After Tesla Announcement Could Apple Buying Bitcoin Send It To $100,000?

Okay, it's Tuesday the 9th of February. I'm joined here by Eddie Donmez and got him back to have a catch-up, further debrief on, on the Tesla Bitcoin news that obviously broke yesterday. It's caught a lot of attention in the market, and I'm starting to hear a lot of talk about Apple and Bitcoin, which we're going to speak to Eddie about in a moment. But before we get into that, just want to have a quick review of the current price action Looking at Bitcoin futures, and this was the, the move that happened yesterday, explosive breakout above $40,000 and went pretty much immediately to $45,000 before some profit taking took hold. Now then, from a technical point of view, the price has a fairly nice setup here, and what's quite common is we get these big pushes up and then some short-term profit taking. It comes back to a kind of element of psychological round handles with technical areas of where the price has responded to an initial push higher. So here overnight, actually, as Europe came in, we broke above the high that was seen in the Asia-Pac session. We've actually printed in the futures a high just short of 49,000, before then coming back down to 46,220. But you can see here, these were the 3 markups I was talking about with the guys the first thing this morning, about key areas where not getting too late to the party trying to grab hold of the freight train. It was more about areas on the downside that could be quite interesting on the pullback. And, um, absolutely almost to the tick it came in into play this morning. Good phrase I heard this morning, uh, Eddie, from you was, was greed and gravity. What does that phrase suggest?

Yeah, well, greed and gravity. So obviously we've seen, uh, a lot of new things happening, kind of bubbly things happening, just like GameStop, right? And the phrase greed and gravity kind of does flow into Bitcoin as well, where an asset, you know, we're all in it together, we're going to pump up the price, and then you make $30,000 or you make $100,000 and you think, actually, this could change my life. Let me liquidate this position. Actually, you guys, you know, we were in it together, but now I've made enough money. I'm going to take this and run. So I think that's, you know, what can happen to Bitcoin. And I think, you know, I think people in Bitcoin and crypto, a 70, 80, 90% drawdown is not uncommon, what we've seen historically. So yeah. Yeah.

Okay. So moving on then to the key question at hand is yesterday Tesla's $1.5 billion purchase of Bitcoin, and also then that they would accept crypto as payments. So First thing here is, why is Apple in the spotlight now? And then I'm going to pivot that over to two key areas I want to look at, which is payments and treasury assets. So what's the deal with Apple? Why are people talking about them specifically?

Yeah, so Tesla obviously purchased 1.5 billion of Bitcoin yesterday, and they would also accept payments for their cars. And this has basically sent imaginations— wild and running of analysts and people like ourselves in the space kind of thinking about, oh, who else could make the move, right? And I think naturally Apple is a big, you know, big tech company. They've got an install base of about 1.5 billion people, right? Think iPhones, think Apple Macs, all this hardware that they've got. And there was an RBC report from an analyst that basically mentioned the Apple Wallet. Right. And we've actually talked about this a lot about the Apple ecosystem. And once you get in, you can't leave.

Can't leave. Try to, they just suck me back in.

Yeah, exactly. And I bought a Dell computer and now it doesn't sync with my AirPods and my iPhone. And I'm like, I wish I bought a MacBook. So basically what the analyst is saying is through Apple Wallet, Okay. And as we see with Amazon, with Apple, the services, the software is now, uh, you know, the driver of a lot of their profits, right? Because the margins are so big, uh, that actually this Apple Wallet, if it turned into this kind of crypto exchange, okay, so this is different from actually Apple buying Bitcoin. This is acting as an intermediary of people wanting to buy, hold, and sell cryptocurrencies like Bitcoin. This could make about $40 billion. Yearly, uh, for Apple, and it could end up, uh, increasing their firm value by about $50 billion or even bigger than that. Um, so PayPal is another firm that have done this, right? On— in October, they announced that they would allow users to buy, hold, and sell cryptocurrencies on their closed network, okay, which has driven a huge amount of value for them as a firm. Square is another one. They generate about $6.4 billion annually through Bitcoin coin trading, and they have 30 million active users. Okay, think about that versus Apple's 1.5 billion users. Okay, and they actually spent less than $1 billion in research and development for their budget for this. Okay, so if you look at Apple, $1 billion is a drop in the ocean.

Yeah, what was this, the free cash comparable that you said?

Yeah, exactly. So basically, uh, this kind of comes on to the treasury asset element. Of it. Uh, why, you know, let's kind of set the scene. What assets can you hold as a treasury department? You've got, you know, things like notes, right? Overnight notes, treasury bonds, right? The relatively low risk, relatively low return. You've got cash and cash equivalents. And this is what Tesla basically saying, that Bitcoin isn't as an alternative for them, right? Bitcoin is a cash or a cash equivalent. Actually, they had some pretty funky accounting. They've called it an intangible asset. So yeah, some questions to be asked there. But you can also hold Bitcoin or gold. And the alternative to gold is Bitcoin. It's digital. It's very scalable, all of these different types of things. So this is what Bitcoin is being seen as. And according to ZeroHedge, that did the rough calculation, if Apple actually purchased only $1 billion, okay, so this is different from the payments, actually purchasing it just like Tesla did, it would only amount to 4 days of cash flow, uh, for Apple. If they did $5 billion, okay, so 5 times as much, which again, it's a tiny drop in the ocean, okay, this would only be 20 days cash flow, okay. And of course, the signaling effect of Apple moving into Bitcoin and cryptocurrency then sends a big signaling effect for the wallet, right? So it then drives even more users to think, okay, Apple are in Bitcoin, and, you know, Apple is a retail favorite as it is, right? Every young person, retail trader, even obviously big institutions know Apple. So if they move into cryptocurrency, that's going to be a real, um, you know, a positive effect that this Bitcoin asset is now an acceptable alternative asset that has idiosyncratic risks. You know, it's not correlated with the financial system, and then it kind of plays into that GameStop element of, you know, against the suits, against the, you know, the finance— the traditional financial system as a whole.

