Charting Bitcoin's Ascent

Published Nov 25, 2024, 1:58 AM

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Featuring:

Peter Chung, Head of Research at Presto Research

David Aspell, Co-Chief Investment Officer at Mount Lucas Management

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Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Christner. On today's episode, we'll be looking at President Elect Trump's choice to lead the US Treasury. He is Scott Bessant of the Key Square Group. In a moment, we'll be speaking with David Aspell, co CIO at Mount Lucas Asset Management. But we want to begin with crypto, since last week's rally in bitcoin saw it flirting with one hundred thousand dollars. Joining us now for a closer look as Peter Chung, head of research at Presto Research, joining us from Hong Kong. Peter, thanks for making time to chat with us. Let me get your reaction to the fundamentals that have been driving the price action in a bitcoin lately. Give me your assessment on what's driving this rally.

Yeah, I think this rally has been happening in two parts. First, is you know right after the election, when bitcoin was at around sixty seven sixty seven thousand dollars, it was in reaction to the election result, and it is part of a broad macro reflation trade. So that raised the big coeen price from sixty seven thousand to around ninety thousand and the second part is also related to Trump, but more crypto specific. I think the market is becoming more confident on Trump delivering on his pre crypto campaign promises based on the chatters around the key cabinet nominations, so I think they gave the market a confidence that the Trump has every intention to deliver on his campaign promises.

There seems to be two parts to that story. One the idea of friendlier regulation, and the other seems to be this pledge to set up a national bitcoin stockpile. Which do you think is having a greater influence.

I think more lately it's the idea of bigcoin strategic reservoir stockpile. I think the recent cabinet, the nominations, and especially the Scott Besson who just got nominated. I think he mentioned that, you know, everything is on the table with regard to bitcoin strategic reservo or stockpile. So the market is increasingly more confident that it could happen. I think the polling market is assigning something like a sixty percent probability to that, So I think that's been kind of the main thing in the last few days.

I think, yeah, the other thing that we're hearing is that the transition team has been talking about the possibility of creating the first ever White House post dedicated to digital asset policy. It's kind of stunning. You were talking about everything that's happened since the election. I think that a lot of the US ETFs that invest directly in bitcoin have amassed about more than one hundred billion dollars in assets since launching back in January. Is this a trend that you expect to continue now?

Yeah, I mean I think so. I think.

I mean with the ETF, it basically has you know, paved the way much easier access to for the institutional investors to come in and make a long term investment. I mean, big CONTF has been around for actually two years, but before it was a futures based ETF which isn't really included for the long term investors. With the introduction of a spot ETF at the beginning of the year, which is far more efficient in terms of a tracking the underlying asset, uh, you know.

That removes a lot of kind of entry.

Barriers for many of the long term institutional investors.

And now that.

The you know, the the new president elect is giving far more credits to this asset class. With his pro crypto policies, I think many of the long term institutional investors who are kind of you know.

Were a bit hesitant to prior to.

This event, I think is more willing to take a look at this new emerging asset class.

So pro crypto policies in the US, maybe we understand that to mean less regulation. Is that what is happening where you are in the Asia Pacific? I'm thinking, whether it's Hong Kong and Singapore, are you seeing a move to deregulate the crypto market A bit?

Yeah, I'm a little headstunted using the word deregulation to describe what's happening right now. It's more I think the more accurate way of describing is a regulatory clarity, because I think previously what was happening was a lot of uh, you know, it was more policy driven, approached by the SEC through UHH through enforcement actions uh and some of them were you know, Ukraargia was not very lawful, uh and also very vague guidance from the regulatory agency. Going forward, you know, I think there's going to be more clear rulemaking by these regulatory bodies in the US and I think that's going to have an impact on the jurisdictions in Asia as well. I think many of the country, many of the governments in Asia has been kind of looking at U, you know, the US, and using that as a benchmark for their own regulatory framework. And now that the US is more in I guess in a position where they are willing to provide the further regulatory clarity through legislative process as well as you know, by having SEC who's more willing to work with the crypto industry. I think that's going to have an impact on the many of the governments in this part of the world.

I found it to be very interesting last Wednesday, I think it was that a court in Shanghai rule that owning cryptocurrencies outright should not be against the law in China, but the government we know has argued recently that they are a threat to financial stability. What do you think this ruling means for crypto generally and especially in China.

I think in China, I mean there's a lot of kind of misunderstanding on what the China or where China stands on crypto and blockchain. I think part of it is just lack of transparency, and part of it is kind of uh, you know, Chinese government uh not doing a very good pr job. I think what they were afraid uh so far is the fact that this is a very volatile asset class and therefore, uh, if you let the uneducated, the retail investors have a full access to this asset class, there could be a lot of.

