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Speaker 1: This is Bloomberg Crypto Daily Bloomberg I heard podcast, and

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Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.

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Speaker 1: It's Friday, September. With apologies in advance to t. S. Eliott.

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Speaker 1: In finance, September is currently held to be the cruelest

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Speaker 1: month of the trading calendar. This extends to crypto markets

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Speaker 1: to almost every year since two thousand thirteen, Bitcoin prices

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Speaker 1: have struggled in September and market conditions have been especially

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Speaker 1: unforgiving this year. So what's the outlook for crypto asset

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Speaker 1: prices as we leave September behind? Joining me now from Sydney,

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Speaker 1: we have Jamie Kots, crypto market analyst for Bloomberg Intelligence.

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Speaker 1: I was of the view that really we would bottom

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Speaker 1: out in the second half of this year, and I

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Speaker 1: still think that is entirely possible. Jamie. What a pleasure

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Speaker 1: to have you on the show. Thank you so much

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Speaker 1: for joining us. Thank you very much for having me. Stacy,

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Speaker 1: tell me a little bit more about you know, what

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Speaker 1: the part of Bloomberg that you work in does and

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Speaker 1: how you got here. Yeah. Sure, So. Bloomberg Intelligence is

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Speaker 1: the research arm of Bloomberg. So in terms of there's

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Speaker 1: just the number of analysts and strategists. If you think

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Speaker 1: of it in the context of like an investment bank

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Speaker 1: or a sell side broker, it's a pretty large operation.

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Speaker 1: It would sort of be in the top five or

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Speaker 1: six in terms of research. Yeah, so I mean with

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Speaker 1: spans across all the all the global offices. And you know,

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Speaker 1: the way I came into the Bloomberg intelligence role was

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Speaker 1: really I was that Bloomberg for seven years prior, I

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Speaker 1: was working as a senior equity market specialist based in Singapore,

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Speaker 1: and that really speaks to my background in history as

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Speaker 1: a sort of an equity sell side idequities trader. For

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Speaker 1: the past of the twenty years or so, it's been

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Speaker 1: a long week. The highlight which has been the FED.

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Speaker 1: Digital assets essentially did not escape the volatility that we

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Speaker 1: saw across financial markets, not at all. So you actually

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Speaker 1: saw bitcoin outperform traditional socks a little bit. But if

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Speaker 1: you zoom out, it's just been a brutal stretch for bitcoin,

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Speaker 1: down fifty eight percent almost here today we are obviously

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Speaker 1: not just in a kind of a normal down draft.

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Speaker 1: We are at you know, as I'm looking at prices

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Speaker 1: right now, we're sort of hovering below, well below nineteen

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Speaker 1: thousand dollars, which is of course for for one bitcoin,

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Speaker 1: which is significantly below the highs that we've reached this

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Speaker 1: time last year. One of the things that you, you know,

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Speaker 1: have kind of covered a lot for both bitcoin and

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Speaker 1: ether or what you see as some of the fundamental

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Speaker 1: drivers of that relative underperformance. Like you've talked about liquidity

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Speaker 1: risk a lot. Can you share your perspective on how

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Speaker 1: you're seeing bitcoin and ether do both relative to your

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Speaker 1: projections but also to kind of the broader markets that

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Speaker 1: you're so familiar with. Yeah, so, I mean I started

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Speaker 1: this role in January, and really from the outset, we

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Speaker 1: sort of we put out the outlook, which was that

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Speaker 1: crypto is going to underperform at least for the next

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Speaker 1: six months, because we was clear that we were entering

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Speaker 1: at that stage even though started to rise, but we're

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Speaker 1: entering at a tightening environment. And if you just look

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Speaker 1: at the FED balance sheet and overlay that onto the

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Speaker 1: bitcoin price, it's a chart that I've been using since

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Speaker 1: two thousand and sixteen, and it's very clear that the

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Speaker 1: big kind of crypto cycles follow monetary conditions. You know,

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Speaker 1: what's evolved is something, you know, vastly different to the

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Speaker 1: previous cycles, with the rate of change that we've seen

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Speaker 1: in the price of money, the interest rates, and also

