billion in their first 20 days, according to Bloomberg. As the money's flowed in, so have your questions.

1:35Many of you have asked, is now the time to invest? And if so, where do I start? Others who already own some crypto want to know, what do I need to understand about asset correlation? And what about other coins like ETH and Solana? To answer some of that, we are sharing a conversation originally reserved for our pro-crypto tier with Ash Bennington and Martin Berger. Enjoy. Welcome back to Real Vision Pro-Crypto. I'm Ash Bennington. Today, I'm joined by Martin Buker, Chief Client Officer at Signum Bank. Martin, welcome to Real Vision. Welcome. It's great to have you with us. First time on the show, Martin.

2:11Tell us a little bit about what you do at Signum. We're going to talk a lot about the broader sentiment, all the things that are happening in crypto. But first, Tia Sof, tell us a little bit about what you guys do. Cool. Thank you. Well, my name is Martin Burker. I'm the Chief Client Officer of Signum Bank. Signum is the world's first digital asset bank. And meanwhile, we merged into a global digital asset banking and technology group. And our mission is to empower everyone everywhere to own crypto with complete trust. Now, our journey started actually already back in 2018-19, I think very early to actually provide something regulated.

2:50And back then, people thought that we lost our minds when we said we want to build a bank which offers crypto because it was a largely unregulated space. But meanwhile, I think times have changed and we are very successful in what we are doing. And I think the future is even brighter than the last five years. So talking about where we are right now in this bright future, you guys recently commissioned a report in Q4 2023 to get the state of play in the digital asset space. What did you find? What's the outlook? How are you guys seeing things? Yes, thank you. So we conducted the survey within our client base.

3:31And I think we saw that the people, they have a very positive outlook on crypto. So interestingly enough, I think we saw that they are short term, not as positive as, let's say, within a year's time frame. So interestingly enough, we conduct the survey end of Q3. And I think it pretty much reflects the sentiment at that time, right? The ETFs were not yet approved. Everyone was probably looking at what is happening with these ETFs. Will they happen? But the market sentiment back then was not yet that positive. And this is also why many of the people participating in the survey, they said they want to increase the crypto exposure, but not necessarily within the next three or six months, but rather within the next 12 months.

4:20And I think now we see actually that many of them had quite a sweet timing. I mean, maybe now we saw the first upswing of this new super cycle. And many of them, they probably started to slowly allocate capital. but we see that actually many of them, they probably only targeted to deploy more capital into the space now or then also now in end of Q1, beginning of Q2. So tell us a little bit about the demography of the sample and what that tells you about the potential framework that they're seeing this through. well so the in terms of um the demography i think it's uh it included actually many many different kind of of investors so uh younger ones uh private individuals high net of individuals but also more institutional uh clients so it's quite a broad scope of the survey and but i think what we can see and also reflecting this chart is actually that we see that there is a difference between between people who already hold assets.

5:23So many of them, they plan only to incrementally increase exposure and people who do not yet hold crypto assets. And we see that actually there really a vast majority of them, they plan to allocate new capital or initial capital into the crypto space within the next six months to two years. I think this is really what we could see that the people who are already exposed, they continue to be bullish, but the people who are not yet in the space, They see even more need to increase now the allocation within the next 6 to 12 months. So we should say, if we didn't mention it already at the top of the show, Signum is based in Switzerland.

6:02Is this a Swiss investor group? Is this more of an investor base more broadly throughout Europe? Or are you global in that sense, in terms of the data from this survey? Yes. So, yes, we are based in Switzerland and Singapore. So we are dual headquarter. But this survey included basically people globally, signally serving clients in more than 60 different countries. So it was quite a global scope that we covered with this survey. Yeah. So let's talk a little bit more about the context for this. This notion that you saw some potential shorter-term hesitancy with longer-term bullishness on the space.

6:40Does that suggest to you something about what the framework is or the perspective that these investors have as they look out across broader time horizons for the adoption curve on crypto and digital assets? Yes. So I think in my view, I think it is a reflection of the people really believe that, especially as institutional investors, that crypto deserves an allocation within an institutional asset allocation. However, I think it also reflects that the people were thinking it's probably a few more things need to happen so that they really can start deploying capital into the crypto strategy or into the crypto bucket.