So, so, so was it RBC that are looking for 100,000 if this type of thing materializes? I mean, is it, is it a case that there's a bit of a disconnect here between almost like the building hype and the subsequent reaction or effect of that to then the actual tangible reality of the implementation of these things in a real-world sense? Is there a timing element here to judge this?

Yeah, I think, um, so it's a very accomplished analyst that covers this, and I think he's picked a good example of Apple because of their huge network effects. And it was also kind of echoed from a study of ARK Invest, and they're a big firm, hugely popular. And basically they're saying, look, Bitcoin is ready for institutional adoption. And if 1% of the S&P 500 companies— sorry, the S&P 500 companies— if they put 1% of their assets, treasury assets, into Bitcoin, this would add $40,000 to the price. Okay, if they put— if S&P 500 companies put 10% of their assets, this could add $400,000. Okay, so what the analyst is looking at is Apple, you know, with network effects. And I think this is a key point, is Bitcoin gets more valuable the more people use it, right? So think of— and this is coming back to network effects and Metcalfe's Law, and this is, you know, from the internet was the first kind of thing, and Ethernet and things like that. And now it's trans— trans— uh, transitioned into the tech companies, right? Facebook, Amazon, The more people that use Facebook, the more utility you get from it, right? The same with Amazon. They operate economies of scale. The more effective their Prime delivery is. So basically Metcalfe's Law basically states that the network's value is proportional to the n squared number of users. Basically, the more people that use it, the more valuable it is, right? So what this gives the green light for, for Tesla, uh, well, for other companies, if once Tesla has done this— and let's not forget Tesla is now an S&P 500 company. They're not any old company now. They're a big, you know, big factor, right? And it's funny, I was mentioning to you that, you know, let's say pension funds, investors, uh, if you own an S&P 500 ETF, right, SPY or something like that, you now indirectly have exposure to Bitcoin whether you like it or not. Okay, so what Tesla have done, have set the precedence really for other institutional kind of ownership from a corporate treasury perspective, but also now for pension funds, for asset managers, for insurers putting some of their treasury assets or even a bit of that asset allocation from a portfolio perspective. If they even do 0.05% or 1%, that's going to have a big impact on Bitcoin's price.

So, so in conclusion then, do you see this as inevitable? It is going to happen? It's just a matter of getting the timing right of when. Or is it— is this more— I mean, how do you play this out right now, let's say?

Yeah, I think, I think, um, you know, it's letting everyone's imaginations run wild. And because Tesla's an S&P 500 company now, this isn't just any other company. So what we're going to see now is a lot more companies allocating a small portion, okay, of their assets to things like Bitcoin, right? The one, you know, risk of it, of course, is, you know, no one's ever done this before, right? Bitcoin is an unknown quantity in a treasury perspective. And the— you'd say one of the biggest drawbacks of holding Bitcoin is its price volatility, right? No one would be surprised if it fell 90%, 80%. There's going to be a lot more education in the space. It's already started with Michael Saylor with MicroStrategy. He had a call with 200 or 300 CEOs talking about how can they get exposure to Bitcoin as a treasury asset, as a hedge against fiat currency debasement. We've seen massive money printing against hyperinflation and hopefully as a as a hedge against other assets. You know, like, like we saw in March, you know, they all fell together. Okay, so this is what people are looking for, a hedge. So what we expect over maybe this year is that more companies will start to explore this, maybe not buying the, you know, the actual underlying asset, but trying to get exposure. Like, like Apple, for example, the least risky thing they could do in the Bitcoin perspective is, you know, an exchange, right? Because they then don't have exposure to that price volatility. They just facilitate. Okay. So what do I think is going to happen? You know, Bitcoin's a volatile asset. We could see drawdowns, right? I think everyone in the space knows that, but we're seeing a lot more education in the space and a lot more institutional and corporate treasury acceptance. So the more people use it, the more valuable it's going to be.

Great. Well, look, we'll wrap it there. If there's any questions at all for Eddie, then just drop a comment below. Don't forget to subscribe to the YouTube channel. I mean, this is the second one of conversations we've had on just this one subject, and there's lots of other stuff that we cover on the Amplify Live portal. And I'm going to book you in already, Eddie, for Friday on our new podcast channel. I'm going to pull you in because I'm sure there's going to be some more twists in this story by the time we get to the end of the week.

Yeah, definitely. I look forward to it. I felt a bit upset that you left me out of the last one, but I guess it's acceptable.

It's all right. Cool. All right, thanks, Eddie. Cheers.