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Speaker 1: the degree of tightening or in the withdrawal of liquidity

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Speaker 1: from financial markets by the FED. So this is not

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Speaker 1: like previous cycles, although it still has similar hallmarks. I

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Speaker 1: was of the view that really would bottom out in

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Speaker 1: the second half of this year, and I still think

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Speaker 1: that is entirely possible. I think what we saw in

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Speaker 1: June had all the hallmarks again of a capitulation style

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Speaker 1: bottom that we've seen in previous cycles. All the markets

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Speaker 1: that I look at and I had on my sort

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Speaker 1: of board of of things to take off for a

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Speaker 1: low encrypto. So that came to fruition in June because

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Speaker 1: of the things that I mentioned that that changed in liquidity,

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Speaker 1: the tightening of interest rates. The cycle is I think

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Speaker 1: going to be a little bit more extended, and it's

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Speaker 1: possible that we are going to take out the loads

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Speaker 1: that we saw in June. But I think a lot

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Speaker 1: of that damage in the cycle had been done because

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Speaker 1: of the force selling, the liquidations that happened on the

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Speaker 1: back of Lunar and the back of the centralized financial

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Speaker 1: players that kind of did a redux of two thousand

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Speaker 1: and eight GFC and gave crypto a bit of a

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Speaker 1: black eye. So I don't think Bitcoin is not going

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Speaker 1: to zero. Clearly, the number of people holding bitcoin continues

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Speaker 1: to rise a certain new all time high, so the

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Speaker 1: utility factor is still quite strong. And these are the

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Speaker 1: kinds of things that I look at. So all in all,

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Speaker 1: I think of rates continue to go high. If the

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Speaker 1: d x Y continues to explode higher, obviously that puts

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Speaker 1: or risk assets on notice. But what's very interesting is

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Speaker 1: that in the last couple of weeks has been the

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Speaker 1: our performance of crypto versus other risk assets such as equities,

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Speaker 1: and we've seen that actually from the June lows. You know,

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Speaker 1: Bitcoin is up slightly from the June lows, whereas the

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Speaker 1: SMP and NASTAC are sort of taking out those lows.

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Speaker 1: So I'm not saying that this is a decoupling in

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Speaker 1: a long term basis, but these are the sort of

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Speaker 1: things you look for to see if the market structure

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Speaker 1: is starting to change. We've spoken to people on this

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Speaker 1: podcast where like crypto has no fundamentals, you have a

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Speaker 1: whole presentation in which you go through what you think

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Speaker 1: the fundamentals of crypto war Can you share a couple

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Speaker 1: of those kind of underlying elements that you look at

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Speaker 1: when you're coming up with how you see what the

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Speaker 1: next six twelve easy months may hold fundamentals At the

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Speaker 1: end of the day, this is what really drives the

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Speaker 1: value of these assets, for the price of these assets,

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Speaker 1: and you know, for many people it's it's a challenge

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Speaker 1: to sort of adopt or think about these assets with

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Speaker 1: a framework, which makes sense because it's very conceptual or

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Speaker 1: it's intangible. But in the same way as you know

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Speaker 1: social networks like Facebook and Amazon you came to fall

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Speaker 1: with massive valuations, these block chains, of these crypto networks

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Speaker 1: the same. They are driven by adoption, and there are

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Speaker 1: fundamental metrics that you can use to gauge whether adoption

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Speaker 1: is taking place. So I have a dashboard that I've

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Speaker 1: created for both the Bitcoin and ethereum, and it will

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Speaker 1: be rolled out to more assets over time. But this

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Speaker 1: looks at anywhere between sort of thirty five to sort

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Speaker 1: of forty five different fundamental metrics which measure things like

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Speaker 1: adoption on both of these chains. And if you really

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Speaker 1: if I just distill it down into the you know,

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Speaker 1: the first principles, core tenets of what fundamentals are for

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Speaker 1: crypto networks. It's simply the number of addresses holding the asset,

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Speaker 1: the number of active users on the network, and the

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Speaker 1: value in US dollars or whatever currency that's actually transacting

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Speaker 1: on the network. These are the indicators or these are

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Speaker 1: the markers of utility. And if these things are going

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Speaker 1: higher and the price is going lower, then you have

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Speaker 1: a positive divergence which ultimately at some point will self correct.

