Bitcoin’s New Era: Liquidity, Macro, and the End of Four-Year Cycles | Nik Bhatia

0:02Nik Bhatia:Liquidity is exploding higher as we speak. If the gentle ascent continues, does that extend the bull market beyond our typical four-year cycle? I believe we could be in an environment now where the accumulation of Bitcoin remains steady for several years. I would expect the price to be between$100 ,000 and$150 ,000 here over the next several months. As that$50 ,000 realized price goes to$80 ,000, then the range then moves from, you know, to$160 ,000 to$240 ,000. I've never been able to put a year on Bitcoin hitting a million until this year. But I don't feel like it's speculative now. Now it's within our current market reach.

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2:18The application took me less than 15 minutes and in just a few hours I had the dollars in my bank account. It was super smooth. So if you need cash but you don't want to sell Bitcoin, head over to learn.ledin.io forward slash WBD and you'll get 0.25 % off your first loan. That's learn.ledin.io forward slash WBD. Mr. Nick Bartia, how you doing, man? I'm doing great, Danny. Good to be with you again. Good to be with you. We've not bumped into each other in a little while. This has been probably the longest I've not seen you for in a bit. Yeah, you're busy out in Australia, that's why. I know, just traveling all over the place.

2:52But things are going good, man. Bitcoin's absolutely ripping. I want to talk about macro with you, but we've got to start on Bitcoin. We're at just over 117k right now. That's pretty surreal on its own. But what's been your kind of take on the Bitcoin market over the last few months?

3:09Nik Bhatia:Slow and steady is my big takeaway for this bull market and a very impressive slow and steady because slow and steady is not really in Bitcoin's DNA, Danny, if we go back to its early history and even its recent history. So I find what I'm looking at more and more is the gentle ascent of Bitcoin's valuation relative to its underlying metrics. For example, realized value is one that I watch really closely. The gentle ascent versus a violent ascent. And if the gentle ascent continues, does that extend the bull market beyond our typical four-year cycle? I think anybody that claims they have the answer as to whether we are in another four-year having cycle or not is ahead of their own skis.

4:05Nik Bhatia:But I was joking around with our readers and community that I'm about 51 % to 60 % on the side that we have broken through this bull bear, this Bitcoin winter, two to three year Bitcoin winters every four years. I'm 51 % certain that we've broken out of that. But any odds maker will tell you that even 60-40 is 50-50. I mean, 60-40 is how an odds maker just tries to get the action when they don't know when they're really 50-50. So I say it as a joke, meaning I'm somewhere between 50-50 and 60-40 that we've broken out of that. But that is my, that's where I have a lot of my focus, trying to analyze that and trying to explain to the readers whether they should be thinking in terms of caution in six months or is it okay to get to have a aggressive strategy for the next six months, as opposed to a cautious strategy for the next six months.

5:23Nik Bhatia:And that's where a lot of my analysis is living right now. Yeah, I like that framing because I would be the same. And I think probably some of that comes down to a little bit of PTSD. So like last bull market, the super cycle narrative was pretty pervasive. And I've been really reluctant to say, has the cycle broken? Are we in a super cycle? Or is it even just like an elongated cycle. And that's probably the one that I think is most likely, that this may just end up getting dragged out for another six months, a year, for a few different reasons. One being, I think going into the midterms next year, Trump's going to want to run these things really hot, and that's going to be good for Bitcoin if that happens.

6:02But at the same time, I'm not willing to put my head on the line and say, no, the cycle's broken. So what would be the thing that breaks the cycle? Is this time like structurally very different?

6:15Nik Bhatia:I think that let's start with the word cycle. Because if we start with the word cycle, then we're assuming that, or let's actually start with the word super cycle. Because I don't even want to use that word. What I'm thinking about in terms of what, you know, the 60-40, what I'm thinking, is that I believe we could be in an environment now where the accumulation of Bitcoin remains steady for several years, and the Bitcoin price oscillates around a multiple to realized value. As realized value continues to increase, Bitcoin continues to chop around two to three times its realized value and just is in a structural bull market that can have periodic consolidations or even bear markets where Bitcoin falls 20, 30, 40 percent.

