← Markets Outlook
Loading summary
Transcript19 lines
- [00:00]
A
Bitcoin has been through, you know, seven or eight of these and after every one, it hits an all time high. Stocks have the same thing every time stocks go down. I remind myself and then other people that stocks have a 100% perfect record of coming back to hit all time highs from a downturn. So why would I worry that much?
- [00:24]
B
Hey everyone, you're watching Markets Outlook and I'm Jen Senasi. Now while bitcoin is down more than 40% from its October highs, our next guest notes that the amount of bitcoin held by ETFs is actually only down around 6%. Senior ETF analyst for Bloomberg Intelligence Eric Balchunas joins us now. Hey Eric.
- [00:42]
A
Hey, how are you?
- [00:43]
B
I'm doing well, thanks. I think a lot of folks who are watching crypto markets out there aren't doing as, as well as, as me who just observes. Talk to me about how you're watching the markets this morning.
- [00:57]
A
Yeah, I mean it's, it's bad, it just feels bad. You know, it's bear market feelings. I think with bitcoin it's worse than most assets because it's way more, the roller coaster ride is way steeper. So when you're on one of these sort of like downfalls, it just hurts more, you know. But this happens to every asset. The downturns don't feel good, whether you're a stockholder. Even bonds go down sometimes. But the volatility and this feeling, this depressed feeling is kind of the cost of the holy grail returns that most people have gotten. Right. This is like what the eighth or ninth time on a drawdown, more than 40%. And the reason that a lot of people, you know, didn't make a lot of money in bitcoin is they couldn't handle it. So this is like an only the strong survive type asset. The ETF investors are strong investors. I've seen them operate in stocks. They tend to hold really strong. So I predicted they'd be pretty good. But at some point, you know, as it goes down, people are like underwater, like with the prices lower than when they came in at. You could see some people peel off, but in the end 6% of people have left. That's pretty good considering it's 40% off its highs. So for now the ETF boomers have really come through. I think we'll see how long that lasts. But yeah, I think it's a little more of the original holders that are causing this and maybe even some of the sort of like leverage traders, something like that. But yeah, the vibes are not good.
- [02:30]
B
Who knew the ETF boomers would be the ones with diamond hands?
- [02:34]
A
I know, right? Isn't that ironic? Again, I was early out saying this is. First of all, the boomers have seen a lot of things in their lives. They know things go up and down. Right. They've got some wisdom. Second of all, they probably have a core portfolio made up of stocks and bonds and real cheap Vanguard funds and they're very happy with that. This is like a hot sauce. This is like a little fun on the side. So if their stocks and bonds have been doing great this week, they're a little shaky. But stocks have been up nine straight months so they're pretty happy. Overall, their core stuff is still up, so they're feeling pretty good. They can handle a little downturn in their 1% hot sauce. So that makes it a little different. I think if you're a true bitcoiner and you have like a large portion of your portfolio, it hurts way worse. I mean it throws you into existential crisis mode. I mean it's way a deeper thing. If you are a diversified investor, it's not that big of a deal relative to what you hold. So I think that is a big reason why you find that. Also, again, ETF investors tend to be pretty smart. They understand allocations and commitments. I think a lot of them probably made a commitment to themselves to hold for a couple of years, knowing it's volatile. Not everybody will be able to hang though. We'll see what happens. But yeah, ironically the boomers are making this way less bad than it could be.
- [03:56]
B
You said not everybody will be able to hang. Most ETF investors are underwater. Like you mentioned just a few minutes ago, if you were to get out your crystal ball or maybe make a prediction, what do you think the next few months looks like for ETF holders?
- [04:11]
A
Wow. We can't predict price action. And frankly, I don't know the future. I readily admit that I have no idea what's going to happen. Here's what I do know. I do know that bitcoin has been through, you know, seven or eight of these and after every one it hits an all time high. Stocks have the same thing every time stocks go down. I remind myself and then other people that stocks have a 100 perfect record of coming back to hit all time highs from a downturn. So why would I worry that much, right? I'm a fan of patterns. Unless this is like the one. Like this is it. But we're talking a long 17 year history of coming back. So I think that will carry a lot of people. But you know, if the price goes down, you know, more and more, you'll probably see some more outflows. Gold had a period, it's 20, GLD is 22 years old. There was a six month period about 10 years ago where GLD went down 40% in six months. That's really bad. And about a third of the money left, right. However, since then it's gone up, it's gone down, it's taken in 30 billion. So like these assets can have like really horrible streaks, but then when they come back around, the flows come back. As I was reminding people, you know, the earth spins around the sun. Things go up and down like it rains, it snows, it's sunny. It's just kind of cycle of life stuff here. And again, the bitcoin's ability to survive and thrive through multiple beatdowns shouldn't be taken for granted. It's one reason I got some respect for it even before I really understood it. And it's 17 years old. So this is why, I don't know. But every time it goes down there, there's people who kind of think, okay, this is it, it's now it's going to go away forever. But its history would say otherwise. So I don't know, we'll just see where it goes. But at some point you're going to find it'll probably come back and that's when some of the flows will return. So just for now though, I think just brace yourself for anything.
