JPM to offer banking services to bitcoin exchanges: WSJ

Morgan Creek Digital Assets Co-Founder & Partner Anthony Pompliano joins Yahoo Finance’s Zack Guzman to discuss the outlook for bitcoin as the cryptocurrency breaks above $9,000.

Video Transcript

ZACK GUZMAN: But meantime, some interesting moves to discuss in the cryptocurrency space as JP Morgan takes a big step forward working with some of the largest, most established crypto exchanges out there. According to "The Wall Street Journal," the bank signed on Coinbase and the Winklevoss-twin-backed Gemini Exchange as new banking customers. And in a big sign of approval, the bank is now handling ACH deposits and withdrawals through the exchanges in a rather big shift in terms of how they're thinking about crypto here as one of America's largest banks.

And for more on that, we're joined by Morgan Creek Digital Assets Co-Founder and Partner Anthony Pompliano, who joins us now. And Pomp, I mean, it's a pretty big shift when you think about JP Morgan banning credit card purchases for crypto back just a couple of years ago, settling a lawsuit for charging customers too much to be buying crypto on credit cards earlier this year. So what's your take on JP Morgan now working with some of these big exchanges here to honor the customer?


ANTHONY POMPLIANO: Yeah. It feels like there's two pieces to this, right? First is a couple of years ago, there was a lot of uncertainty, and so no one really understood what this was or how they could interface with the asset or the asset class. And so I think that there was just a lot of guessing and a lot of experimentation. And that led to some missteps, but also led to a lot of learning. And now what we're seeing is there's a lot more confidence and clarity around bitcoin is not going away.

You're starting to see lots of Wall Street investors actually putting it into their portfolios. And they're starting to also have some track record for these exchanges or businesses. So they actually can see the financial performance. They can see the KYC and AML kind of mechanisms that are in place.

And so I think ultimately, what you're really going to start to see is just banks can't ignore this space. And so either you fight them and ignore them, or you join them. And I think JP Morgan took the step and said, look, we're going to join them and try to actually benefit here. And I think you'll see the other big banks do that in short order as well.

ZACK GUZMAN: Yeah, the big-- I mean, I guess the big story, the reason why we've been talking about bitcoin in the last couple of weeks here has been the halvening and watching the reward for miners get cut in half. That necessarily hasn't moved the price of bitcoin all that much. But the trend that you're talking about is a rather interesting one when you think about institutional interests here and that happening.

We are seeing a tick up in terms of seeing these bitcoin futures interest there rising about 43% from the same time period a year ago, especially as inflation becomes increasingly talked about. So what kind of sense are you getting from some of those, I guess, richer institutional investors out there maybe looking at some of these crypto plays here as a hedge against all the volatility we're seeing?

ANTHONY POMPLIANO: Yeah, look, two or three years ago, I think when we would go talk to them and explain bitcoin, they basically were like, that's a cute idea, but there's no chance of putting that in my portfolio. About a year ago, it started to be a thing, like, oh, that hasn't died yet? Maybe I should do some more work and get educated on it.

Now what we're seeing is two separate groups of people, some that have done that work and are now actually gaining exposure. So you see somebody like Paul Tudor Jones come in and say he's got 1% to 2% of his portfolio. He believes it will become the best performer in the inflation hedge category, and he's worried about inflation given all the printing that's going on. So that's kind of bucket one.

In the second bucket, what you have is you've got a lot of institutional investors that are sitting there saying, look, I'm just doing asset allocation. And this asset is very unique in that it, over a long period of time, has been non-correlated to other assets. It's able to improve my Sharpe ratio and can actually drive on a risk-reward standpoint a significant increase in my performance by only allocating a small amount of capital-- let's call it 1%-- to that asset.

And so it comes less from a qualitative, do I believe in bitcoin as the next global reserve currency or not, and it's much more of a quantitative analysis just around, if I get exposure to this, what is the downside, and what is the upside? That asymmetric tradeoff is very attractive to them, and so they're starting to work through how do they actually get that exposure and how do they get it into their portfolios.

ZACK GUZMAN: You mentioned Paul Tudor Jones. I mean, it's hard to think of a more classic, old-school example there to point to as a commodities trader, pointing to it and saying bitcoin reminds me of gold in the '70s here. But when you do look at that inflation problem, maybe people trying to address it, I mean, we did just get a record $738-billion budget deficit print for the month of April. Inflation, I guess, was a concern back in 2008 as we see more money being printed now. It's again in vogue to be talking about.

But when you look at the shift of more institutional players using it as that versus what we were talking about before as a historic currency here, what does that do for where you think the price of bitcoin could go moving forward coming off a very strong 2019, already setting up for a very strong 2020?

ANTHONY POMPLIANO: Yeah. So if you look at the data, in 2020 so far, bitcoin is the best performer over stocks, gold, and other assets. And so that's kind of an encouraging thing. Back in March, though, it had a massive draw-down along with everybody else during that liquidity crisis or liquidity trap. So gold drew down 12%. Stocks were down 30%. Bitcoin at one point in a single day drew down 50%, ended the day down 37% that day.

Now what we're seeing is that volatility, while it works against it in a bear market or a draw-down, it actually works to its advantage when you go the other direction, when you go up. And so volatility isn't necessarily bad on its own. It's which direction. Is it going in your direction or not?

And so what I think you'll see-- and Paul Tudor Jones mentioned it in his note-- bitcoin's volatility actually becomes a feature and an advantage when you go up, and that should be the fastest horses was the language that he used. I think that what you saw around the halving was a decent amount of volatility. We went from a $4,000 price point to $10,000. It dropped back down to $8,000, now between $8,500 and $9,000.

My guess is that we will continue to grind up for the next 18 months or so. And I do expect it to be the best performer coming out of this crisis. And I'm on record as saying I think bitcoin will hit $100,000 a bitcoin by the end of December 2021, which is obviously more than a 10x increase in a relatively short period of time in the traditional financial world.

ZACK GUZMAN: Yeah, no doubt, a very-- a rather large call. When you look outside of the main crypto there-- because we talk about bitcoin and its dominance in this space. It's pretty much doubled since 2018 when you look at its lead over other cryptocurrencies out there. It does seem like interest in some of those other alt coins has kind of waned here as we move further along and bitcoin gets the attention from institutional players. Is that trend supposed to continue in your mind if you look at bitcoin stealing the lion's share of interest here?

ANTHONY POMPLIANO: Yeah, so I think that you can separate the market, right? There's the currencies, these decentralized digital currencies. Bitcoin is by far the leader there. I think that if there is going to be a separation of state and money in the future, bitcoin is the one shot to do that. If it doesn't work, it's unlikely to occur. So I think that's where you see a lot of market dominance or belief as a money system around bitcoin.

The rest of the crypto assets, if you will, a lot of them are very similar to an early stage technology company. So there's various mechanisms of value that they're being incorporated in different networks or products. But ultimately, what you're doing is you're taking early-stage technology risk. And so some of those will be great, outsized winners, and most of them will go to zero or be worthless in the future.

And so I think that people just have to separate what the different assets are intended to do. One of them is for money, and then the rest are more of these early-stage technology companies. It doesn't mean that they're completely worthless, but they definitely will be high risk, high reward when it comes to that.

ZACK GUZMAN: Yeah, for sure. I mean, after all, I've only got a bitcoin pillow. I don't got an Ether pillow. I don't got anything else. You've got an InstaPot. We'll see if we can change that up later on.

Anthony Pompliano, Morgan Creek Digital Assets Co-Founder and Partner, appreciate you taking the time, as always, man.

ANTHONY POMPLIANO: Yeah, thanks so much, Zack. Appreciate