Uh uh you know, losses and uh you know, which.

Could potentially lead to the social unrests and things like that. So uh, they were afraid of retail investors having access to full trading services provided by the crypto exchanges, and that's why they banned cryptic exchanges from operating on shore. Uh.

But I think I don't know that that's not the same thing as you.

Know, not allowing blockchain projects to be launched, for instance. That's why we still see many of the block change projects coming out of China. Uh. And also uh, that's why I think, uh, the as you mentioned, uh they want need to come out and clarify that the ownership of a crypto is not unlawful, because I think there was a lot of confusion maybe in the marketplace about where the government stands on that issue.

So much of The conversation around bitcoin when it first emerged had to do with the underlying blockchain technology that distributed Ledger. One of the things that was discussed at the time is whether or not it could be a key source of future financial market innovation. Have we seen blockchain really become more broadly adopted in financial markets. Let's imagine some form of crypto, a cryptocurrency that could be used for transacting in markets. We haven't yet seen that though, have we?

Yeah? So?

I think the way to look at this is like this, there's a lot of experimentation going on in the crypto space. Some experiments have done better than others. The ones that have done better is obviously Bitcoin. Bigcoin's value proposition is someday becoming a currency, but it's not a currency that most people commonly understand. It's rather than a top down driven currency, it's a bottom up driven currency where people, over time comes consensus that this should be used as a currency. So it's a long process and usually the first thing that happens is it gets adopted by a store as a store of a value, and next as a medium of exchange, and lastly you need of account. We're going through the first stage right now, and Bitcoin has done extremely well on that front, especially with the introduction of ETF its adoption as a store of value has expanded dramatically. Now other cryptocurrencies still kind of at the experimentation stage, but the one increasing, one killer app that came out from outside Bitcoin is the stable coin, which runs on a smart contract platform like ethereum, for instance, and a stable coin right now market keap is twenty billion dollars and it's widely adopted, not just on the you know, amongst the crypto enthusiasts, but if you go to the emerging markets. It's a way for people in the emergent markets to access US dollars in the form of a stable coin because it's the currency they trust more than their own currency, because their own currency regime is a lot of times very unstable.

So when I hear you use the term store of value, I think of a hedge against inflation. Do I have that right? And if so, is some of the price action that we have seen lately in bitcoin correlated in any way to FED policy?

Yeah?

So I think, yeah, when I say store of a value, you're right, it's inflation hedge, but more correct term would be debasement hedge because the word inflation sometimes is misunderstood. People think it's a CPI. CPI is only one of the metrics to measure the impact of inflation. But when you associate inflation with a CPI, people look at CPI and says, all CPI is going up, But how come bcoin is not is not going is not performing well. So that's why I don't want to use the word inflation edge.

But and then when it the debasement hedge is you can only kind of see that over the very long term.

Uh.

You know, it's more about the durability of the purchasing power.

So uh, it's some more kind of a long term oriented concept. Now when you you mentioned about the recent bitcoin movement around FAT policy, uh, and that's about I think that's you're talking about the price kind of actions surrounding how FED reacts, and that's a very short term driven movements.

Uh.

And in the short term driven movements, I.

Think bitcoin behaves more like risk assets because there's an.

Element of.

The element of a network effect that needs to be accounted for because it's a bitcoin is essentially like a network, but in its very early stages, so all these stages of growth, so you might not notice this concept of debasement heads in the very short term price reactions of a bitcoin.

What about the pr campaign that the industry is going to have to fight when you have situations like FTX or binance occur and the damage, the reputational damage that may have been inflicted on the industry. What type of campaign has to be put forward right now to dispel a lot of the concerns that people may have in adopting this technology.

I think that's why this legislative process is very important. I mean, when you think about it, one of the reasons why we had FTX situation was there wasn't a proper legislations that governs the space, and the rulemaking was left very unclear at the time. If we had all the proper regulations and legislations in place that requires these exchanges register and make a disclosures, then I think a lot of these things could have been avoided.

So I think that's the first step. And the fact that we have you know, the red sweep in.

The US, and you know with a lot of lawmakers are who are pre crypto and who understands the technology. I think it's a very good news in terms of passing like rational and thoughtful legislations and policies that are based on the sound understanding of the technology.

So we've been discussing a little bit here about your view on disruption of some of the traditional practices. When you look at out at twenty twenty five, how much larger will the market be in the year ahead.

A lot of it.

