Jamie Cootes, Chief Crypto Analyst at RealVision Platform joins me to talk about Bitcoin and the current state of the Bitcoin market. We talk about what it takes to be a financial analyst, what it's like to be in the Bitcoin space, and why it's so important to be involved in the space.
00:00:00.000Hello, and welcome to Brokernomics. Now, you join us at an auspicious time. Bitcoin, as predicted, is breaking out to new all-time highs. Obviously, that's something we've been talking about for quite a while. So I thought it was the perfect time to bring on a proper financial analyst, one that focuses very much on Bitcoin. I'm delighted to be joined by Jamie Cootes, the Chief Crypto Analyst for Real Vision Platform. Jamie, thank you for coming on.
00:00:31.100No, we picked an auspicious moment because, you know, this morning we wake up to, well, yeah, it's your late afternoon, you're Australian. But we discover that Bitcoin has sort of smashed through 111, hit all-time highs. So, you know, a very positive moment at this current time.
00:00:51.380Before we get into all of that, though, I've just got to ask, you are a proper financial analyst and you focus on crypto. So is that an easier job or is that a harder job? Because you've only got 13 years today to look at. But then on the other hand, you've only got 13 years worth of data to draw any conclusions from. So what's it like trying to analyze this market?
00:01:12.640Yeah, I often say, like, we're cursed by the small sample size, right? So we, I look for patterns and correlations to explain how markets move.
00:01:26.940So we've got various data, but really what is a risk of other asset classes that hold relations with the kind of indicators that I talk about, look with the various macro indicators for longer periods of time.
00:01:44.340So you have gone equities and other asset classes and those relationships. But the thing about crypto is that you've got, whilst less years of data, crypto for seven, seven days a week.
00:02:00.440So in equity terms, it's really, you know, 40% more than what we think of it. If you start, you know, 2011 was kind of like the first time there was prices on Bitcoin.
00:02:12.820Yeah, it's actually closer to more like two decades, sort of add up all the trading extra days and not, you know, trades on public holidays and all that sort of stuff.
00:02:22.920You're right. It's, it's challenging from that perspective. You have to sort of marry the analysis with like some kind of first principles understanding of like what drives markets and the reason why Bitcoin, particular crypto to some degree is going up
00:02:42.700or going down because of certain reasons. There's just very first principles thinking around, you know, scarcity, also the failings of the current financial system, the age differential in who's buying or who's operating or who's participating in the crypto economy and how, how much they're growing as a, as a set of the overall population.
00:03:05.700Sort of draw other ways to understand, you know, what's growing markets rather than just, you know, correlations to liquidity.
00:03:14.380Well, well, that's an interesting point. So who is buying it then? Because in the early days, it was just slightly odd autistic chaps who spent a little bit too much time on the internet.
00:03:24.080But, but, but these days I've, I've kind of lost focus of, of, of, of who the main buyers are.
00:03:28.880I know the institutions are coming in now, but I don't have a sense of how big the flows of the various bits are.
00:03:34.380I think it's just about everyone, bar central banks and, you know, governments at this point.
00:03:42.360Although, you know, if you look at, if you look at the federal government level, there are now states in the United States,
00:03:47.680I mean, it's 23 states in the United States that have legislation that they're trying to move through their, through their, their, their Congress or their chamber to adopt Bitcoin in some way, shape or form,
00:04:02.980whether it's to preserve the, the privacy rights, the mining rights, the sovereignty of Bitcoin for its citizens,
00:04:08.380or where they're using it as a, as an asset, as a reserve asset for their, for their state treasury.
00:04:15.720Two, I think have now gotten to the point where they've approved it.
00:04:18.900Some have, have not passed that there's basically half the United States.
00:04:22.940And so to answer the question, every cycle.
00:04:27.180And there's this sort of, you know, repeat patterns of like every three or four years, you get this bull market.
00:04:32.340We can talk about, you know, why that is, but let's just say there's cycles within this bull market.
00:04:38.380The second bull market for crypto and for Bitcoin and every cycle, it just draws in more and more participants,
00:04:45.860participants from the sectors or segments of society that weren't participating in the previous bull market.
00:04:52.000And that's because it's the super black hole of finance.