7:25Nik Bhatia:But it's in this oscillation around 2x its realized price. So right now the realize just crossed over$50 ,000 and the cap at a trillion. So two times that is$100 ,000. Three times that is$150 ,000. So I would expect the price to be between$100 ,000 and$150 ,000 here over the next several months. As that$50 ,000 realized price goes to$80 ,000, then the range then moves from, you know, to$160 ,000 to$240 ,000. And that we're oscillating. Now, if you go from$240 ,000 to$160 ,000, that's a pullback of 33%. That could happen even over a year. And it still wouldn't be this previous, what I would call the cycle, the having driven cycle, where you get these rises up to four times realized price, and then a crash back down to one or even 0.9.

8:33Nik Bhatia:So that is the way that I'm thinking about the next few years. And would that be a super cycle? I wouldn't really describe it as that. It wouldn't be the word to describe it because super cycle might mean that you just continue on into elevated valuation metrics. So not that. and then you use elongated cycle. Perhaps that could be a better way to describe what I'm thinking about is more of this, but I wouldn't even use elongated. I would just say that actually you break out of a cycle and then you're more subject to global macro factors. When rates get hot, it's going to be punitive, et cetera, that type of thing.

9:24Nik Bhatia:And then more on the adoption story. So the reason why, let's go back to the reason why we get a market price to realized price ratio of 4X. The reason why you would get 4X, for example, Bitcoin at 70 ,000 in 2021 when realized price was at around 15 ,000, 17 ,000. You get that type of gap when you don't have structural selling in the market. You have so much exchange-based, futures-based leverage trading, and you get this extreme profitability in the market that is not really tapped because you don't have structural selling. You don't have selling calls on ETFs. You don't have all of these vehicles that are managing the volatility down.

10:24Nik Bhatia:So one of the charts we've been charting is Bitcoin's trailing 30-day volatility historically. And it's just compressed, compressed, compressed. And the last three years, the volatility can be described as muted versus trailing five to 10 years. Even if you look at 2021, the volatility was so much more than it is today. And so this compressed volatility is the new structure of the market, I believe. And compressed volatility prevents the 4X MVRV ratio. And if you can never get to 4X, then you can avoid the winter. Because the winter is so much destruction on the technical chart. and so you avoid the destruction and I believe that the structural buyers for example the strategies of the world they would love to prevent overheated bitcoin prices because they believe that it could lead to a more winter-like environment in the in the you know subsequent months or years so that's I hope Danny I've answered a few of your questions in terms of how I'm thinking about this current bull market.

11:46Yeah, no, that makes sense. And so like what you're saying there is we won't get the blow off top like we have in previous cycles, but at the same time, it meets downside volatility. I'm in that 60-40 that we would avoid it.

11:58Nik Bhatia:Yes, I'm hoping that. Yeah. And I like that idea for a couple of reasons. One, just I would prefer that. But I also think it makes it way more sustainable for people to build Bitcoin businesses. because like when we have the, you know, two years of just down only, obviously like the first companies to go in the last cycle are all the fraudulent ones. But then there are real good Bitcoin businesses that just can't survive two years of negative price action. So I think that's a way more sustainable path if we can manage to do that. Is this just part of the market maturing? I do think that it is part of the market maturing.

12:34Nik Bhatia:And I use the word market structure a lot because it is about structure, options, hedging, calendar. Calendar is so important for risk management. If you can sell options one month, three months, six months, and 12 months forward, you can buy options three months and six months forward. You can plan, you can manage risk, And all of that mutes the volatility so that when you get, let's say we got a rise from today at 117 to 138, which is around my short-term, medium-term target. I'm not the only one that's looking at a 61.8 % Fibonacci extension from previous breakouts. Everyone has their stop orders and their call options and their structure around the risk.