- [06:09]
B
Gold, obviously a much more mature asset. Anything we can learn. We don't need to look to the future, but if we look to the past, anything more we can learn from how gold ETFs have performed over the year, maybe apply it to how bitcoin might perform.
- [06:23]
A
Yeah, gold comes and goes. It's an, it's a zero correlated asset. Sometimes it's up with stock, sometimes it's not up, sometimes it goes up and nobody cares. This last year went up and people cared. I mean it just, it's a very unusual independent asset. And I think that's why people like it, because that diversifies a portfolio. So all told though, I think gold ETFs have somewhere in the neighborhood of $160 billion. At one point, the Bitcoin ETFs had tied the gold ETFs. When they were right at their heyday, they were about equal. But bitcoin lost a little bit. Gold went up. And so gold's still in the leader. But gold is 22 years old. So if gold is a predictor, and I think it's a pretty good one because it also doesn't have cash flows and it also is a debasement hedge. You're just going to have like good runs and bad runs and you're going to have some runs where everybody cares and some runs where nobody cares and like just seems to be, that's the history of gold. But at the end of the road it's a legitimate asset class. The ETFs make it accessible and so when it does and is desired, people can just buy it quickly through the etf. That's probably what I would expect with bitcoin going forward. And don't forget that the issuers that issue Gold ETFs, you know, BlackRock and all these big issuers, Goldman has one, they're the same people who have Bitcoin ETFs and have the same wholesalers. So the good news for, for bitcoiners here is that bitcoin in the traditional finance world is now considered a pretty, you know, and it is an asset class. Might not be doing well right now, but that's an established thing. For now. Once you get the ETF, ETFs are liquid. You're in the game, you're in the mix. So a sell off doesn't mean the end, it just means like, you know, it's, it's a sell off. That's really it. So I would say the gold ETF should be, give people some optimism that Bitcoin ETFs are just a baby, you know. And gold's 22 years, it survived a long time and it plays a role in the gold trading in the gold trading world. But to be fair, like you know, the, the gold, gold rallies. Gold is 5, 000 years old, I think I was called. Bitcoin is like teenager gold. So it's got like a little more attitude, it's volatile, it steals your car, you know, whatever. So people should be patient with that. But the good news about being a younger version of gold is that volatility can be upside too. So I think gold's a good example. So I, I would say if we met back in 10 years, I, I don't know exactly how much the assets would be but I would, I'm going to bet that Bitcoin ETFs will be in existence. There'll be a category, people will use them sometimes more heavily than others, just like every other asset class.
- [08:54]
B
I want to talk A little bit about folks who are buying the ETFs right now and, and maybe the issuers. I think I know your answer based on what you're saying, but are they comfortable with this level of volatility?
- [09:07]
A
Guess we're going to find out. I think for the most part the people and Matt Hogan from Bitwise made this point. The people who bought the ETF in the first year and a half probably were people eyeing it before. They were probably like, I really want it, but I want it in an ETF format. I don't want to use one of these shady crypto exchanges, yada yada, ETF comes out, it's in my vehicle choice, I bought it. Those people probably more committed, right? The other side of it is again, they probably have 1 or 2%. So we have this term called hot sauce. And bitcoin isn't the only brand of hot sauce. Cathie Woods Ark is kind of hot sauce. High volatile equity stocks, leverage ETFs. People like to have a little fun and speculate on a small portion of the portfolio. Everybody does. I mean, I've talked to some pretty conservative investors who go pretty wild in what we call the hot sauce bucket. And people have a lot of patience there because they kind of. It's almost like you ever go to Vegas and you bring like, you're like, okay, here's $500. This is my money to blow. And like, if you lose it all, it doesn't totally bother you because you went in thinking this is fickle money and it doesn't mess with my actual retirement funds. I think bitcoin has looked a little bit like that for people. It's like, look, this is 1%. I knew it was going to get crazy. That should carry a lot of people harder. Is the crypto people who are all in on this questioning, you know, this is existential crisis stuff where they're like, did I dedicate my life to the wrong thing? You know, that's real in all my monies here. That's way harder to deal with. However, I remind them that the people who face those existential crisises and just held on, they made more money than anybody else in investing over the last 10, 20 years. I mean, they 10x everybody, but the price they had to pay was pretty steep. These are some real, these are like mentally challenging drawdowns where you wonder if there's a floor, you wonder if you made the wrong move. I mean, this is, it's really wild. So again, I always say volatility is the cost of the returns. So if you can't handle this kind of mental anguish, you probably should just stick with bonds or something. No pain, no gain kind of thing. And so I think that's where the true bitcoiners have really shown a lot of metal over the years. The ETF people, they also show metal, but the fact that it's such a small percentage, it's going to make it easier for them to deal. But there could be a point where, I don't know, they just go, I just don't want to have to like even worry about this. I mean, you know, like I said, not everybody will hang in there, but I would guess the majority of the money in the ETFs does not move.
- [11:51]
B
Let's talk about other crypto ETFs now. XRP and Seoul ETFs were huge outperformers last year. I took a look at some data. Looks like XRP saw a positive net inflow yesterday in the green. Talk to me about how you're watching some of These other crypto ETFs just.