00:04:54.460It's sucking in capital from every single corner.
00:04:57.820And it is, you know, going to continue to do so until it becomes a much, much larger part of the overall capital pie.
00:05:08.380Yeah. And, and, and, and you talk about the cycle there.
00:05:11.860I mean, that, that's probably the key factor.
00:05:15.120So is, is that just caused by the fact that Western governments are spending far too much and they need to,
00:05:22.060they need to juice the system every four years to roll over the debt?
00:05:26.540Yeah, you could, you could probably frame it as simply as that.
00:05:32.100We live in a, you know, we have a system, uh, which is a credit-based system.
00:05:37.080Um, you know, a, a fiat currency credit-backed system, fractional reserve.
00:05:45.680Um, so there are the new money created, it's not backed by anything.
00:05:50.440And the new money created is really for all intents and purposes there to service the old debts, right?
00:05:57.540To service the interest on the old debts because the debt that's in the system cannot be the interest payments on the debt in the system currently can't be serviced by the growth in GDP.
00:06:08.400So every time there's a strain on the system, i.e., you know, it's hard to meet repayments, whether you're at the corporate level or the government level,
00:06:17.980really at the governmental level is where the problem is now before GFC was more at the corporation level.
00:06:23.740Um, that's what the whole point of the, the bailouts and the QE was to basically move the debts from corporates onto the sovereign balance sheets.
00:06:31.320But they have continued to grow the debt faster than the economy is growing.
00:06:35.660So, you know, as a percentage interest payments are now growing of the total economy and the only way they can, well, the only way they can pay that down or resolve that issue is if they, if we experience the productivity miracle, which is certainly a potential now with AI, right?
00:06:54.540And arguably we are, we're about to experience it, but let's just say we put that to the side for one moment.
00:07:00.380So the replacement level of the economy needs to increase so that there are more people producing rather than taking.
00:07:11.120And that is the inverse of what's happening right now.
00:07:14.620And the other way is that governments print more money so they basically can inflate away the debt.
00:07:20.340And that just means that everyone suffers in terms of their purchasing power because the value of goods and services, the dollars that we are forced to use by mandate from our governments is worth less and less.
00:07:33.020So, I mean, let's cut to the number of it.
00:07:34.940What is it that actually drives Bitcoin prices?
00:07:38.120And is it as simple as this liquidity cycle with a plus and minus modifier for human psychology?
00:07:49.900Yeah, there's lots of, there's lots of different takes on it.
00:07:52.380So my personal view is Bitcoin exists because there is a product market fit for what Bitcoin brings to the table, right?
00:07:58.880So we do not have a fair and equitable financial system.
00:08:03.000We do not have a store of value in our domestic currencies.
00:08:08.080We don't have alternatives to escape the system because everything is financialized and controlled through centralized entities.
00:08:14.600We do not have a way to engage in peer-to-peer commerce unless it is with cash in which they're taking that away as well.
00:08:23.940And so, you know, my use case for Bitcoin is different to the use case in Kenya, which is different to the use case in Argentina.
00:08:31.340It's different to the use case in, for yourself there in the UK.
00:08:34.920But, you know, if you look at it like a Venn diagram, they're all overlapping.
00:08:38.940Everyone falls in the same, you know, within the same map, but just the requirements are different.
00:08:46.120So being that as it may, there's need for this monetary network and the asset embedded in that network being Bitcoin.
00:08:56.800So as long as we have a financial system that continues to do the natural thing, which is debase currency, debank people, you know, erode our purchasing power, there's a need for something else.
00:09:11.580What juices that is the level or the rate of change of debasement or liquidity, how much liquidity they're pumping in.
00:09:19.760Because when new money is created, for whatever purposes, to get us out of a COVID jam, right, when they shut down the economy over a man-made flu with a case fatality rate of a bad flu season, then they have to print a lot of money.
00:09:36.540Whether it's to get the financial institutions out of a pickle in 2019 during the repo crisis, if it's to help the UK pension funds who are, you know, suffering under, you know, mounting debts because they're holding gilts that are falling in value.
00:09:59.400Whatever the case may be, when that is added to the system over and above what the economy is growing at, that is excess money that flows somewhere.
