#991 - BTC vs. Gold: What’s the Better Opportunity? | with Jared Dillian

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0:57bitcoin versus gold what's the better opportunity hi everyone welcome to the real vision daily briefing with me today is jared dillian editor of the daily dirt nap and jamie coots real visions chief crypto analyst hey there gentlemen how are you hey mamie jared you're very serious today that was like that was like a stare down face he's got a lot on his mind i've seen his i've seen his notes we got a lot to talk about but uh jamie wanted to catch up with you because uh We've seen once again Bitcoin hitting another record above 72 ,000. We saw Ether above 4 ,000. So just wanted to sort of cue up the week and get a sense of what's going on.

1:40What's behind this rally that we're seeing? Is it momentum? Is it inflows into ETFs? What's your sense of what's happening here? Well, it's definitely ETFs driving this market. The price action has been wild. We can talk about that. But to your point, ETFs, these ETF products are scooping up Bitcoin at a rate of about five times the daily issuance. So we've seen this sort of fluctuate from day to day, but on average, around four to five times the daily issuance. Some days as high as 12 to 13 times. So that just really means that you've got this new structural buyer in the marketplace. And the curious thing to note is that this particular buyer, perhaps differently to maybe buyers of previous cycles, has been really unfazed by the increase in volatility.

2:32I mean, you just look at what happened last week and the way the price action reversed after a 15 % intraday decline, I think tells you something about the nature of the buyer that we have in the marketplace. Yeah, so what, I mean, we know volatility is the earmark, and it's frankly what freaks a lot of people out who might be sitting on the sidelines sort of thinking, okay, should I have this in my portfolio? What do I need to understand about this? Is it time? We get a lot of questions like that. What do you see happening on the volatility front? Why are we, if we've got this sort of ETF buyer, and why are we seeing those kinds of spikes?

3:08What's going on behind the scenes? actually this is going to be a feature for the report that's going to be up for the pro crypto subscribers in the next couple of days but essentially if you look at the volatility that we've seen in the last week or so and you just zoom out relative to the price relative to the size of the asset and relative to previous history or previous cycles the increase in volatility that we've seen is pretty par for the course it isn't anything you know i would say that's a concerning at this stage, usually when we break all-time highs, the volatility that the asset experiences goes up a gear.

3:46And you can see on the long-term charts that we're just starting to move out of this very low volatility range that we've been in since 2022 and 2023. And now we're moving into a higher volatility range. And that's always coincided with the break of the all-time high. So that's something that you need to be aware of. But in terms of, I guess, how you think about volatility in the context of a portfolio or an allocation, it really always comes down to your position size. So, you know, higher volatility should be sort of accommodated by higher returns. And you can measure that in risk-adjusted returns.

4:26So, you know, portfolio managers, institutional managers will always talk about their sharp ratio, which is the most common risk adjusted metric that's sort of used in the marketplace. I don't think it's the best one. I think it's what Tino ratio is. But for reasons that I'll exclude for today's discussion, sharp ratios are usually what are used to benchmark everyone's performance. And Bitcoin has the best risk adjusted return over just about every period that you look at relative to most of the other assets. So this kind of volatility increase is normal for the asset. But when you're allocating into it, if you can actually weight your position to a level that sort of makes sense, depending on your risk profile, then that's how you accommodate for that increase in volatility.

5:12And I think most of these passive flows, they're coming from RIAs. They're saying to their clients that, listen, you have to get off zero. This is the percentage allocation that makes sense, depending on your risk profile. It could be 0.5%, it could be 2%, it could be something a lot higher, but that sort of accommodates for that increase in volatility. Yeah, I'm glad you just brought up that point because we were talking to Tony Greer a little bit ago because obviously everyone's getting questions about this now, right? We had Eric Johnson on last week. He said two things he gets asked about at every dinner party right now, NVIDIA, right, tech stocks, and now Bitcoin, which in and of itself is probably a sentiment indicator about that everyone's now asking about it again.