- [12:07]
A
Real quick on Bitcoin. Like people forget that in 2022 and 2023, that's 24 months. It's not a long time, right? The older you get, the more you blink and it's two years, it went up 460%. That's insane. People act like just because it was flat last year and down a little bit now, like I get it's down 40 from the peak, but keep remembering it's still up something like 250% since the BlackRock filing. And it's eape up even more since FTX imploded. So those two years, it almost went up too much. I always tell people, what if you could like take 50 from each of those years and dump it into 2025 and 2026 just so you're just maybe like up 10, would you do it? Maybe. But that's what happened. So it, it, it's not like it's been down in forever. It went up way too much almost. Now it's come back to earth, so to speak. Anyway, xrp, it's good that this cryptos move differently, to be honest with you. Maybe some of them are showing us that there's, you know, some bids out there because typically I've seen some of the other cryptos are like, you know, they, they move around bitcoin but like with more volatility. Those other cryptos are also interesting because a lot of them are financial solutions and tech solutions. They're not just like a debasement trade. So I've always considered some of the other cryptos to be like actual businesses, like small cap tech stocks in the 90s. And, and so I think long term there's some real solutions being solved by some of these tokenization platforms and whatnot and blockchain. So those I think are going to come and go just like Bitcoin. Bitcoin is, you know, somewhat separate, but they kind of move together. So, yeah, maybe a bit here and there would be good. But we have a phrase on the team. The further away you get from btc, the less assets there will be. Bitcoin is the king of the hill. The other ones, as they came out, it was like Bitcoin and then Ether and then Solana and then XRP and then Dogecoin and then. Yeah, yeah, yeah, yeah. The assets cascaded down. So XRP and Solana ETFs are okay. I mean, they're fine. They're legitimate products. They got a, you know, good, good deal of assets. But, you know, Bitcoin is in a special place with that hundred billion dollars. And Ether did really well too, about maybe a third of what Bitcoin did. And then once you get down, you get to the really smaller audiences. I think at some point people's gonna buy an index of these coins because it's hard to figure out what's going up and down. So. But the hit, the Solana and XRP ETFs last year were among the top three biggest first day of trading. So they were hits in their own. Right.
- [14:39]
B
You mentioned Ethereum, so I'm not gonna let you go without talking about Ethereum. I'm curious. A lot of the institutional folks I talked to on the show mention layer twos as a real upside to Ethereum. And now we, we have Vitalik saying the layer 2 vision no longer makes sense. Do you think that's going to impact how institutional investors view the Ethereum ecosystem?
- [14:59]
A
Maybe it's a little out of my depth. So I work with James Safer. He's a millennial. His brain just fits crypto a little more. And that's a question I'd probably ask him. But from what I know, Ethereum seems to get a lot of the institutional business and it still does, even though I've heard some really great things about Solana. And so Ethereum, to me, because every time I look up and like blackrock or somebody's doing something, it's on Ethereum and I keep going, okay, all right. Because, you know, It's a lot of competition because, so the other ones come in, I say we're way faster, they suck. And then this guy's like, well no, we're more secure, they suck. And this is like battle, battle of the coins, right? So Ethereum though still, I don't know, for me seems like a legitimate second, you know, the, the best of the token blockchain platforms for now. And it does seem to get the serious big, big fish business. So I wouldn't worry about it too much. But in terms of like specific questions about like the latest developers and layers, it's a little out of my depths. You know, there's 4800 ETFs, they track all kinds of stuff. But I've learned a lot about it over the years and I'll, I will say this. I, the more you learn about each of these things, the more respect you get for them and the more you're like, wow, you know, I, I, now I can see why it like has like hung around and why it's got these passionate people believing in it. So I just think with the tokens it's a, more of a competitive environment where they're, they're, they're competing over business and revenue. It's like almost like the stock world, right? You've got a bunch of stocks that are tech stocks trying to compete over selling apps and whatnot. And so it's going to be hard. I don't exactly know who will win over there. Ethereum seems best positioned right now, but Bitcoin to me is like this whole other thing. It's like digital gold. It's almost like a store of value that's a democratized version. It's user based money. It's got so many interesting dimensions and it's sort of competing against other things. These tokens are almost like small businesses. And unless you're an analyst of these businesses every day, it's hard to comment too intelligently. But I will say if there was an index, there are baskets and indexes of them, it'd be hard to not be interested because there is a lot of good news flow coming out about tokenizing stocks. And if you think about the concept of tokenization long term, like this decentralized platform that's instantaneous, the stuff that it could solve that, it's like having a way bigger pipe for the plumbing of the world, especially the financial world, it's hard to write it off or anything. It's like, wow. Yeah, there's a lot of stuff that can make sense but there's a. It can be a little beyond me sometimes. There's some really technical stuff in there that I just defer to James on, basically.
- [17:42]
B
I don't think you're alone there. I think there's a lot of technical stuff that many people, even those who work in this industry every day, have a hard time keeping up with. And so you answered that very eloquently. Eric, thank you very much for joining. It's always a pleasure having you on.
- [17:57]
A
Thanks for having me. Talk to you later.