Will be still be driven by bitcoin, I think. I mean, when you look at the market cap of a crypto, you know, more than half of it is bitcoin e theorem is maybe another you know, twenty percent, you throw in stable coin, and then maybe that's another ten percent. So about good seventy five percent of the crypto market cap is driven by these three three asset classes. So I think the main driver will be from those three now from the remaining twenty five percent, you know, we could see something emerge as the kind of main growth driver for the crypto industry, but it's hard to predict what that may be. I mean, there's a lot of Like I said, it's a lot of there's a lot of experiments going on in the crypto right now, and there are some areas that I think are getting attention from you know, some of the vcs such as you know, decentralized infrastructure a network for instance, but it's very early days at the moment, so you know, rather than speculating on what can come out from that remaining twenty five percent, I think we can the better way of forecasting how big this industry is going to be, well, how big the market cap is going to be, is by looking at bitcoin, Andy Thereum and stable coin and see how much further growth these three categories can deliver.

Peter will leave it there, Thank you so much for being with us. Peter Chung is head of research at Presto Research, joining us here from Hong Kong on the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner. Joining us now is David Aspell. He is the co CIO at Mount Lucas Asset Management, joining us from just outside of Philadelphia. David, thank you so much for joining us. If you don't mind, I'd like to begin with the President elect Trump's choice for Treasury Secretary, Scott Bessant, who, as you know, has tested experience in markets. He's the co founder of the hedge fund Key Square group. Do you want to weigh in on this, I mean, I'd like to get your reaction.

Yeah, I mean, I think he's an excellent candidate. To be frank, he is an excellent pedigree. You know, he's spent a long time running macro hedge funds where you're intimately involved with macroeconomics, trade policy, and analyzing fiscal policy.

I mean, I think he's excellent. He's got a lot to deal with.

I would have thought in terms of the tariffs and the trade policy goals that the Trump administration has been talking about not to mention domestically, particularly if they're looking to reshape the federal workforce. But overall, he seems like an excellent candidate who's very well suited for the position.

He seems to be a fiscal hawk, so that's less spending. The other thing that I've read in terms of his approach to tariffs is that they would be more gradual, maybe than the market had been anticipating. When you look at overall Trump economic policy, give me your reaction. What do you think it's going to do for markets going forward and the economy?

Yeah, I don't know.

I mean, these are trade and tariffs are really big important issues that the administration seems very keen that it wants to make meaningful change in the country, and they see that, they're okay breaking some eggs to make that on.

It is a fascinating time.

You know.

We talked to a lot of investors and there's a range of expectations that you see coming out of election, where some people have their head in their hands and others are over joy that. You know, some people are very fearful of inflation due to tariffs and you know, runaway deficits and a falling dollar, and others are fearful of completely the other side of the equation on deflation and economic problem stemming from large government cuts and the tariffs hurting growth. So overall, I think it's going to be a fascinating time. You know, I'm I think they're going to pull it off. If I'm honest, I think that.

It will go well.

The next big event for markets probably is going to be the FED meeting in mid December. Right now, the swaps market indicates maybe fifty to fifty chance of a quarter point rate cut. Do you think that what we're hearing from the incoming administration is going to ultimately put the FED in a tight spot in twenty twenty five in terms of further rate cuts, given the risk of maybe stubborn inflation at the very least.

Maybe.

I mean, as I look at it now, the markets have oscillated this year, well the last couple of years really in oscillating from fears of recession where they've started to price in lots and lots of rate cuts, and then to a more milder period where the markets have got ahead of themselves in there two years around about four forty ish currently, which is a fairly reasonable spot that's pricing, you know, a couple of cuts likely, as you say half, there's a fifty percent chance of a cut after.

In December, and then we'll see where it is after that. You know.

The interesting thing is, you know the Fed has begun a cutting cycle. They've cut seventy five basis points, and after that initial shift lower mortgage rates are about seventy basis points higher than they were in the FED cut in September. And some of this is is some positivity I think that you know from the incoming administration that I think people are starting to price that you're going to see a shot in the arm for growth, and that the Tax Cuts and Jobs Act will be extended and we'll see possibly a deregulatory boost as well. So I think the Fed's in a pretty good position right now. The markets are not pricing masses of cuts, and if things do slay down, the FED is in a pretty good place to be able to cut rates to get activity going again.

So I think the Fed's in an okay place.

It's a holiday shortened week, as you know here in the US, markets will be closed on Thursday for Thanksgiving Black Fridays the next day. This is when we traditionally begin the holiday shopping season. And I was struck by the fact that the National Retail Federation is forecasting sales will reach nearly a trillion dollars. That would amount to a record nine hundred and two dollars per person. How do you assess the health of the American consumer right now? Will it equate to nearly nine trillion in holiday sales?

