“Bitcoin to 10x over 10 years makes a lot of sense” | Bloomberg analyst explains

Bitcoin volatility should continue to decline for a long time. As it drains maturity, drains adoption, it gains more use and it's doing that. I don't see what will make it stop doing what it's been doing for the last 10 years and that's going up 10x over one year. There's too many players and people involved now, I think for that to happen.

Hi everyone, I'm Giovanni, your host. Welcome back to our show. Today we are cutting through the noise of catchy price predictions, speculation and and look at bitcoin and crypto markets from a data driven, research based perspective. I'm joined by Michael McGlone, senior commodity strategist at Bloomberg Intelligence. It's a pleasure to have you with us, Mike.

Hello Giovanni. Thanks for having me.

So first of all, can you shortly introduce yourself and tell us about your background and what you do at Bloomberg Intelligence?

You got it right. I'm senior commodity and crypto strategist at Bloomberg. I've been in this business. I really started in the trading business in the trading pits in Chicago in the 80s and commodities and crypto is the main thing. I really do have Bloomberg. My main focus is the outlook. Not a fan of big intro. So people can always go to LinkedIn or wherever and find more details. But that's my main purpose here is trying to figure out where markets are going and why. And I've been quite bullish in bitcoin for a little while and we can take it from there.

Right. So what would be the connection between commodities and crypto?

Well, I always go right to gold. To me, Bitcoin has been a digital version of gold since its inception and it's becoming more so every day. So the direct correlation I have is really towards gold. And gold is really not a commodity, it's a store value diversifier. Historically it's been considered money and to me that's where the two really connect. And that's the most significant place to connect, maybe a little bit to silver. And then there's all the other cryptos. It depends how much we want to talk about those. My main focus is really lately because a macro is more bitcoin.

In one of your latest analysis on Bloomberg Intelligence you said that bitcoin has the chance to go up to half a million dollars but also completely fail and go to zero. So what are the factors which could lead to these two opposite outcomes?

Well, I guess it's a bit of a cop out to say that I think bitcoin is going to continue to appreciate in price, it could get to that $500,000 market cap. And that was kind of a lift. That's one. Some analysts have used that level as if it's equivalent to the market cap of gold. And I think the Winklevoss twins recently did a big piece of research on that. I don't know what it's going to take to fail. There's so many things with a nascent technology like this that I can't really predict. And. And we could list the number of those. I'd rather not go there so much. But I look at it continuing to succeed and appreciate. And the way I look at bitcoin is every day that goes by, it's succeeded, it's becoming. I see nothing but more adoption, more demand. And the key thing from a commodity standpoint, something I've never ever seen before, is the supply is limited by code, where it'll never be affected by price. And I see supply declining now. It's been like next year be 2%. It'll increase. The year after that will be 1.7% and continue to decline versus I look at gold, A good way to bring in more gold is to have the price go up. And you can't do that with backed bitcoin. So the only thing that matters is adoption. I see those trends quite favorable.

Okay, so you compare bitcoin to gold. So I understand that the difference between gold and bitcoin is that bitcoin can potentially fail and gold cannot. Am I correct?

Well, there is. You might not have heard of the phone. There used to be a TV show in the US called the Twilight Zone, and it's from the 50s. I remember my famous episode was about a bunch of guys who stole some gold and went to a time machine and went 50 years ahead and gold was worthless. What's that? Gold? That's what he said it was. He wanted to give it to me in exchange for lifting the telegram. Gold. Now, what in the world would he be doing with this gold? I don't know. It's probably off his rocker. So as a historical example from 70 years ago of gold actually not having value anymore, so there's anything. It's a new technology like this, bitcoin could fail as gold could become something that people said, oh, we find an asteroid loaded with gold, it'll just massively increase supply and reduce price. The key thing for bitcoin, to me is its unique technology. And it's not the liability of anybody else. Like gold. You look at all the other 7,000 cryptos and virtually everybody else's project. Bitcoin is neutral and it's the one that's been adopted. It's the first and I'm not so much a fan of it. I just reflect as this neutral commodity strategist and that's the key thing I need to bring out is I have no vested interest in either way at Bloomberg. My main focus is getting it right because I report. Main thing is I publish on the Bloomberg terminal. And what I see for Bitcoin is prices continue to appreciate. Something needs to change in this increasing adoption in this world of macroeconomics where the US and virtually every central bank in the world is printing a lot of money and liquidity and yields are near zero. That this global decentralized, unique electronic money should not appreciate in price. I don't see what would make it stop appreciating price. I don't see what would make it stop doing what it's been doing for the last 10 years. And that's going up, right?

So you pointed the limited supply of Bitcoin as its core feature because as the demand for Bitcoin increases and the supply of Bitcoin remains fixed, then its price is bound to increase still. How do we know that this demand for Bitcoin is actually increasing? What are the main indicators which you're looking at that shows this increase in demand?

