Has Bitcoin (Really) Outshined Gold? ft. Maleeha Bengali

21:36Or will inflation come back to bite? Right. Well, how optimistic are you about the Trump administration being able to control the glide path of forward deficits in terms of their capacity to actually cut government spending? and therefore the amelioration effect that that would have on the longer-term debt glide path. I think I'm very positive on the administration in making good concrete steps towards lowering the fiscal deficit, but I'm not sure how much they'll actually be able to get it done. We're talking about, you know, Vivek Ramosami is talking about$2 trillion of cuts, but a lot of these are tied to Medicare and Social Security.

22:11How much of that is going to be possible? I'm not sure about that. We might move a step in the right direction, but tariffs are another sort of proposal right now, these are just sort of negotiating tactics. I'm not sure Trump's going to go and enforce 20 % to 40 % tariffs, but maybe more to just get them to move more on their side. So the question really is no. In short summary, I think the fiscal spend is going to be hard to contain. Just in the last 100 days, we've added a trillion to the debt, just to give you a number in reference. So the U.S. economy is so used to this fiscal surge that I think it's going to be very hard to contain it unless we see a massive sort of growth slowdown.

22:45But then you're talking stagflation, which is a massive issue for risk assets, right, next year. So we're seeing the glass of half full. I think Trump has all the right talking points, but how much he manages to get done in terms of regulation and business policies with a lower debt balance is going to be interesting. The other thing is Treasury financing. We know Yellen did a very good job last year pivoting by all the Treasury issues going to T-bills versus the back end, which really caught a lot of people in the back foot. And that sort of, you know, avoided a big sort of mess up in the bottom market.

23:13But going forward, cut percent may not be as generous and issue that many T-bills. So she was quite clever in sort of avoiding that sort of collapse in the back end. But if we have to refinance the U.S., you know, Treasury is going to fund most of the U.S. deficit, that's not bullish risk assets also. And that's another issue. Who's going to fund that deficit? Yeah. And when you look at this on a debt to GDP basis, I mean, in my lifetime, We've gone from about 35 to about 120 where we are right now, off the peak of around, I guess, around over 130 during COVID. But the general trajectory for debt to GDP ratio over the last 50 years has just unfortunately been up into the right.

23:56Absolutely. And a lot of people say, hey, it's always gone up. Nothing's broken. Why would it break now? And that's a very good point, right? So we talk about economies of scale. At one point, there's a bubble burst. We don't know. It could be two years, three years, five years. But we do look at valuation and risk assets and we sort of break it down. But then the window is getting narrower and narrower, right? It's all about investing. It's all about risk reward. So if you sort of see a valuation upside of just 5 % and maybe 20 % to 30 % downside, one has to sort of scratch their head and go, right, why am I investing in equities where I see better value in bonds or I see better value in gold or Bitcoin?

24:28And that's really what investors are doing today. They start reallocating their risk and deciding where to be invested. or even today, putting your cash in the market right now, maybe we're a bit defensive, getting 4 % to 5 % is still decent value, preserving your capital, then to be involved and be invested at these returns. There is the year when Santa Rally and the market's going to go up to 6 ,200. Those are just short-term gains. But going into Q1 or 2025, there are tons of risks to be mindful of from a risk-reward perspective. Well, let's talk a little bit about time horizons on some of the assets that we've looked at here today.

25:02Specifically, I'm interested in oil, copper, and gold. Talk a little bit about your time horizons in terms of your view of those risk asset prices. So the oil market, we look at from a one-month, three-month, and six-month basis. So we are quite pragmatic in terms of, because the commodity markets, they work on a spot. Whether you have it or you don't, if you have too much of a commodity, it can go to negative, right? That's why we talk about commodities having no floor value. And when people talk about it being cheap, I sort of laugh because there is nothing as cheap or expensive. You know, if you need to put your lights on, you're going to pay whatever money you need to put your lights on.