5:55But Tony's point was, once you make a decision that you're going to make a trade, that you're not going to be in cash, that's the first decision. Do you want to do that? And then from there, it's what do you want to put it in? What are you comfortable with? And as you mentioned, what's your risk? So it brings up an interesting question. Is it only for people who have high risk? Is that volatility, those swings? Is this the kind of investment that's only for people who have a really high tolerance or can afford to take on risk? Or do you see this maturing so that there is opportunity for all kinds of investors, not just those who have maybe more of a trading mentality?

6:33Well, I actually think it's more to, I mean, it's a highly volatile asset. So it's perfect for traders. It gives, you know, it's a volatile asset. It's also a momentum asset. It sort of breaks, it breaks all time highs and then moves very fast in an accelerated fashion. And that is perfect for traders. But really, you know, the audience, the ideal audience, and I think the people that are piling in through the ETFs are the audience that are thinking about it from a long-term asset allocation perspective. And so when you simulate a 1%, 2%, 3%, or whatever percentage weighting to this asset over the long term, what you see is actually a real substantial increase in the alpha or in the excess return, but actually very little impact on the portfolio in terms of the volatility and risk because you've sized it, you know, you've sized it appropriately.

7:32So one to 5 % is typically, I think, where you'll see most of the RAs come in and allocate or advise their clients to allocate. And from their perspective, unless they're looking at the daily price and freaking out, when they're looking at their portfolio, it actually doesn't make much difference even in the down years, but it certainly makes a huge difference over time And with this sort of excess return that it generates, at least based on the historical volatility and return profile, that could definitely change as the asset grows larger, as you start to see volatility selling and more sophisticated investors come in and start trading different products in the asset class.

8:16But I think we're still in this phase of very rapid adoption of Bitcoin. And so I think there's still, you know, a period of high volatility, but compensated with very high returns. 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. Join over 5 ,000 attendees for the largest AI event in Asia at Super AI Singapore, June 5th and 6th, 2024. Raoul Pal, Benedict Evans, Balaji Srinivasan, Edward Snowden, and over 150 others will join the industry's most influential to explore and unveil the next wave of transformative AI technologies.

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10:29Yeah. When Jamie mentioned his report, he does a report for our pro-crypto members that everyone's been so into and have been finding so helpful, Jamie. So thank Thank you for that. Real quick before we bring Jared in, Ralph saying, what are your thoughts on ETH? I mentioned ETH was above 4 ,000. We're actually seeing sort of bullish activity across cryptos. We're getting a lot of questions about Solana. Is this a sort of halo that this rally is kind of lifting up all different kinds of currencies and protocols? How are you thinking about the larger landscape now? You can see the price action across the board.

11:10So smart contract platforms, the second largest sector really outside sort of Bitcoin in its own category, has increased about the same around 70 % over the last sort of 90 days or so. And that's sort of on par with Bitcoin as well. So it is bringing in more liquidity and the entire space is rising. What you typically see is that there is a Bitcoin dominance, which is still increasing at this stage, starts to falter, usually just around the halving time. And some of those smaller, high beta assets will actually outperform. We haven't seen that yet, at least in aggregate. Obviously, there are assets within the smart contract platform universe, like Solana, that have been outperforming even Bitcoin.

11:56But in aggregate, we've seen basically the sector versus Bitcoin go toe to toe over the last 90 days. And so Ethereum, on a ratio basis, everyone looks at the Bitcoin or the Ethereum to Bitcoin ratio. That hasn't really ticked up yet. It looks like it's bottoming, which is a sign that we could be looking at an alt season in the next couple of weeks or the next couple of months. but you know i've published a um i've published a uh moving average crossover system for the eth bitcoin um pair as sort of a indicator for the start of old season it's not quite there yet but it's it's the downtrend in the east of bitcoin ratio has has stopped or has moderated and it looks to be bottoming out but it has yet to sort of really turn up in a conclusive fashion but i think we're getting there so look i mean i'm you're also seeing um you know other sectors start to do really well.