7:24So I think this was really in anticipation, for example, of these ETFs, also of the Bitcoin halving. Also, I think a lot about regulatory certainty, which is about to get much more clear in the next couple of months and years, for example, with the MECA in Europe and other crypto-related regulations coming into force. And I think this is what they have on the roadmap, that they say, we want to deploy capital, also we want to deploy big institutional capital, but probably a few things they first need to be checked. I think with the ETF, which in my view was really a handshake between the Wall Street and the crypto space, I think one of these boxes was ticked.

8:07And I think this is now also why we see a lot of this money, which was waiting on the sidelines, is actually now flowing into the space and is already driving the prices. Yeah, I should say we were talking a little bit about this before we got on air today, how there was this kind of buy the rumor, sell the news effect. And now this rebound. By the way, I should say we're trading right now on Bitcoin,$49 ,757 on my screen. We might get to$50 ,000 during this conversation. Hey, Martin, let me ask you something about this idea of the handshake. One of my friends over the weekend was kind of teasing me a bit, poking me a little, saying, hey, how do you feel about this, man?

8:44It looks like Bitcoin's just trading, you know, it's trading with the NASDAQ. Correlations go to one. My response was kind of like, well, you know, if that happens in the short term, like, who cares? I'm not sure that that has a real sort of fundamental basis. Look, assets correlations trade on and off over time. You see that bounce around. But I'm kind of curious, Martin, just to get a sense of how you guys, and we'll start with Bitcoin. We'll talk about some of the other ecosystems as well. But I want to get a sense of how you think about Bitcoin more broadly. Is this something that is something that you guys think about?

9:15And it's interesting, of course, to have someone on with a Swiss background. Is this something that you see as kind of a digital gold off the grid asset, a hedge against central bank monetization or other types of intervention in the money supply? Talk a little bit about how you see this in terms of the 50 ,000-foot macro view for Bitcoin. Yes. Well, so, I mean, definitely. I mean, Bitcoin is by far the biggest digital asset, and I think it deserves a lot of space within a crypto allocation. Now, if we look at our client base, I think people, they have very different views on why they want to hold Bitcoin.

9:52I think some of them, they really have this macro view where they say we have high inflations, we have monetary policy, which is quite loose. So with this inflation, I think it's good to have a scarce asset like Bitcoin. Others, they see it really as a tail hedge where they say it could be a mean of exchanging value for a really tail event. Let's say, for example, that the banking system would not work as seamlessly as it typically does. And others, they really, they perceive it as digital gold. And this is the main purpose, why they believe in it. So I think many people have different reasons why to hold Bitcoin.

10:38But I think all our institutional clients, they see a reason why they want to hold Bitcoin. So I think there are hardly any institutional clients who access the space and say, we don't want to have a Bitcoin allocation and, for example, only go into an Ethereum salon or layer 2s. They also invest into these assets, but Bitcoin is always part of it. Now, the correlation with Nasdaq, we also actually looked at this from a quantitative perspective. And we see that there are, of course, time where there is, in general, a risk on environment where the markets are quite bullish. And we saw this, for example, back in 2020, 2021.

11:21I think when it started, it was also quite a bullish sentiment. And this was then fueling initially the rally of Nasdaq and also Bitcoin. And I think the opposite happened with the tightening of the monetary policies in the beginning of 2022, that there was a general risk of. And then we saw some short-term correlation between equities and Bitcoin. I mean, I would answer probably the same that you answered. I mean, it's short-term correlation. We see long-term correlation between Bitcoin and, of course, equities or the Nasdaq is not high. And I also don't expect this correlation to become much higher now in the near future.

12:02Yeah, I mean, obviously, one of the cases, I am one of the reasons why investors seem to be interested in this, is this idea of getting non-correlated returns. But let me jump into something that you touched on in your remarks there, which is the view of institutional investors. I'm wondering, Martin, if you've seen any dissonance or perhaps differentiation in between institutional investors versus retail investors in your survey. Tell us a little bit about what you're hearing on the institutional side and what makes those investors see this space differently if they do. well i think in general um we see that high net of individuals or private individuals they are probably more driven by emotions than really institutional investors um which is also of course related to the investment process um which is very different from an institutional player than from a an individual right if an individual wants to buy bitcoin this bitcoin is bought now And an institution has, of course, a certain investment governance.

13:03There is a process behind. You need to make sure that Bitcoin is something real and worth investing. So I would say in general, we see that the private individuals, they are much more sensitive to short term volatility, whereas the institutionals, if they do an allocation, they do this typically for a longer term. and they don't have weak hands. So when they put money into, for example, Bitcoin, they also hold on to it because they typically they look at this for a very long time frame. And I think this is a big difference that we see from the behavior that when the markets pick up, we see first, first we see the flows from the private clients coming.