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Speaker 1: Do you have a sense of what that point might be?

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Speaker 1: I mean, you did mention and we've been writing on

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Speaker 1: the newsroom side about the kind of the breakdown of

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Speaker 1: the correlation story, right like the bitcoin and ether and

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Speaker 1: so's another tookens I've started to diverge from the dismal

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Speaker 1: overall performance of the stock market. Where do you see

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Speaker 1: that kind of trajectory in this as you've mentioned, challenging

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Speaker 1: liquidity environment that we still that we're still in. Yeah,

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Speaker 1: so I'm not in the case amp that cryptos decoupling,

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Speaker 1: because I mean, there's so much volatility in the market

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Speaker 1: at the moment that it's very hard to read into

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Speaker 1: a one week one month trend. But if we see

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Speaker 1: this continuing where we see a significant divergence, it is

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Speaker 1: telling us something and it's probably a signal that we

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Speaker 1: should pay attention to. But I think if things get worse,

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Speaker 1: then I can't see how crypto will not break down

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Speaker 1: alongside equities, which has just been it's been resilient in

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Speaker 1: the last couple of weeks and not doing so well.

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Speaker 1: It's testing those those today. So it's interesting in that

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Speaker 1: when you look at the Bitcoin network, you know, the

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Speaker 1: number of long term holders on the network is now

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Speaker 1: at an all time high. You know, you're not seeing

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Speaker 1: the long term holders of the Hoddlers get shaken out

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Speaker 1: by this. So at some point that's going to matter.

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Speaker 1: It's a question of how long it can sort of diverge.

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Speaker 1: But yeah, I think it's it's something to keep an

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Speaker 1: eye on. I want to just push on that point

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Speaker 1: a little bit more because what you said there is

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Speaker 1: a very interesting way to think about the market. You know,

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Speaker 1: the o G Hoddlers, as it were, These are folks

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Speaker 1: who didn't get in, and these are folks have been

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Speaker 1: in for a kind of several years, brought in at

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Speaker 1: much lower prices than where we are even right now,

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Speaker 1: So kind of by definition, you can't be a long

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Speaker 1: term holder if you've recently bought into the markets. That

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Speaker 1: would suggest from what you're saying that what we're seeing

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Speaker 1: is the market the newer entrance get either forcibly liquidated

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Speaker 1: or just like opting out entirely, so that the balance

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Speaker 1: is returning to the folks who have been players for

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Speaker 1: a longer time. Am I understanding that analogy correctly? Well,

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Speaker 1: the definition for a long term holder, based on the

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Speaker 1: data that I'm using, which is a mixture of different

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Speaker 1: data providers, is actually six months or longer. So it's

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Speaker 1: just a kind of a moving goalpost. It doesn't just

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Speaker 1: include those earlier adopters, but it includes you know, six

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Speaker 1: months or or later. And the people within that cohort

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Speaker 1: they're changing all the time. But if you just look

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Speaker 1: at that as a group of addresses, then that's saying

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Speaker 1: that that is actually increasing in the The The entities that

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Speaker 1: have been more active in the last couple of months

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Speaker 1: have basically left the network right there. There's still a

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Speaker 1: lot of short term trading on the margins, and that

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Speaker 1: is really what's influencing the price. It's really that trading

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Speaker 1: activity what's happening in the derivatives market. The drivers market

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Speaker 1: is several times larger than the spot and that tends

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Speaker 1: to be faster money. Short term traders sort of involved

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Speaker 1: in a lot of the perpetuals and the and the

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Speaker 1: futures trading, futures and optimist trading, so it's not quite

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Speaker 1: the cohort that you're thinking of. But typically what you

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Speaker 1: see in you know, the bear markets is the short

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Speaker 1: term holders they exit, you know, they're buying, they're already

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Speaker 1: underwater within a couple of days and a couple of

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Speaker 1: weeks or just a couple of months, and they exit system.