I mean, the economy has some issues, and the economy employment growth is slowing, but mortgage rates are back to the highs.

But in general, there's a lot that's going well. You know that the prime age employment is at twenty five year highs.

Wage growth is very good, and inflation has come down bumpily. Oil prices aren't particularly high.

So in a time when you've got good wages.

And lots of people employed, I think it's a pretty good backdrop. And hopefully people will be you know, enjoying Thanksgiving turkeys and then going out and spending in.

The run up to Cristmas.

All right, So when you look at markets right now, I'm curious about the opportunities that you're seeing.

Well, we run systematic strategies in currencies, commodities, and fixed income. I think generally these strategies tend to do real well when there's periods of volatility. And you know, if there's one thing that Trump Trump is, it's generally positive for volatility. And what you've done is add in Elon Musk, who's one man volatility machine. So it seems like there's lots of opportunities for us. You know, where the dollar go. This seems really interesting. Gold has been moving around all over the place, mainly straight up, but you know, still a half past couple of years, but.

It had a bit of a swoon earlier on.

So yeah, I see lots of opportunities around macro trading and and in the dollar in particular.

I'm wondering if you're seeing opportunities around the volatility that we've seen in markets in China. At the end of the week, we're going to get the official PMI data sets for China. How do you feel about markets in Asia, but especially China.

Obviously, they they've started to stimulate, and they've they've done that in a quite bumpy fashion. The economy is has slowing and has slowed and its continues to slow, and I imagine they're quite fearful of the incoming Trump administration given the talk around tariffs. The stimulus was initially received pretty well and then some of that initial spark has faded.

I actually thought it was.

What they did was very meaningful and is you know, it seems like they are very keen to do more, and they're likely to do more.

But even without it, I mean, you're starting to.

See some uptick in activity from the surveys there, and you know, some of the companies themselves are putting out quite positive statements. I think you're starting to see that inflection point. And if I was them and you saw the incoming Trump administration what they're talking about, and you knew what that you need to stimulate anyway that I think they would frontload some of that stimulus to get ahead of what might be coming down at them.

So I thought what they've done is quite meaningful and powerful.

If you look at markets in the Asia Pacific, I think there's no doubt that Japan was one of the bright spots for twenty twenty four. At the end of the week, we're going to get a number of data points for the Japanese economy, retail sales, factory production, the jobless rate, and the CPI data for the city of Tokyo. Is Japan still representing opportunity to or has that train pretty much left the station and there's much less in the way of upside.

No, I don't think so.

I mean, I think is an economy that is generally positively exposed to trade and global growth, and if you get a shot in the armed from from the US growth picking up, I think that will do well. I think you're starting to see some meaningful change in Japan, and it's taken some time, but I think Japan looks quite looks quite good.

Are you fielding a lot of interest in anything that's related to crypto right now, maybe through ETFs.

I feel a lot of bit interest about it. Yeah, it's the anything between that and micro strategy. Y. It's one of the only things people want to talk about, you know, is it digital gold? I hear that phrase a lot. I don't know there's enough going on in actual gold for my liking. But yeah, I don't trade it, but I do see I do see the price action.

It's been a wild few years. For sure.

We know the Trump administration might be setting up an office within the White House to look at crypto. But what does this price action tell you? What does this signal mean to you?

I think it's a It's an enormous speculative wave of a lot of people speculating, gambling, having fun and trying to see trying to paint a future that may exist. And if people are under exposed to it. I think there was a genuine fears that it was going to be outlawed, and you've now got a government that seems somewhat friendly to it. There are other governments at the same way, and people are under exposed to it. Not an easy thing to get a lot of exposure too. Institutions are being slow to do it, so I can understand why people are looking to do it. I also think more broadly, you know, it's easy for people in this country to be a little skeptical of it. There's a store of value because generally this country is very, very well functioning. But you know, if you're an investor in an emerging market or in other countries in the world with less stable regimes, as a way to save and send money, I think there's a definite use case that people in the developed world often don't always appreciate that. Given their own currencies and government so I'm not particularly stable that I can see why some other people see it as a source of stability in a crazy world.

It's a good point when you try to understand the use case. David, thank you so much for being with us. David Spell is the cocio at Mount Lucas Asset Management, joining from just outside of Philadelphia. Here on the Daybreak Asia podcast. Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the story shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Chrisner, and this is Bloomberg.

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