13:45And then later on, we see follow on investments from the institutional clients. But on the opposite, when the prices are coming down, then we also see that the private clients, they sell much earlier than the institutional clients. So they then hold on to these assets because they also, I mean, they have deep pockets. They don't get nervous if they have a drawdown of 50%. I think this is definitely something that we can see that there is a different behavior between institutionals and private clients within our client base. Hey, everyone. We're going to take a quick break right now to hear a word from our partners.

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16:11Yeah, and just to be blunt, 50 % drawdowns are something we see in this space a fair amount. Even in Bitcoin, max drawdowns have been declining relative to the zero line, meaning they've been rising, meaning improving. But still, significant, significant drawdowns from P. Just the nature of the space. Yes, exactly. I think this is something that you need to live with if you want to invest in this space. I think this is also something that probably a few institutional players, they need to get used to that, right? Because, of course, if you're an investment manager and you lost 50 % of your equity portfolio, then everyone looks at you that you didn't do a proper risk management.

16:49If you lose 50 % on a crypto allocation, I think, yes, it's a risk that you need to be willing to take in order to have, of course, superior returns within this S-class compared to equities. But definitely, it's something that I think you need to be willing to take this risk if you want to benefit in the absence. Martin, let's talk about some of the more secular factors at play in Bitcoin specifically, and we can move on to some other ecosystems as well. Talk about where you see Bitcoin in 2024 with regard to the halving, with regard to other secular drivers of price action. How do you think about it?

17:24Well, I mean, this is a very personal view. I think in 2023, many people were debating, is it now still winter? Do we see the beams of spring? I would now say with what we've seen over the last two months that I think spring has started, but I would also definitely say the summer is not yet here, not by far. So if I sense now the overall bullishness, I think people, they lost the negativity that they were associating with the crypto space, but they are not yet very, very bullish on this sector. And now with regards to Bitcoin, I think that we start into this rally at the 50 ,000 level is of course very, very positive because, well, this lets me hope that we see very good price levels later this year, because I think many drivers are ahead of us.

18:22Number one, I think the halving. Of course, the halving is mathematically, of course, the impact is smaller with every halving because actually the amount of incremental Bitcoin's mind, of course, deteriorates with every halving. And so from this point of view, the impact is not as big as from the last halving or the halving before. But I think psychologically, it has a halving because I think people, they also always associate the halving that it marks another, the start of another bull cycle. Now we just crossed the 50 ,000 mark. Then, of course, we have other factors. One of them, I mean, definitely the general sentiment in the markets when it comes to the interest rate environment.

19:08I mean, definitely we saw the prices they were suffering in 2022, 2023, because these interest rate hikes, they may now come to an end, we will see. but if we would see there the monetary policy actually loosening a little bit I think this would definitely fuel risk assets and Bitcoin would probably benefit over proportional from that and then let's also not forget it's an election year typically election years they are quite bullish for well for equities but also for cryptocurrencies and I think all in all yes we have quite an attractive risk reward profile with Bitcoin right now. And then I think what we also see is that new money coming into the space.

19:55And I would say the ETF approval was, of course, an enabler, or let's say, lowered the barrier for institutional players to access this space. And what we always saw and what we definitely also see in this cycle is people access this space through Bitcoin. So new institutions entering the space, the first allocation will be Bitcoin. for, well, technical reasons, because some then also want to trade crypto against crypto, but also because simply Bitcoin is by far the most well-known asset. So typically, the rally is fueled by Bitcoin, and then other ecosystems they benefit in later on through the rally.

20:34Martin, we just got a print of$50 ,000 on Bitcoin while you were laying out some of the bullish case there. Let me ask you this. Do you have a base case or a price target for 2024? we don't have a price target. I think history tells us that it's very difficult to have a price target. But we are, of course, as a crypto bank, we are positive on the digital asset space as such. There you go. There's the chart, Bitcoin crossing 50 ,000. Okay, let's shift gears here a little bit and talk about what you see happening in the Ethereum ecosystem, which has been lagging, obviously, Bitcoin here for some time.

21:12Interesting sort of cycle shift there in terms of the relative performance of those two assets. How do you think about what's happening in the Ethereum ecosystem? Well, I mean, the Ethereum ecosystem is still by far the larger ecosystem. So I think in general, many positive things are happening there. But as you rightfully outlined, so far, it underperformed Bitcoin quite a bit. I think this is one observation that it's lagging, which is also not something new. We saw, I think, the same in the last bull cycle. We saw that also the rally was fueled by Bitcoin and then suddenly Ethereum picked up.