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Speaker 1: And then the people who are actually you know, have

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Speaker 1: been accumulating over a long period of time either hold

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Speaker 1: or continue to accumulate. At least that's what you definitely

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Speaker 1: want to see as a bottoming indicator for something like bitcoin.

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Speaker 1: If you start to see that change dramatically, then you

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Speaker 1: know there's something to be a little bit more weary of.

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Speaker 1: But ultimately what will drive bitcoin higher will be more

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Speaker 1: short term buyers coming in owning bitcoin and then obviously

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Speaker 1: converting into long term holders over time. Up next, you'll

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Speaker 1: hear more from Jamie Kots of Bloomberg intelligence on bitcoin's

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Speaker 1: financial health. We'll be right back. We've talked a lot

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Speaker 1: about Bitcoin, but you also write extensively and expensively about Ether.

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Speaker 1: So and obviously, you know, like one of the biggest

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Speaker 1: stories in crypto for a while had been the merge.

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Speaker 1: Is the merger going to happen? Okay, the emergen is happening.

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Speaker 1: What's going to happen after the merge? We're now kind

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Speaker 1: of couple of weeks? Is it a couple of weeks?

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Speaker 1: What is time? We're past the merge? And you had

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Speaker 1: a note in or around September twenty two in sort

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Speaker 1: of in which you talked about like the lack of

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Speaker 1: a bid for Ether and what your kind of reflections

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Speaker 1: on that ar Can you just share a little bit

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Speaker 1: what the premise of that note was. Yes, so it

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Speaker 1: goes back to fundamentals again, things like active users and

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Speaker 1: the sort of value transacted on these change. These are

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Speaker 1: markets of adoption. And whilst I have a very positive

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Speaker 1: outlook on Ethereum versus other l ones within the space,

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Speaker 1: because of that supply reduction, because of that massive drop

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Speaker 1: in inflation, you know, which removes you know, Billy, is

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Speaker 1: the dollars in selling pressure every year from the network. Ultimately,

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Speaker 1: in order for a recovery in the in the prices

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Speaker 1: of these assets, we need to see adoption. We need

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Speaker 1: to see an increase in some of these fundamental metrics,

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Speaker 1: at least the ones that I'm that I'm tracking. And

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Speaker 1: what was highlighting too to my readers back in September

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Speaker 1: is that whilst yes, it's it's great to be positive

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Speaker 1: about the outlook, and I mean there's structurally some very

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Speaker 1: positive things that's going to come out of it, ultimately

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Speaker 1: it's all for not if there is an adoption on

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Speaker 1: chain and that's been you know, something that's been lacking,

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Speaker 1: you know, across the ecosystem for past six to twelve months.

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Speaker 1: The Ether and the ethereum bulls, you know, they will

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Speaker 1: they will say no, no, the flippening is upon us.

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Speaker 1: Ether is going to replace Bitcoin as as the number

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Speaker 1: one layer one. Just as a kind of a broad

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Speaker 1: question for you, is there anything that you're observing post

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Speaker 1: merge and in the as you say, it's still volatile,

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Speaker 1: has only been a couple of weeks that would suggest,

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Speaker 1: you know, this is having an effect on bitcoin, bitcoin prices,

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Speaker 1: bitcoin sentiment at all, or are these two markets kind

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Speaker 1: of continuing to operate relatively different trajectories based on their

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Speaker 1: own underlying fundamentals. There's almost diametically opposing forces play in

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Speaker 1: both of these assets at the same time, on the

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Speaker 1: positive and the negative side. So I mean on the

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Speaker 1: positive side. Some one thing I'd point out for the

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Speaker 1: Bitcoin balls is that what is surfacing is a lot

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Speaker 1: better data and more visibility around how bitcoin is actually

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Speaker 1: using renewable energy sources and has the potential for greening

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Speaker 1: the you know, the grid. And that is a slight

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Speaker 1: change in narrative that you know, we've heard and seen

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Speaker 1: for the entirety of bitcoins existence. On the foot, it

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Speaker 1: was like electricity uses, fine, don't even worry about greening

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Speaker 1: the grid. Just a change of perspective as it were. Yeah,

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Speaker 1: but I mean through the innovation of participants on the