12:53The AI subsector has been outperforming DeFi, which has been a real laggard throughout the bull market or throughout this recovery that we've seen in 2023 and into 2024. That has started to turn higher, which is interesting. There's obviously been some positive developments with the Uniswap governance token and the potential turning on of the fees there. So it actually generates yield. So yeah, I mean, I can see that the performance is starting to broaden out. We just haven't seen that tipping point yet, but I think we're getting there. Such interesting stuff. Jared, I'm curious about how you're thinking about this because you're always tracking sentiment.

13:35We've seen big moves and I know that you pay attention when everybody starts asking about it. We're getting a lot of questions. How are you looking at this? Well, you just can't fight the flows. I saw something interesting on Twitter today. The Bitcoin ETFs collectively have$52 billion in assets. GLD has$54 billion in assets. So already all the Bitcoin ETFs are almost as big as gold ETFs. That's insanity, right? But, you know, I'm not bearish because you cannot fight these flows. And the ETFs, even though they've been launched, they haven't been approved on all platforms yet. Like there's still this rate of adoption that has to continue over the next couple of years.

14:31and until they get approved on all platforms like we haven't even seen the potential yet so there's a lot of dumb stuff out there you know i now now that bitcoin is at 72 000 or whatever people are telling me i should put it in the awesome portfolio which is insanity and they're like look it raises the sharp ratio i'm like yeah like if you have something that goes up a million percent it's going to make the sharp ratio go up doesn't mean it's going to make your stress go down It's going to make your stress go up, you know? So, but I would not fight the flows. Yeah, that's such a good way to put it.

15:03And it's that stress part, Jamie, that I think that we all grapple with as people are trying to figure out how to approach this. How do you, so we're going to, listen, we're, I'm going to tell you a little bit more. We're starting a series, you know, Ralph's favorite topic, how to unfuck your future. Yes, we're doing it again. And we're going to talk a lot about how all of this fits in. the challenges that we're facing and where the opportunity is. Rao clearly sees a lot of opportunity in this digital asset space. You can see his kickoff video on the website. We're going to tell you a little bit more later about how you can make sure that you see it all.

15:41Jamie, how do you, I don't know if this is the right way to phrase it, but how do you separate speculation from fundamentals? I mean, you're clearly putting out this really detailed research note, you're all over the space. How do you separate that out? Because there's a part of it that it's like a casino layered on amazing technology. And there's like a short-term story and a long-term story. How do you separate the two or how do you keep your sanity and your stress levels down? You have to go through at least one cycle, I think. So for those people that are coming into it for the first time, it's just hard to control the human emotions.

16:21But But I've been making, like, this is my favorite point. And everything is controlled through position size. So really, it doesn't matter if it's a hyper-volatile asset, if you only own 5 % of your net wealth in it, or whatever that portfolio allocation should be. And that's something that's very personal. So you've got to weigh up what it actually means in terms of how you can sort of rest easy and be at ease with owning this asset. But people should really think about risk adjusted returns for everything. And also the returns denominated in fiat currency, in global liquidity, whatever the measure is.

17:04So if we just stop thinking about volatility and think about like, are you being compensated for the volatility with the returns? Then really it comes to light. And I think asset allocators are starting to understand this very important point. And so when they're talking to their clients, they're probably saying, hey, hey, listen, we know this is volatile, but really what you need to look at is the Sharpe ratio, the Sortino ratio. And if you allocate accordingly, this is what it does to the portfolio over time. So that's really talking about things from a historical perspective. As we all know, markets are non-stationary.