25:33And that's how commodities work. So from an oil market point of view, we see the loadings right now from Asia to, sorry, from Saudi to OPEC to Asia and the demand supply. If you look at all the barrels of the market, obviously, OPEC is in a bit of a pickle right now. They've been waiting for the longest time for China to come back and they're losing market share. They've pretty much been holding the fort in terms of these OPEC cuts. they've taken the brunt of the share of the cuts, waive a price to rally above 90 and then to release their oil. That plan never happened. They were meant to have these voluntary cuts, you know, just for a few months.

26:04They ended up being like a year and a half. So the question now is they're lowering their prices to attract their barrels into China at the cost of Russia. So there's a bit of a power struggle going on because some of the other OPEC members really want to pump as much as they can as they've invested in capacity for the last few years. So why should they hold back when this is their crown jewel? Whereas obviously, Saudi and some of the bigger members want them to be a bit more restrained to keep prices stable. So from that perspective, there's all those dynamics. But from a flow generation, so we're looking from a one-month, three-month, and sort of see the demand.

26:35Because when the loadings happen in China, they're usually on a six - to eight-week basis. So we can sort of see where demand is going to be. And China this year has been very price opportunistic. They're not growing their demand. But when prices dip below 70, they just sort of load up and put in their warehouses. So yes, there's demand. But China's become very price sensitive, unlike 2008, 2009, when they just went in and bought every barrel because they needed to. So China's being a lot smarter about playing the oil market. And that's why our thesis on oil demand and supply is so predicated on the fact that the demand is just not there.

27:06We are very muted, and we've seen OPEC lower their numbers every single month of the last six months because they're so off-site. I think the last adjustment OPEC did was they took the Chinese demand down to 400 ,000 from 1.2 million barrels per day because they've just lost out. So that gives you that perspective of the short term versus the medium term. Of course, we can talk about oil from a two-year basis, but that's not how it trades. Oil trades and what we need in the next few months. And that's how it actually trades. Copper is very similar. We look at sort of price demand based on how much inventory is on the COMEX, the Shanghai Exchange, what are LME warehouses doing, what the demand supply is.

27:44Obviously, dollar, macro, and yuan are very important for how currency and speculative trade are to trade the copper market. But our horizon is mostly tracking. We have this quantitative model where we track all across as a signal. So we use a host of signal indicators to see what demand is in the macro markets to pinpoint what will be in the actual physical markets. So when we see these discrepancies, we have these ratios that track forward demand and into our price. And we see these things blow out, the conversion diverge. And that's where you see the opportunities. You know, in the oil market, we look at refining margins.

28:14It's a very good indicator in terms of what actual crude oil demand is going to be. But the average person that's 2H oil will not know what naphtha, jet fuel, or kerosene or distillate is doing. It's crazy how people just look at oil, but they don't understand what drives oil. And it's margins. It's demand. And it's solely fastest of the product market. The product market is determined the demand for oil, not OPEC or other things. They're just self-managing supply based on a certain demand scenario. And we know that we look at people like Goldman Sachs or Jeff Curry. These guys are really smart guys.

28:43But most sell-side guys extrapolate a linear demand. We dynamically look at the economic cycle, track demand as it's actually printing, and then filter that back into the commodity market to see what the supply demand deficit is going to be. Because assuming a flat 1.5 % growth, you can assume, right, oil is going to be in shortfall, but that's not how it works. If three months from now we go through a GDP, a negative 1%, that's going to impact the oil market. So we are constantly tracking demand live on a quarterly basis to see where the shortfalls are and then trading, buying long or selling short based on sort of discrepancies.

29:15I think that's the true edge in terms of trading on a quarterly basis. What could change your view on the demand side in terms of your view of the forward price outlook? Today, if China comes out to their detriment and announces a$20 trillion yuan stimulus package, if they announce in the order of$20 trillion, nothing less than$10 trillion is going to get the market moving. If they announce that, close your eyes and buy everything. The question is what's going to happen to the currency? The yuan is going to probably collapse and probably go$8 or$9 versus the dollar. But yes, China needs to do a very, very, very high bazooka stimulus and a fiscal stimulus for the market to start chasing old commodities because then they're doing that.