So these are some of the charts we'll be able to show. There's a few things I watch. First of all, let's look at some demand indicators. One of the significant indicators is on chain, on chain indicators you have address is used, address is used. I get from coin metrics and they've been increasing significantly. That was one of the signifies. I watched the 30 day average back in 2008. When addresses use plunge is a good indication of the market declining and they've been marching higher. And if I just use a normal analysis auto scale basis based on addresses used for the last two to three years against the price of Bitcoin the price should be closer to 15,000 because they've been advancing. Another key indicator I watch is demand from regulated exchanges and investments. And the most significant is the grayscale Bitcoin trust gbtc. Now that's been advancing rapidly. The total amount in the GBTC is around the equivalent of about 450 bitcoins. 450,000. And if you look at the amount of inflows and appreciation just the last six months, three months or so, with the halving and Bitcoin supply declining, just this one product which Represents something that trades on exchange and is regulated, is absorbing about 30% of new supply. So as a strategist, something that's taking that much supply and there's no increased supply, the price by economic rules has to go up. The third measure I watch a lot is, well, second measure, I should say third, there's four is futures. Futures open interest. Now, futures open interest are not significant equivalent of bitcoins, maybe 50 to 60,000. But the point is they're moving from lower left to up right. And that represents. Futures represent US Regulation getting into space, meaning they're regulated by US regulator, which has been one of the key issues here for an etf. If you look at bitcoin overlaid with the Nasdaq, they reached the same level about. I'm going to pull up this chart as I can see it as I speak to it. And about in 2017 at about 6,000, that's when Bitcoin first reached 6,000 and Nasdaq was 6,000. So they basically reached one to one. And since that time, actual volatility on bitcoin is just declined a lot and NASDAQ volatility has gone up. So if you look at the ratio of volatility in Bitcoin, I'm using 260 days or basically an annualized measure to measure apple to apples on an annual basis. The volatility now on bitcoin is about two times, that is of the NASDAQ composite, which means that risk factor is two times. In the past, it's been a high as seven or eight times. So it's pointing out that this new asset class that's only been around for 10 years is becoming less and less volatile. And the older asset class, that is the stock market, is becoming more and more volatile. Now they're not there completely one to one, but at only two to one. That's the least, I would say, risky on this measure that bitcoin's ever been versus the NASDAQ. And they're still at about a one to one ratio. The NASDAQ's around 1100. Bitcoins just below this, 10,000. So that to me gives bitcoin the upper hand in appreciation. And typically when the volatility gets this low, it's never been this low when it picks up, usually favors bitcoin.

Got it. Okay. But on the other hand, many people see volatility as a positive factor, which could bring huge upsides to bitcoin. So if volatility decreases, those upsides would be more limited. So do you see Decrease in bitcoin's volatility as a net positive for bitcoin.

Let's put it this way. Bitcoin's a nascent technology, and when it first got started trading volatility, it was extremely high. Bitcoin volatility should continue to decline for a long time as it drains maturity gains adoption, it gains more use. And it's doing that and depends on which measure you watch. Are you watching the big picture? Annualized measure. So that should continue to happen. The point is, historically, when bitcoins rallied, it's usually broken out in price and volatility has gone up. When it goes up too much, it gets too speculative, it gets too high, that is 2017, and then it crashes. Now, that's what's happened since what we're doing right now in terms of market, as a market person looks at it got parabolically too expensive, just like the Nasdaq did in 2000, 1999, 2000. It's correcting and it's building a base for the next extension of the bull market. And to do that, typically volatility has to decline. And oftentimes what happens historically in markets, you need a period of disdain or underperformance. And we're having that now. It's the third year now. The market hasn't made a new high, which is good. It's building a base, as we would say, markets building a base for continued appreciation. And for it to not do that, I need signs of negativity. That is less adoption, something that would make me tilt my bias negative. And I see the opposite. I see more adoption. So just like gold did. Remember, gold went up to 19, 1900. It crashed to a thousand. It built a base, it was underperformed for five years, and then it started breaking out. To me, bitcoin is just doing that. And it's following gold. I can mention gold because the correlation between the two, depending on how you measure it, is the highest ever.

Okay, so that's interesting because a lot of people coming on our show like to make quite daring price predictions. We had Dan Moorhead from Pantera Capital explaining me how bitcoin could go up to 115,000 by August 2021.

If you take the stock to flow from the first two halvings and extrapolate it out to the third, it would imply a price of $115,000 per Bitcoin in August of next year.

So probably from your point of view, these kind of predictions are not that realistic and not even desirable.