17:43Relationships, statistical relationships, they change over time. So everyone does backtesting it and says, right, well, this was how it should work in the future. And it never really does. But the thing that should give everyone cause for some relief and less anxiety is to think about what is the actual reason why Bitcoin is going up. This morning, the US government put out a notification about the upcoming budget. It's$7 trillion. This train wreck is not slowing down. So once you think about that, and you think about scarce assets that have unique characteristics and properties like a completely neutral, non-sovereign currency or medium of exchange, this Bitcoin network, and then you start to look at the returns of every everything divided by the fear, basically by either global money supply, I'm in Australia, Australian money supply, central bank balance sheets, global central bank balance sheets, or your own domestic, whatever the case may be, whatever metric captures liquidity, and there are several, you see that really there are a few assets that are able to outperform the debasement.

19:01And if you are of the view that debasement will continue, you, then you have to hold those assets which offer the superior returns over and above the debasement. And really, there are few. So there's Bitcoin, there's crypto to a lesser degree. So position size needs to be smaller for that asset, in my view. And then there's tech and other exponential growth assets. 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.

19:37Yeah, that's a great way. It's a great way to think about it, to think about everything through the return you're getting, the reward you're getting for dealing with volatility. And we certainly know we've seen it in all kinds of markets over the last few years in ways we haven't. So it's a great way. Before we let you go, Jamie, because not only is he on the other side of the world and it's crack of dawn, but we just discussed, he's dealing with littles who had him up all night. So we have a lot of reason to cut you loose. But somebody wants to know about any thoughts on derivatives. By the way, there's a very, very hot debate going on in the chat, which is what we love and part of what the value is of this network is to be able to share ideas.

20:17So we love that. But any thoughts about when derivatives are coming or options, rather? Options in Bitcoin? I think someone asked about that. Options market with Bitcoin ETFs. That's what they asked. Yeah, look, I'm sorry. I heard there was an update yesterday, but I forgot what was actually mentioned. It was from one of the ETF analysts, but I'm not actually sure. I can't really comment too much on that. We'll chase it down on our crypto shows. They talk to those guys all the time, so we'll check it out. Great to see you, Jamie. Thank you so much. I know we're going to be hearing a lot from you over the next couple of weeks in the campaign, and we can't wait.

20:58Thanks for all the good work you're doing for our community. We appreciate it. Hey, thanks, Maggie. All right, take care. So, Jared, we got some other questions coming in, and I want to pick up on the question we posed at the top, which is the other thing that's moving right now, and that's gold. First of all, are you kind of surprised that we're seeing Bitcoin and gold rallying at the same time since it is often presented as a choice? Well, a lot of people think that they're rallying for the same reason. I tend to think they're not. Bitcoin is rallying because of the ETFs and because of flows.

21:33Gold is rallying in spite of ETF assets leaving the ETF, right? So that we've had ETF selling in the US. But you've had big demand from Asia, most particularly in China and India. That's where the demand is coming from. You have a lot of people in China trying to get their money out of local currency and into gold and probably Bitcoin as well. You know, you're probably seeing some of those flows into Bitcoin, but that's, you know, you're seeing a lot of Asian demand into gold. And, you know, if you look at the price action in the last week, I mean, I don't think we've had a down day in like the last eight or nine trading days.

22:12So, you know, I'm a big holder of gold and I'm pretty happy about that. I love when you talk about gold, you're like, I'm a big holder of gold. I'm happy about it. I hate gold. I'm a big holder of gold. It's sort of a fraught relationship. Yeah, I, you know, I've been holding gold for 19 years. So, and adding to it the whole way. And, you know, the thing is, is that, you know, I've seen some technicians, they've tried to extrapolate trends, like where the next resistance is going to be now that we're through all time highs. I think most people agree it's going to be around 2 ,500 is going to be the next resistance.

22:53but yeah, I mean, this, the new highs, you know, a lot of people have been paying attention to new highs in Bitcoin, but there's almost no news about the new highs in gold. I mean, you think if an asset class was making new highs, you would see magazine covers and people would be talking about it on TV and CNBC would have the little ticker in the bottom of the screen. Like none of that is happening with gold. Like it's, it's completely silent, which is the best thing in the world. Yeah, that's so true. So we have a question. And the other thing that came up and keeps coming up is tech. I mentioned it's like the dinner party question.