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Speaker 1: network and just the bare basic economics of bitcoin, which

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Speaker 1: is a you know, which is a technology in search

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Speaker 1: of the cheapest forms of energy, it is actually rapidly

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Speaker 1: approaching or it's already over renewable, at least from the

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Speaker 1: minors surveyed in the Bitcoin Mining Council documents, which represents

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Speaker 1: I think around sixties seventy of all miners I mean,

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Speaker 1: the bitcoin was a country would be the greenest country

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Speaker 1: in the world. I mean, that's just the reality. But

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Speaker 1: through that innovation and seeking of the lowest energy cost,

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Speaker 1: what it could potentially do for marginal renewable energy projects

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Speaker 1: as well as carbon offsetting is you know, a surprising

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Speaker 1: externality that no one really anticipated early on, but is

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Speaker 1: is certainly now becoming far more visible. Um. We've seen

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Speaker 1: you know, this being acknowledged by politicians in Texas and

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Speaker 1: in other states of the United States. To jump on

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Speaker 1: the other side of this. On the negative side, I mean,

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Speaker 1: you've still got a lot of uncertainty around regulations UM.

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Speaker 1: Although Bitcoin has been along with ethereum, depending on which

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Speaker 1: day Gainsla are speaking, singled out or petitioned as being

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Speaker 1: um not a security, which I think is you know

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Speaker 1: obviously policive for those two assets. But there's a lot

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Speaker 1: of jockey and going on, and a lot of politics

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Speaker 1: and going on. So you know, we until that gets

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Speaker 1: cleared up, hopefully in the next twelve months, that could

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Speaker 1: be a you know, a massive negative headwind. Well, Jamie,

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Speaker 1: thank you very much, and good luck with the rest

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Speaker 1: of the year. I hope we'll be able to have

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Speaker 1: you back in the show sometime soon. Thanks very much, Tasty.

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Speaker 1: You can find more of Jamie Coot's analyses on the

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Speaker 1: Bloomberg terminal or follow him on Twitter. He's at Jamie

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Speaker 1: one Coots. That's j A M I E one, as

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Speaker 1: in the number one c O U T T s

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Speaker 1: on the next episode of Bloomberg Crypto. If you don't

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Speaker 1: think that Web three is going so great, If you're

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Speaker 1: not sure that this crypto thing is everything some folks

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Speaker 1: are making it out to be, it might be because

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Speaker 1: you've seen the viral threads posted on Twitter by an

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Speaker 1: account called Yes, Web three is going great. We'll talk

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Speaker 1: to Molly White, the software engineer and crypto skeptic behind

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Speaker 1: that Twitter handle. This is Bloomberg Crypto, a dearly podcast

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Speaker 1: from Bloomberg and I Heart Radio. For more shows from

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Speaker 1: or suggestions for the show to Crypto at Bloomberg dot

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Speaker 1: net or find us on Twitter. We're at Crypto. The

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Speaker 1: supervising producer of Bloomberg Crypto is Vicky Vergalina. Our senior

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Speaker 1: producer is Janet Babin. Our producers are Mohammed Farouk and

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Speaker 1: Sharon Barriro. Our associate producers are Ty Butler and Moses

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Speaker 1: on Them. Desta wonder At is our engineer. Original music

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Speaker 1: by Leo Sidrn. I'm Stacy, Marie Ishmael. Have a great weekend.

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Speaker 1: Before we wrap this episode, I want to mention some

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Speaker 1: exciting news from friends of the show, Katie Greifeld and

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Speaker 1: Tim Stanovic. They've launched a brand new video series called

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Speaker 1: Crypto I r L. For more information about how to

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Speaker 1: watch Crypto I r L, the new series from Bloomberg Quicktake,

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Speaker 1: go to Bloomberg dot com slash q T. The first

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Speaker 1: episode just dropped to day and we'll feature it as

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Speaker 1: a bonus podcast episode in our stream tomorrow. That's right,

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Speaker 1: You're getting a special Saturday episode to celebrate the launch

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Speaker 1: of Crypto I r L. Congratulations to Casey and to

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Speaker 1: Tim