Well, there's different reasons for those types of predictions. Number one, there's someone with a bias, someone trying to sell product on the sell side. And who benefits from that? I don't. I have to have a realistic view. Is it going up or down. And remember I'm just a strategist and I'm publish on Bloomberg. My primary purpose is publishing, getting things right. So sometimes that also gets headlines. It's how you get readership. I mean if you, if you. If bitcoin was at $100, no one would care. But things like that get headlines, get readership and gets interest. And so there's ulterior motives there, whether it's right or wrong. That's oftentimes subject. But I do think the price is going to appreciate. I don't know how much I'm getting closer to thinking it might get towards the capitalization of gold. That was just before our conversation today I was comparing bitcoin to the capitalization of the nasdaq. It's just a small fraction which shows you in a way how small the bitcoin market is. Less than 200 billion. That's just my point. Sometimes I'll put out a point. Like I recently pointed out, Bitcoin should hold support at 10,000 appreciate.

Right. So according to your sober point of view, Bitcoin's volatility is decreasing. That is why we should expect a gradual appreciation and not something like 10x in one year from now.

I'm glad you brought that. It's a good point. The key narrative I like to use is Bitcoin should continue doing what it's been doing, but at a much slower pace at much later. So right now, annualized volatility in bitcoin as I'm just pulling up a chart right now is about 62%. That's just an annual volatility. The high in 2017 when it was on that roar was around 100%. That's just a measure of volatility. The all time low for this measure of volatility was 37% and that was 2016, right before the breakout. So that's how it works. But remember when it starts at a penny and no one knows about it, a lot of people disagree with it and it becomes increasingly adopted. That's the exciting part. Now this bitcoin is not a child anymore. It's more of, I would say a young adult. Terms of assets becoming into the fray. There's probably going to be an ETF soon. I see a lot of institutional investors getting into it, a lot More hedge funds, lots more traders. Like I used to be a trader, traders are about the volatility. But 10x maybe over 10 years, that makes a lot of sense. 10x over one year. There's too many players and people involved. Now I think that for that to happen and it's already had massive appreciation. So I think it's just going to do what it's been doing, but slower.

So a lot of price predictions are based on the past performance of Bitcoin after the halvings. So people look at the previous behaviors of bitcoin following the halving and they see this massive appreciation and they say, oh, Bitcoin will do the same after this last halving. However, the sample of previous halvings is too small to base some price prediction on this. Am I correct?

I like that analogy. We basically have to use past performance. May rhymes with current conditions may rhyme, the history will rhyme with history. But we have to factor in the fact that how new a nascent the market was and the having meant the actual annualized supply was going from say 20%, increasing 20% annual basis to 10%. Now last few years it was 4 or 5%. Now it's dropping to 2%. You see that's going fractionally towards zero 100 years from now. So it's just part of the maturity of how it was set up, which I'm sorry, somewhat impressed by that. Those examples in the past are history. So I recently had a big investor ask me about supply and the mining and I said it doesn't matter. He said, why? Well, it doesn't matter anymore. Now it used to because before this year there was 1800 coins a day that was produced. Now it's only 904 years from now it's only going to be 450 that's done. Unless something changes with that that I can't predict. That's just it. That's how the supply is. So as a strategist I can see where that's going. It's increasing. It used to increase like this on an annual basis. Now it's increasing like this and that's going to increase like this. So all that matters is demand because supply is fixed. So that's why I always go back to the history doesn't matter as much anymore. It's looking forward and trying to extrapolate what that means compared to when it was much of a younger asset.

So in the same analysis we were talking about, you predicted that stablecoin tether would will overtake Ethereum as number two crypto by market cap next year. Why do you think so?

I appreciate you mentioning earlier. This is simple analysis of the linear regression of the facts. Unless the pace of increasing market capitalization of tether changes, unless keeping at the same pace come with less than a year tether around 14 billion right now will surpass the market cap of of the second number two, Ethereum, which is around 30 billion. And to me that's significant because first of all you have to analyze this is simple pattern recognition, trend analysis, analysis of what's happening. Tether and stablecoins are becoming increasingly adopted in an exponential pace and they have a lot of fundamental backing behind them. That is every central bank in the world is considering going digital central bank digital currencies. This is just an indication where they're going. The thing about a theory because I see it's getting increasing demand from Dexes and decentralized finance and things. But the issue with theorem is there's 7,000 other cryptocurrencies and 7,000 other platforms. There's many other platforms that are competing against it's for its business. Now it might be the main one, it might win, might be like an Amazon. But the point is I like to differentiate. There's Bitcoin in the cryptocurrencies markets and then there's everything else. Bitcoins number one, theorems number two with like one fifth the size and tether is number number three. Soon it's going to be tethered unless things change which will define really what cryptocurrencies are becoming. There's gold, there's the US dollar becoming the world's stable currency, becoming transactable via the blockchain and then there's everything else and there's 7,000 everything else. Which is kind of where I get somewhat confused. I wouldn't say so confused. Our measure the market and I view that's a whole different place when there's so many of them. I only focus on the one or two that matter. The key thing recently for me was Ethereum got a little showed indications of speculative excess but I got around to around 5,000. It was really expensive up there. It had big gaps below and just way too much excess. And the same time, same thing with the nasdaq. Now they're very highly correlated and now drop back to around 350. I view 350 as a first good support for the market to continue to advance. But I don't follow as much. I know less about it and I'm more focused on the macro supply and demand Factors of bitcoin.