21:51We saw actually a similar move happening after ETFs were approved and I think we saw a sudden spike in Ethereum. Yes, we see here nicely on the chart, I think around this 8th of January, suddenly we then gained like$300 in Ethereum. Because I think, of course, this ETF approval simply attracted all the market liquidity in crypto, was consolidating in Bitcoin. Now, I think what we see is, of course, still these ETFs, they soak up quite a bit of liquidity. A lot of liquidity is going into Bitcoin. But on Ethereum, we see, I think, fundamentally still a lot of development activities going on. but I think what we so far were missing is like a spark, right?

22:39A spark like we had, for example, on Solana with certain airdrops which then also fuel a lot of TVL growth and the likes. And in Ethereum, we didn't have this spark. I think the last big spark that we've seen was basically the merge but since then there was no big spark. But now if you look into this ecosystem, then I think, for example, if you look at the TVL growth on many layer twos, that's, I think, very, very, very promising. Then we see that there should be scalability upgrades within the Ethereum ecosystem, which makes this layer two much more cost efficient. Then I think there are rumors about potential CK-sync airdrops, which, well, based on my understanding, is one of the most promising zero knowledge proof scaling solutions.

23:37And I think one of - Can you talk a little bit about that, about those scaling solutions, zero knowledge proofs? How do you guys think about that? Are you talking about this idea that Ethereum is the largest ecosystem? I'm assuming you're talking about the smart contract ecosystem. Talk a little bit about what the case that you guys have in terms of ultimate end user adoption, where you see the scaling solution question, and some of those relative merits between ETH and Solana.

24:04Well, I mean, interesting enough, I mean, we now all know that the scaling will probably not happen on the Ethereum layer, but the scaling will happen on these layer 2s. So I think this has been decided. Now, the question is, of course, which of these layer 2s is making the race? And yes, is it a layer 2 solution based on Ethereum or is it an alternative blockchain solution like Solano or is it both? Now, I think the scaling solutions, I think we see that, of course, in terms of bridging and in terms of user experience, if you used Ethereum before, it's, of course, very convenient because you can use the same wallet, same addresses.

24:48And this has many benefits compared to a completely new blockchain. But on the other hand, of course, this also comes with certain downsides. So if you didn't like the user experience with Ethereum, you will also not like the user experience with the scaling solutions because it's very similar. So I think in general, we see that the scaling solution, I think we consider them to be very promising. We also run certain of our technology stack on scaling solutions because simply, yes, it's more cost efficient than actually that we've close to zero incremental risk. So we believe there is a bright future in these layer twos.

25:28But we would now not say that we think that a layer two scaling solution is superior, for example, compared to Solana or Cardano or the likes. I think there we simply need to see which ecosystem is able to attract a lot of development activity. I think this is always there needs to be something happening on the chain. Otherwise, there is no value. And there we still see that on Ethereum, there is a lot, a lot of activity. Yes, Solano activity, of course, picked up significantly, but maybe there is also another ecosystem suddenly attracting this liquidity and this development activity and then overtaking all of the ones that I now mentioned.

26:05So let me ask you this. 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.

26:17Martin, do you see this as kind of a winner-take-all battle, or do you see this as an ecosystem that could be differentiated, different use cases, potentially different ecosystems, different coins serving those use cases? Or is this something that you see ultimately coming to more of a convergence winner-take-all type of situation? I don't believe that it's a winner-takes-it-all. However, I think there are certain kind of use cases let's say for example we take for example defy and i think there are benefits if the defy ecosystem is quite concentrated because you know you have now of course you have these these amms you have these certain lending pools now we see more and more derivatives right many of many now many protocols that they they develop derivatives whether it's like swaps whether it's like futures, perps and the likes.

27:12And of course, all these more advanced derivatives, for example, which are built on-chain derivatives, they, of course, they benefit from all these DeFi ecosystem, which already exists. So I think the more DeFi applications already exist, the more advanced stuff you can do then also with on-chain derivatives and the likes. But of course, we have, besides, for example, DeFi, which probably will be two or three winners, which will then concentrate most of the TVL in DeFi. There are, of course, other use cases like NFTs, metaverse gaming, which is, of course, very different and may attract similar ecosystems like this DeFi ecosystem that I outlined, where simply certain components will be built on these blockchains.