29:51And then they need to reassess, right? But that's a very difficult number for them to do and actually predicate on the dollar. China has been hamstrung by the dollar strength. And I think that's another reason why they're waiting for the Fed to cut rates or sort of lower the dollar so they have a bit more breathing room to do the bazooka stimulus. But no, that's what's going to change. We look at European demand. Europe has another systemic problem. We've seen what's happening in Germany and France. So from a demand perspective, China is the only one that can surprise us if they come up with that number.

30:18And then, but on that basis, copper is going to rally a lot more than oil. Sure, oil is going to go up, but there's so much supply that is going to be contained. So if I had to really buy this thing, I'll still buy gold and silver and copper. It'll do a lot better than oil. So the question is, the rising tide lifts all boats, but it's about alpha capture as well. So rising tide lifts all boats, but not equally. But not the cycle, because the demand supply is a lot balanced. five or ten years ago, all commodities went up, iron or steel, because we were this massive global synchronization of urbanization of China.

30:48But now the cycle has become a lot more mature. Some pockets of commodity markets like steel and iron, there is no shortage or oil. Copper is a bit tighter because you just can't take copper off the ground. You have to have these projects from 10 or 15 years ago. So if you see a demand surge from China housing and from electrification, copper in a very short time period will get very tight, whereas oil, you can open the tap. So it's about that window of opportunity where before we had no sources of supply, but now we have an ample source of supply and invasion across the board. So you've got to be a lot more selective.

31:17So like we said, we look at the macro framework, which is important. Once a macro takes green light and the micro gives a green light with the technicals, that's your, we call it the holy trinity, right? Then you get in, just go all into that commodity because you get a massive force that goes up for that commodity. But if you get a very strong macro and weak micro, something like oil, the price says nothing, right? And that's sort of interesting paradox here, this idea that because producers of oil have been so effective at being able to bring on additional swing capacity, that in fact, it actually mutes the price move relative to copper, for example, when we're talking about commodities, because of the inability to extract more copper from the ground as rapidly and to be sensitive to those cyclical demand.

32:01Absolutely. You know, because oil is just, you put the taps zone and you get either US shale oil, you can switch it on and off. You have Saudi oil, a lot of spare capacity sitting there. We don't have a lot of copper's spare capacity and the demand picks up. It's very hard for Freeport or Antiforgasso to find new copper mines. These take years and years. And one argues that if you believe in the pure electrification story and how copper is going to be used for the next 10 years, you can argue that companies need to invest more for the future. You're absolutely right because there could be a shortage.

32:27But that's a 10-year long story. A lot can happen till then. Whereas something like the oil market, you can We talk about, Trump is talking about drill, baby, drill. For the U.S. oil market, shale, we're having about, what, 13.2 million barrels per year of production. They're producing all they can. There's no need for them to go and produce more. There's just too much oil right now. And if they want to be incentivized, the question is, either prices fall really low for them to stop drilling to support the prices, or they go a lot higher. But they are very comfortable. And this is all this talk about peak oil and the U.S.

32:55shale running out and effectively OPEC being the marginal source, swing producer. So U.S. oil dynamics changed since the shale revolution. I think that's something that Saudi and OPEC need to realize is that they are no longer dependent on those barrels. And U.S. policy is very different based on their resource independence, effectively. Right. And I think that's why the oil markets change so much. So, Malia, we talked a little bit about time horizons on copper and oil. Let's do the same with gold. What time horizons are you examining it over? over? And what are those analyses across the time rises?

33:29So for gold, right now, the next one month is something can be a bit tricky based on the higher dollar and the bond yield market. But on a six to 12-month basis, all of next year, we have very bullish gold. So for gold, we take a longer 12-month time frame because it doesn't really have a very small physical short-term market, right, as oil and supply demand. Central banks are buying gold. We've seen China in November add to the gold reserve. So there's exactly a tailwind for gold. But like I said, the things that annoy gold are probably the higher dollar and it's a risk-off situation. So gold, we have a six-to-one-month view and we like it.