You also said that the rise of tether will have a negative impact on altcoins in general, but a positive impact on bitcoin. Why do you think so?

It has been. Let's just focus on what it has been doing. Altcoins have been declining in value maybe Certainly since the 2017 peak, tether has been appreciating exponentially. Around that time was 1 or 2 billion, now it's 14. And the reason is there's. I like to use the word crypto assets because oftentimes they like to call themselves cryptocurrencies. Well they're not really currencies. They're not stores of value, news exchange and mediums of exchange. They're highly speculative digital assets, which is. Okay, remember look at my hair. I used to be a speculator, I used to be in a trading pits. I get speculation. But let's point out what they are. Most of them are copycats and wannabes of bitcoin and tether. The key thing it has going for it is adoption. So here's the key trigger point for tether. It was last year around April when the New York Attorney general came down to tether with some allegations, I don't know true or false about them not actually holding the full amount one to one basis. And the market initially dipped and came right back and then started appreciating more. To me that was a good indication. The market doesn't care. It wants a central bank digital currency. It used tether as the one that's being adopted. It wants a way to be able to transact without intermediary globally, without credit cards and things, dollar based and tether's winning that it's based on the world's reserve currency. And then the next tether is gold. You have gold and you have Alfia currencies. Gold in my main terms in current cryptos is digital. There's bitcoin, there's tether and everything else. Bitcoin is the digital version. It's gold where the. There's no one else's project, it's the one being adopted. It has the depth, it has the size behind it and it represents the macro alternative to fiat currencies.

So don't you think that the massive growth that we are seeing in Defi will have a very positive impact on Ethereum? Because I mean most of Defi is built on Ethereum.

It is, it has Greg. So it's one of those known knowns in the market. So I look at a known known but then why is Tether still. No, it's. I'm sorry, why is Ethereum? It's appreciating. It's appreciated a lot this year but it's gone up a lot. So a lot of that's priced in because we all know that it's a known known Defi is picking up. Defi is not going to go backwards. I think it's in unlikely. Ethereum is one of the first is a primary platform for Defi. I get that. But if you look at the actual pace of appreciation in assets in market cap, it's nowhere near a percentage basis as much as Tether. Yet Tether has the same old story and that is, it's what I think is happening to paper money. Two, three hundred years ago it couldn't go in digital.

So we have a lot of guests that jump on our channel and predict the end of the US dollar as the reserve currency of the world. Max Kaiser even said that the dollar is going to end up like the Venezuelan Bolivar. So they say that people will lose trust in the central banks and the whole world will unite around decentralized system based on Bitcoin. What do you think about this scenario? Is it something realistic to you?

There's a lot of potential behind it. I, I love that term, Bitcoin maximalist. I do believe that that narrative fits into what I think is happening and that is the bitcoin price should continue appreciate the market cap of Tether should just continue doing what it's been doing. Appreciate it much more rapidly. But as far as this narrative about the dollar collapse, I've heard that I'm 55, I've heard it most of my life and America is still the dominant police of the world. As my son who's a Marine likes to wear this shirt that says two time World War II champions. It's still a bit of a dominance there. And then there's the whole back behind the dower. Now the key thing I point out is there needs to be alternatives to it because of what's happening on a global basis. And that is massive amount of liquidity providing every country in the world zero interest rates which means a neutral digital currency by default has to win. And I believe in that narrative to extent. But what do you pay your taxes in? Bottom line, that's what matters. What do you pay your taxes in? Paper money. And you need to have some of that paper money. But you always want to convert a lot of that piece of paper money into relatively secure assets. Real estate, stocks, maybe bonds. Not anymore. Alternative currencies, gold, bitcoin. It's just called proper diversification. Taking that piece of paper we earn, making sure you pay your taxes with it, but also diversifying it properly. And I think bitcoin is part of that, like real estate. I'm young. My kids are at that age. And I say buy, borrow as much as you can of that paper. Buy a decent home or piece of property and make sure bitcoin is part of that portfolio.

Great. Awesome. That was very interesting. Mike, thanks a lot for being with us today.

Giovanni, thank you very much. It was a pleasure meeting you, and I'm looking forward to, to speaking with you again in the future.

That was Mike McGlone, senior commodity strategist at Bloomberg. I'm Giovanni, your host. If you enjoyed the interview, hit the like button and subscribe to our channel, cointelegraph.

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