Bitcoin breaks $51K for first time: 'sentiment has never been this high'

Yahoo Finance Video

February 17, 2021 at 2:31 PM

Yahoo Finance's Julie Hyman, Myles Udland, and Brian Sozzi discuss bitcoin's moves above $51,000 and outlook with Meltem Demirors, CoinShares Chief Strategy Officer.

Video Transcript

MYLES UDLAND: Let's turn our attention now to the world of crypto. We're joined now by Meltem Demirors. She's the chief strategy officer over at CoinShares. And, Meltem, let's start with Elon Musk, and let's start with the news from Tesla that we got last weekend, and how you guys are thinking about the role that corporates wanting to invest some of their cash in Bitcoin could play in firming up, I guess, kind of respect for the market, if that's the way to say it, flows into Bitcoin and other cryptos, and if you feel like this is the start of something bigger.

MELTEM DEMIRORS: Yeah, it's great to be back, Myles. Last time I was here, I think we had just broken 20k. And we have great timing because we just broke 50k yesterday. We're now at 51k. So I'll apologize ahead of time for smiling maniacally because it's a big day for us Bitcoiners. We are very close to a $1 trillion market cap for Bitcoin, the asset, close to $2 trillion market cap for all crypto assets. So it's an exciting milestone.

Look, the story that's unfolding around Bitcoin is one that's been unfolding for a while now. Three things I want to quickly mention-- one is sentiment. Sentiment translates into demand, and demand dictates shifts in the market. So in terms of sentiment, sentiment around Bitcoin has never been this ebullient and this strong. It's no longer just coming from Bitcoiners like us and firms like CoinShares.

It's also coming from Elon Musk. It's coming from renowned investors like Paul Tudor Jones. It's coming from corporate CEOs. So I think the Tesla move into Bitcoin, MicroStrategy issuing another $900 million corporate bond offering to add more Bitcoin to its balance sheet, all of these go to further strengthen the narrative around Bitcoin.

It used to be a risk to allocate to Bitcoin. It is now a career risk to not to allocate to Bitcoin, particularly as those companies and funds who do allocate to Bitcoin continue to outperform their peers. I think it's a tremendous amount of pressure on allocators, managers, corporate treasurers, to at least consider Bitcoin, which I think drives a lot of sentiment.

That then has translated into demand. In the last two months of the year alone, we've seen over $3 billion of inflows into crypto products. We do a weekly fund flows report, where we track these flows. Last year, we had a total of nearly $7 billion of inflows into crypto, ETPs, trusts, and publicly listed products, which are really accessible for institutions and other large allocators. This year, in the first two months alone, we've seen over $3 billion of inflows. So it's going to be another blockbuster year, I think, for crypto allocation in inflows.

And then, lastly, in terms of market demand, we're seeing this translate into all-time highs on exchanges in terms of volume. And the CME in particular, the CME futures contract is one of the most popular since it's cash settled. The volume and the activity on that contract has just skyrocketed over the last few months. And we're breaking new highs every expiry.

So, all really exciting things. And I think, again, if we look at the underlying data, the trend certainly seems to indicate that we'll see a lot more activity around Bitcoin throughout at least this quarter, and more likely throughout the year, just given the macro environment.

JULIE HYMAN: Meltem, it's Julie here. It's good to see you. A lot to unpack there. You are at least the third person who is, I could say, a Bitcoin or a crypto investor who's come on and made that comment about career risk, by the way. So obviously, that's becoming sort of conventional wisdom among the crypto world.

I want to get to the question of corporate investment here. Because, gee, it just doesn't feel like to me that this is going to be widespread. Gartner just put out a survey. They surveyed 77 finance executives at a big company, and 84% did not plan to ever hold Bitcoin as a corporate asset.

If you compare Bitcoin with what companies typically hold on balance sheets, you're talking about cash. You're talking about short-term liquid instruments. Bitcoin doesn't really fall into that category. I mean, if a corporate treasurer puts money in Bitcoin and then needs that money to make an acquisition, to make an investment in equipment, et cetera, and Bitcoin has gone down a lot, I mean, that's a problem.

MELTEM DEMIRORS: So Julie, let me address some of your comments, and you're totally right. So if you surveyed fund managers five years ago about Bitcoin, 100% of them would have said I'm never touching Bitcoin. Yet, here we are, and BlackRock has filed two weeks ago to add Bitcoin to two of their products-- world's largest asset manager. So I think this is evolutionary.