13:29Nik Bhatia:and they understand that as this market matures, it's not gonna go from 138 to 170 in the blink of an eye. They're not gonna miss out. So they need to sell, lock in, create the income for themselves based on this basically herd mentality that we're not gonna get the blow off top. So I see the call option volume at higher strikes, and it's not just Bitcoin. It's IBIT. It's MSTR. There's so many vehicles. And so all of that, you're talking about maturity. It's the maturity of the structure, the vehicles, the options, the calendar. that's what suppresses the volatility because remember volatility is a function of options pricing not realized volatility realized volatility is statistical look back which in bitcoin is declining right the realized variance looking backwards is declining however However, implied volatility is based off of options prices.

14:49Nik Bhatia:And so if you are buying options, you are increasing volatility. But if you're an options seller, you knock that price of volatility back down. So it's the volatility sellers that have graduated from basically not even having the vehicles to now having the full suite of vehicles selling options on iBit, Bitcoin futures, MSTR across multiple vehicles across the entire calendar. The structural sellers physically mute implied volatility and dampen forward price action. That's how the stock market works, Danny. And so when we look at SPY options across the curve and across the calendar, that's how we manage risk in equities is that we know that there are levels at which volatility will – I'm sorry, the price will stop rising or stop falling because there's just a lot of buyers and sellers around those areas.

15:52Nik Bhatia:Bitcoin players will always get rinsed in the absence of good risk management. And so it is alarming, Danny, the number of companies that are popping up. You have to think then they're all competing over capital. so which ones are able to raise the most equity and of the equity holders how long are those equity holders going to be willing to be patient not all of these companies are going to be able to issue debt or borrow in order to sustain so the corporate finance expertise I don't know if you just caught the news that strategy released yet another vehicle, which is now targeting the shortest duration of fixed income money market funds, and is trying to offer a dividend or a yield with a stable net asset value at around 100 or par as we call it in money market fund land.

16:57Nik Bhatia:So completely giving up capital appreciation, but also combining with a short duration. This is sophisticated layering of the liability side of the balance sheet, liability plus equity, all of that to leverage the assets, leverage up the assets and buy as much Bitcoin as possible. Not everybody is going to be able to compete with that. So yes, if you have more companies, you have more Bitcoin demand, but the Bitcoin demand from the companies comes with owing debt and equity to people. And so their patients will be tested and they will withdraw when they don't see the results. And that can create bankruptcies and all of that.

17:49Nik Bhatia:But if you look at the number of coins that has come to market, let's just say with these recent 2011 coins that have started to move on chain, come into the custody of Galaxy, which we know is a big shop. Maybe the coins are moving for taking dollars out against collateral. Maybe it's to sell. Doesn't really matter. 80 ,000 coins, how does it knock the market? It just doesn't. So you have strategy at 600 ,000 coins, but the rest of these companies buying a few hundred coins, or I don't even mean to dismiss a 4 ,000 coin purchase, but that's what MicroStrategy does when it's sleeping. It'll buy another 4 ,000 coins.

18:37Nik Bhatia:So if you have a few companies go under 4 ,000, 8 ,000, 20 ,000 that are spot liquidated, I don't know that it hits the market in a material way. Now, to all the people investing in the equity and debt instruments of these individual companies, I can't give all those people a pat on the back and say, best of luck to you. it's more you know uh you know may god be with you in your endeavors but you know that it's not my game as you know as a macro analyst you can't necessarily be an equity analyst and so i'm not going through the capital structure of these companies and saying which ones are good which ones are not management will matter and what i can tell you danny is that reading the sophistication of MSTR's capital structure, the different vehicles, and how they are layering their approach to liability management, because that's the name of the game, I can promise you that the level of sophistication is going to be in the, I'm just making up a number, 10x to 20x the skill set level that some of these other companies will employ.