33:59Silver, again, is based on a six-to-one-month view as well. Near term, we see a lot of value sub$30 right now. And once again, if, you know, Fed's foul says the right things tomorrow and says, listen, we're not going to be cutting rates, you know, willy-nilly and it supports the bond market, silver's going to fly, right? So we love the risk of bond right now, effectively on those assets. So we have the view on a six-month basis, but from a near term, The upside versus downside is very compelling for both of those commodities. And like I said, in terms of asset allocation, where would you be invested?

34:26Probably more in those assets than equities per se. You could probably have a small allocation to equities, but I think better more in the commodities and the bond markets. There's much more value there. Well, yeah, I see the words, says the right thing in double quotes as you say them tomorrow from J-PAL. Absolutely right. I mean, obviously, you know where I'm coming from because, as always, his press conferences can be, you know, with the amount of time he clears his throat, you can sort of take a step back and know that he's quite nervous. And I think the Fed really has been led by the bond market this year.

34:55They've constantly flip-flopped their strategy all of last year when inflation data actually has been inflationary. They should be raising rates and they became too dovish last year because the bond market's calling for it. And now the bond market is pretty much called, excuse my French, BS on them since the movement of September. The Fed's going to go backtrack and be like, right, we're done cutting rates right now. So they're really hostage, taken hostage by the bond market. And that's what they've been doing. So these meetings are getting a bit boring because they're just tracking. And the Fed has always played one function.

35:21They only react. They have never preempted. If they ran true analysis and numbers, they'd be able to predict what the future has been doing. They would not be cutting rates and raising rates the way they have been. For the longest time, they got inflation wrong. There was transitory. Inflation was never transitory, right? If we had 200 years of pain and they cut too soon too fast, and then the economy was going to recession because every time we saw such an aggressive rate rising campaign, we always went to recession. And then what did they do? They're doing QT on one side, but they're injecting liquidity by the banking sector on the other side.

35:49So there was, you know, it was like in the markets couldn't do anything but go off. So we talk about QT, but all of 2023, the Fed injected liquidity in the markets. So this is why, you know, this question of going back to fiat currency, the problem for every, the solution to every problem is printing more money. And the question I have for people right now is where is this money coming from? And in what size? And what does that mean for paper money? Because that's the only thing that stands out for me. Jeez, boy, where is it coming from? What's the price? What are the externalities that result from it?

36:22And to what degree are we getting, as you pointed out earlier, a role of diminishing return coming off that? You mentioned some price levels there on gold. As I said earlier,$26.38 right now on my screen. You mentioned$3 ,000 as a potential target for 2025. What time horizon is that across? So we love gold around$26.25 right here. Right now, we can see it. So a lot of people are talking about 25, 40 on the 100-day moving average. But from a six-month basis, we can see gold getting to 3 ,000. So all of next year, our target is 3 ,000. We could probably get there in the next three months. If we get this out of the backdrop where bonds value, the market gets worried about stagflation or inflation coming back, we could get there very soon.

37:02But we see a lot of value go to probably once it recaptures the 2 ,700 level, the technical traders will probably start chasing the CDS and start buying more gold. Right now, we have a few people trying to trade on the backdrop. Gold is looking technically weak, but we're not really worried. We like gold. Even though it pulls back a couple of dollars, we think there's much more upside into Q1 and Q2 next year. Like I said, Q1, Q2 can be a very interesting point where the market sort of reassesses its view on the economic cycle, the dollar inflation. And I think that's where you can get a lot more money coming to gold.

37:31What a great conversation. I know that our listeners and our viewers are really going to enjoy this one. We covered a lot of ground here, macro commodities, equities, bond market. Final thoughts, key takeaways that you'd like to leave our listeners and our viewers with today. So the issue we had is, I ask you a couple of my clients, is Bitcoin, crypto, right? How do you view Bitcoin? And is it a commodity? Is it a digital asset? Do you want to invest in it? I know we've seen numbers from BlackRock talking about 1 % to 3 % allocation to Bitcoin. And I keep telling my clients, it depends on your investment horizon and your mandate.