And to another point, MicroStrategy hosted an event for corporates. Over 6,000 corporate executives were in attendance. It was all about how to add Bitcoin to your balance sheet. So I think, again, as people get educated and learn and we see more examples, we'll see more interest. The other key question is MicroStrategy is unique. It's really a Bitcoin ETF at this stage, right? Their primary asset is their Bitcoin holding.

What I think will be interesting is companies like Square and Tesla and others that add Bitcoin to their balance sheet, what will happen to their multiples? If there is significant multiple value accretion to those companies, I think it will be something that's considered more in the boardroom.

To your second point around corporate treasurers, I actually was a corporate treasurer at ExxonMobil for a period of time. And as you said, I traded overnight rates, which are highly liquid, right? They're cash equivalents effectively. Bitcoin is actually an extremely liquid market. It trades 24/7/365 unlike traditional markets, which trade from 9:30 to 4:00, Monday through Wednesday, not including bank holidays, as we experienced on Monday, when the stock market was not open.

So Bitcoin is a actually very liquid market. The market's very deep. It's very easy to move into and out of Bitcoin today, particularly through large trading firms. Like, our own trading firm is doing billions of dollars in trading volume a month. So I would say in terms of liquidity and the ability to move assets into or out of Bitcoin in size, that's changed a lot. And that's now possible.

I think to your point around where Bitcoin fits on the balance sheet, this is an area we've spent a lot of time on, thinking about, talking about. Companies do hold a variety of reserve assets. I think allocating 80% of your treasury to Bitcoin is certainly not advisable. But our research does indicate that a 4% allocation to Bitcoin in a traditional 60-40 portfolio drives outperformance and diversification while minimizing drawdown risk.

So I think as we start to really get more into portfolio construction theory, there will be firms who develop approaches that allow treasuries to take advantage of the upside, particularly in a high inflation environment, where real rates are close to zero, while minimizing some of the drawdown risks.

BRIAN SOZZI: Meltem, about 30 seconds left. You're clearly enthused about Bitcoin. And it's been one heck of a run. But what's the one risk that you're concerned about that might temper some of that bullishness?

MELTEM DEMIRORS: Sure. Look, I think that the risk around Bitcoin, and in my view, the biggest risk, is volatility. Right now, I think it's something we're all watching. Cyclical trends and secular trends, you know, they play out over different phases of time. Right now, the cyclical trend in Bitcoin, you know, we went through a big downtrend after 2017. And the cycles in Bitcoin are quite short. They're about 18 to 24 months, unlike traditional equities. When the stock bubble in early 2000 popped, that was a seven to nine-year cycle. Here, the cycles are quite short, and right now, we're in an upswing of the cycle.

So I think one thing I'm really concerned about is just people making prudent financial decisions. We see a lot of ebullience, a lot of optimism. But we always advocate for people making intelligent and informed decisions. And so, one thing we're certainly watching for is, as we go through this particular Bitcoin cycle, I'm fully convinced that the secular trend around Bitcoin is going to continue the way it has, similar to what we've seen in tech and other high growth sectors.

But I think my primary concern is, you know, the market, when it gets overheated, does tend to become quite ebullient. And again, we see a lot of leverage, and the cost of capital becomes very expensive. And whenever leverage gets taken out of the market, we see large drawdowns with that, which then contribute to driving more fear. So I think that that's my primary concern, is the general temperature. But that's not something I can control, unfortunately. All we can do is continue to try to educate and help our clients make great decisions.

MYLES UDLAND: All right, well, we had you had at 20. Talked to you at 50. I guess 80 is the next stop. Maybe we're doing a 1 and 1/2--

MELTEM DEMIRORS: Nope, I have my hat ready. We're going to 100.

MYLES UDLAND: I was just going to say-- I was just going to say, maybe 125 will be our next check-in. And Meltem, as you know, I think maybe Bitcoin one million is probably something we should be talking more about than Bitcoin zero, which is sort of the way the financial press kind of frames it. But we'll save that--

MELTEM DEMIRORS: Myles, you are my new best friend. I would love to--

MYLES UDLAND: Thank you.

MELTEM DEMIRORS: --come back for 100k. I will wear this hat if you let me. And then I'll definitely be back for a million. But I think we'll have to get some champagne for that one.

MYLES UDLAND: I think we'll have some time between now and then. Hats are always welcome on the program, so keep that in mind for next time. Meltem Demirors of CoinShares, appreciate the time this morning.

MELTEM DEMIRORS: Thank you.

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