20:04Nik Bhatia:And that's not me

20:08Nik Bhatia:discrediting the corporate finance officers at these companies. It's just the size that strategy has, the way that they're able to layer it out. It's very impressive to me as more of a corporate finance tourist myself, and I'd proudly call myself that, a corporate finance tourist. I teach corporate finance in its minutiae as it applies to fixed income, U.S. treasuries, thinking about economics, but I'm not a corporate balance sheet analyst by trade. and so but i can recognize those that are really good at it and i can also understand that those that are not really good at it can maybe fake it till they make it but that won't make you know every one of those last forever yeah that makes sense um just quickly back to the cycle thing um i've spoken to like a ton of macro people on the show over the last few months And one of the things that a lot of people tie the sort of traditional Bitcoin cycle to is not necessarily the halving cycle, although that definitely plays into it, but more a global liquidity cycle.

21:24First of all, do you think that's the case? And then secondly, do you think that could mean that we don't actually exit this kind of four year cycle that we're in and instead like rather than staying in a super cycle or extended cycle, whatever you want to call it? So as you know, Danny, I'm a liquidity,

21:40Nik Bhatia:I've built a lot of the analysis that we're building at the Bitcoin layer around liquidity. We have our own index. Liquidity maxi. I certainly am. But I'm not a liquidity cycle maxi. Okay. And so I don't know that just because we had an inflation wave that was mostly supply-side driven, as we saw inflation go from 2 % to 9 % back to 2%, that was a pandemic-induced, a one-off. not it's it's one-off structurally increased inflation from the one to two percent to now the two to four percent i genuinely believe we're in this uh structural structurally higher inflation but that doesn't mean that because there was restrictive in 2021 and 2022 as rates were skyrocketing, that then we get easy in 24, 25, that then it's followed by restrictive in 26, 27.

22:54I don't necessarily follow that approach.

23:00Nik Bhatia:I'm looking at liquidity in the way that we analyze it, which is the size of the banking system, treasury volatility, and I'm analyzing it as a in in the spot market like where are we where have we gone rate of change matters a lot but I'm not thinking it in term three four five six year cycles and how that liquidity cycles through the system I now you know my mentor Michael Howell has this five-year number that every five years because of the quantity of debt and the size of the economy, that every five years there's a rollover risk for the debt of the system. I don't disagree with that either.

23:53Nik Bhatia:But again, I'm more like, let's look at treasury volatility today. Let's look at the rate of change over the last 30, 60, 90 days. How is it going? Well, I'll tell you, it has collapsed. Volatility has collapsed in treasury land. The move index has collapsed. I ran the numbers last night, 12 or 14 red weeks on the move index. What have stocks done? They've gone straight up. And so that is the framework working in real time. for me to, I'm not like other analysts in that I can always think in this two to three to five year in advance and where the cycles are. I have to more live in the now. I was also running the numbers on treasury, 10-year treasury rates.

24:50Nik Bhatia:They're at four and a third today, approximately. Well, guess when we were at four and a third? two months ago, four months ago, 10 months ago, 18 months ago. I mean, when we tagged in October of 2022, we tagged four and a third on the way up, but then you've been flat. So the rate of change was punitive in 2021 and 2022, but then it stopped being punitive. So that four and a third looked like a disaster in October of 22, but today it's not a disaster. In fact, it's actually a supportive it's not even normal it's supportive because stocks are at the all-time high and that's crazy that's the that's how we have to think about it is uh so where is liquidity liquidity is exploding higher as we speak despite four and a third on tens because if you think about four and a third on tens three years ago you're thinking about it wrong it's four and a today and collapsing volatility as opposed to four and a third three years ago and spiking volatility.

25:57Nik Bhatia:While stocks are at the all-time high today, it means that four and a third is a good liquidity condition. It's providing liquidity. And that's how I have to live in my analysis is I have to look at where we are, rate of change, how it's affecting multiple asset classes.