23:29NVIDIA, Apple, Tesla, you know, Mag 7 is falling apart. Now it's Mag 3. Are we seeing a bifurcation where, you know, it's all about still kind of about AI, but some of the other tech companies are in for a much more severe downturn. Nick asking, what are the current sentiments on Apple and Tesla? I feel that sentiment is so negative that now is a good time to take the opposite side of the trade, not looking for financial advice, but just generally. What are your thoughts on what's happening? I don't think it's time to take the opposite side of the trade. You also left out Google. Google has been falling apart.

24:05It was up today, but I'm actually short Google. I have a short position in Google, but that's down about 12%, 14 % from the highs. The MAG 7 is really the MAG 1. It's just NVIDIA. You know, I mean, it's really what it comes down to. And what we've seen is this, you know, overall stock market breadth isn't terrible. But, you know, when you have one stock that becomes sort of emblematic of the entire rally, and then that stock fails, well, we've seen that before. We saw that with Cisco in 2000, you know. and probably what's going to happen at some point is NVIDIA is going to have blowout earnings and the stock's going to be down 10 % after hours and that's going to be the highs.

24:50And I can't predict when that's going to happen, but this narrowing of the MAG-7 is something we should be concerned about. So if you're outright short Google and you're worried about a decline in the MAG-7, do you like other parts of the equity market are you concerned about the the u.s equity market overall i know you're holding gold but how if not equities or if not mag 7 what um let me see what do i have positions in um i like dividend payers right this is something i've been talking about in the newsletter for the last couple weeks like the most out of favor factor or sector in the stock market is dividends.

25:37Dividends was the worst performing factor in 2023. And I'll give you one that I'm long. I'm long Philip Morris, which is kind of an interesting story because it's not just a dividend story. It's also a growth story. But I am looking for stocks that pay dividends where the dividends are growing. And I think if you really like this, That's the contrarian play right now. Like the contrarian play is not to chase NVIDIA higher. Like the contrarian play is to look for cheap companies with solid fundamentals that pay dividends, you know, and that will work. Yeah. It's interesting, isn't it? But it feels, you know, I think it feels hard for people when you see NVIDIA up.

26:23It was crazy last week we were talking about. It was like 15 % in, you know, just a few days. You see these outsized moves end in Bitcoin and other assets, and it's, I think, hard for people to pull the trigger and kind of look for those beat-up names. We also have an interesting economic backdrop that people have to sort through, right? We've got inflation data coming out this week. Yeah, tomorrow morning. I don't think there's going to be – let me pull it up here. CPI, we're looking at 3.1 % on the annual number, 0.4 % headline and 0.3 % core. I don't think there's going to be any big surprises.

27:07And even if there were, I don't think it's really going to affect the trajectory of the Fed. I think the Fed is kind of on track to cut interest rates in the summer or before the election, no matter what happens. It would have to be a pretty scary number on Headliner Corps to affect that trajectory. So I don't think tomorrow's release is super interesting compared to other ones. But, you know, I'll be watching it, but I'm not expecting any big fireworks. Do you feel like bonds feel fairly priced where they are right now, given that outlook? Or would you expect those yields to start moving lower if the Fed is going to cut rates no matter what?

27:55I'm assuming you think they cut rates even if the economy looks strong, because that's kind of been the problem, hasn't it? Well. Or is the economy going to roll over? There's a lot of things at play. There's also politics involved. Usually the Fed doesn't make any big course changes in an election year. Of course, this year could be different. They could be cutting before the election. I think that's possible. I think, yeah, I think rates are pretty fairly priced. I mean, like looking at twos and looking at tens, like I don't think there's really anything to do here. And this is from somebody who had strong opinions about rates a few months ago.