38:05If you have a lot of risk in your fund, of course, you can invest in Bitcoin. It's a great asset. And as we see more and more institutions adopt it, it's going to take you there. But the volatility, if you can't weather the volatility of 10 % or 20%, 40 % moves, you can't be in it. So it all boils down to you may lack a certain proposition, but being long gold and silver is very different than being long Bitcoin. I can invest probably 10 % of my fund in gold. Would I put 10 % in Bitcoin? Probably not. Would I want to? It's a different story. So I think the evolving nature of Bitcoin and Ether and these crypto assets will play a very important role for precious metals and commodities going forward as to how to make money in commodities.

38:42And that's the conversation we're having with our clients right now. But in terms of the bigger framework of dollar, interest rates, central bank policies, and where inflation is going to come back, I think once you take that backdrop, there are only a few assets to invest in. The question really is how much do you want to be exposed to that? So this is the debate for next year. I think the question we leave with our clients is, are you in a period where you see GDP re-accelerate, i.e. we don't even have a landing, we just sort of take off again? Or do we see stagflation, which is a very real possibility, or just inflation and seeing massive slowdown?

39:12And if that happens, how would you be allocated to your assets and how would you protect your capital? Because the key is to protect your capital and not just chase, you know, the few stocks that people have been doing right now, the concentration, the leverage, the amount of zero DT options right now. the game has changed, the players have changed, and the volatility is enormous right now. That's actually alternate. But a lot of people invest in passive indices, and passive has done really well for the last 10 years. And that's another question for us. Will it do well in the next 10 years? And I think the economic cycles change every 10 or 15 years, and people need to think about active allocation rather than just being passive.

39:46Malia, when you pivot there to crypto, there's no way I'm going to be able to wrap without asking you more follow-up questions there. And now that we talk about it, listen, you mentioned 40 to 60 % drawdowns. How about 60, 70, 80, 90 on Bitcoin? We've certainly seen that. But then again, on the flip side, you've got that log scale upside growth that you see during those breakouts. Obviously, a highly volatile market, quite fair and reasonable to point out, but also historically enormous, enormous gains in that sector. I'm curious how you think about it as a macro hedge fund and as a cross-asset macro hedge fund specifically, how you think about that in terms of your allocations?

40:22And are you limited to looking at just Bitcoin or are you looking a little bit further down the stack in terms of those digital assets? So Bitcoin, if you look at today, how it's trading versus the 2012, the 2016 halving cycle is going to be more of a mature asset class. And that's a good thing because if funds like us or even some of the big institutions, you can allocate capital because you can probably rather the 20, 40 % rather than halving and quadrupling in like a space of three months. So Bitcoin is going to be a mature asset class. the rate of change is getting less and less right now.

40:51So it's not going to give you maybe the 80, 90, 100 % returns as it did that much. But that's a good thing because you can allocate capital in a much more confident, reasonable way. So yes, the answer to that question is that we can probably invest a lot more money to Bitcoin. For something like Ether or Solana, you can argue that you can probably invest a lot less, right? Because these are still quite speculative compared to Bitcoin. And that's going back to the Trump's proposal about a National Bitcoin Reserve or the Michael Saylor strategy, you know, more and more institutions diversifying.

41:16Bitcoin is becoming more mature, and that gives you the confidence to invest or at least allocate some part of it because it's the truly only asset. But you have to remember something. It's a risk-on asset. Back in August this year, we saw the dollar-yen trade unwind massively by 20%. In one morning, Bitcoin was down 20%. So as much as you talk about store of value, you have to be very cognizant of the fact that it is still a very leveraged asset to liquidity. So if you see a macro cycle, Raul talks about this all the time, GLI, the Global Liquidity Index, right? If you see liquidity being withdrawn from the market globally, that's going to affect Bitcoin rather than the macro be on your side.

41:49So you need to track liquidity because that's the key for all of these assets, especially the leverage ones. William Bengali, what a fantastic conversation. I hope you'll come back and join us again here at Real Vision. I look forward to it. It would be my pleasure. Definitely. Thank you so much for joining us. By the way, I should say, don't forget, tickets for our upcoming in-person crypto gathering in Miami are now up for sale. Head over to realvision.com forward slash CG2025. 2025, that's realvision.com forward slash CG2025 to get yours. Thanks for watching. Thanks for listening. Have a great afternoon, everybody.

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