26:22Nik Bhatia:I think for sure that Bitcoin's 2022 bear market is driven by a spiking of broad macro volatility due to the inflation wave due to interest rates. And we talked about it. It's not that the Fed is hiking. The market sells the bonds before the Fed hikes. So it's the market punishing and liquidity being sucked out of the system, volatility spiking, markets stopping to be made, people pull back from their Bitcoin position, and then the reversal happens in the subsequent years. So that's how I'm thinking about it. So I definitely want to get deeper into the macro stuff and what that means for Bitcoin.

27:06But before we move on from kind of the cycle stuff, Do you have a sort of target in mind for this year, next 12 months, whatever it is? And no one's going to hold you to this, Nick. But I did see you tweet recently that Bitcoin is going to a million, but it's not going to be straightforward. I mean, we know Bitcoin is going to a million. It's when, not if. Right.

27:25Nik Bhatia:And I think that that's part of what's making this new era of Bitcoin fun is the increasing certainty that it gets to a million in the 2030 to 2032 area. Yeah, that's, I mean, that's something itself that I've never been able to put a year on Bitcoin hitting a million until this year. So this is the first year I've been like, okay, by 2032, you might expect Bitcoin to be at a million dollars. That's seven years from now. You know, the next order of magnitude, we hit 10 ,000 in 2017. 17, so seven, eight years from 10 to 100, another seven to a million, and you can really put it there and be like, yeah, the next order of magnitude is seven years away.

28:16Nik Bhatia:That's amazing. And I love that. It also means that the obsession over a million on this current cycle, it's not that's not where the action is or the analysis is to me it means that at this portion of the cycle we should be thinking about 200 250 and so that i am i am starting to think that

28:43Nik Bhatia:to 200 to 300 is what my expectation expectation has been for the last few years but it's starting to lock in i think i was doing some back of the envelope that you know 225 somewhere around there in the next 12 to 18 months seems very, very realistic to me. The numbers that I was using there, 70 ,000 unrealized and 3x on the MVRV puts us at 210. And I really like thinking about 210. It's a nice multiple of 21 as well. And so we'll put it there at 210 Danny. I don't want to put a time on it, but I'm not talking about five years here. I'm, I'm really, I really am talking about one to two years now looking at like the next, when we remember when you guys were in my corner, uh, and we did that in person, we were talking about, we were talking about 300 and what would it take to get to 300 K and that was i felt like it was much more speculative at the time but it's i don't feel like it's speculative now now it's within you know our current market reach it is wild though that the idea of throwing out a million dollar bitcoin isn't that crazy anymore i remember saying to people that bitcoin's gonna go to a million dollars in like 2017 and people looked like you like you were fucking nuts and if i say that to people now even if they're not very into bitcoin people are like, okay, I can see that.

30:25And that mind shift is crazy. It's wild to see. And it's bullish.

30:32Nik Bhatia:It is. You have to lean into it too, because you have to normalize it. And it's my responsibility to normalize it to the readers because I'll single out a reader that I have and God bless him. But he pinged me around the week of liberation day and he said, I sold it all. He's an older gentleman, not an American, had set himself up very well, but he's out. And he was a longtime reader, and it wasn't enough. What we were doing wasn't enough to keep him from doing that. Not that it's our responsibility to prevent him from selling or to hold it all the way to the end. but okay then yes we do need to do a better job or change the language alter it to make it more as something that people expect yeah that's one of the reasons i do as well it's more to kind of shock people into taking it seriously like i want people who i care about to own bitcoin and i feel like that's a really easy way to make them take this thing seriously if they think it's going from 100k to a million dollars in a relatively short amount of time.

31:41But let's get on to the macro stuff. I think to kind of set everything up that I want to talk to you about, we should probably talk about Jerome Powell and Trump, because Trump seems to be doing everything he possibly can to push Powell out of that seat. But let's start with Powell. Do you think, if you take into account everything that he's gone through sort of after the pandemic and high inflation, do you think he's done a good job as Fed Chair.