00:10:09.000And I think people are working out the game here.
00:10:11.380They're putting it into the scarcest assets possible.
00:10:15.040Now, over time, that's always been gold.
00:10:18.500And in the last 20 years, because we have a, in parallel, another secular trend outside of government debasement, and that secular trend is, you know, hyper-technological adoption.
00:10:31.260So we've got technologies that are, or companies that are producing technologies that really don't need a lot of debt and are producing a lot of cash.
00:10:40.800So you've got NASDAQ outperforming most stocks, and you've got U.S. stocks outperforming other countries.
00:10:47.200So the concentration into technology has been such.
00:10:52.020And also Bitcoin and, to a lesser degree, crypto.
00:10:56.000Bitcoin is the purest play of scarcity meets technology.
00:11:02.320Crypto is not scarcity, but it is technology.
00:11:06.180And therefore, it goes up as well when liquidity goes up.
00:11:08.820And it's all being, you know, it's all just being funneled into the best-performing assets because people can see the track record.
00:11:16.680Okay, so you've got a whole bunch of things stacked up on top of each other.
00:11:19.140You've got the network adoption, making the line go up and to the right.
00:11:22.860You've got the, you've got the sort of liquidity effect as well.
00:11:28.080And then you've got the psychology effect, which we're not really seeing much of at the moment.
00:11:32.000And I think you've got a, your base case for Bitcoin over this cycle is something like $174,000.
00:11:38.820But then because you've got those other factors at play, which is the eroding faith in the dollar system and the psychology of people when they,
00:11:48.800because at the moment the normies are not in this market at all from what I can see.
00:11:54.000So I can imagine that's going to kick in as well.
00:11:55.760How shocked would you be if you're writing one of your reports, say, a year from now, looking back on this big period of liquidity expansion?
00:12:06.120And how shocked would you be if you found yourself writing that, you know, instead of $174,000, it hit $200,000 or $250,000 or $300,000 or, you know, pick a number?
00:12:18.220So I just actually, I wrote a new report for Real Vision for pro subscribers and the new modeling was just really just an update of the modeling I did six months ago, where I came to that sort of $179,000.
00:12:33.540As long as they are, you know, directionally correct within a certain timeframe, then they're great, right?
00:12:40.360So you're not trying to pick the exact price, but the model that, you know, the refresh model and some of the new insights that I've gathered is that, you know, it's probably $180,000 to $230,000 this cycle.
00:12:54.460And that's being anchored in a fair bit of conservatism.
00:13:01.400Like, there is a non-zero percent chance that we will see a normal one standard.
00:13:07.280If you just look at the Bitcoin chart and you do, like, a linear regression, just a straight line through the chart, and then you get one, two standard deviations above and below, you sort of get the range for what Bitcoin can do.
00:13:19.440So it's not unusual that it goes one to two standard deviations in the end of a climatic bull market.
00:13:26.900I'm of the view those sort of parabolic moves become softened or tempered each cycle that we go through because it's a bigger asset.
00:13:37.540It's easy to do that when it's $100 million, easier to do it when it's $100 billion, harder to do when it's $2 trillion, I should say.
00:13:47.720But nevertheless, it's shown it can do it over time, and newer and bigger, larger institutions coming in.
00:13:53.620So to answer the question, in my model of, like, there's a percentage chance that it does $300,000, $400,000 this cycle.
00:14:02.420Now, things would have to be breaking.
00:14:04.040Like, there's going to have to be massive liquidity to push it there.
00:14:07.460But, you know, we've got Japanese yields going through the roof right now.
00:15:16.080Because when you talk about going one or two standard deviations above, I think I'm right in saying it's never not gone to two standard deviations above, which would presumably put it at somewhere like 500.
00:15:26.280Yeah, yeah, I don't have the chart up, but you're in the ballpark, right?
00:15:44.700I will anchor my targets for two reasons.
00:15:49.120I don't want to look silly, and also I'm scarred from the last cycle where I, you know, it really didn't, it didn't have the true sort of parabolic move of the previous two cycles.
00:16:02.900But I think it's, I interpret that also, if I'm being honest, as instructive of your point.
00:16:07.660It's like larger assets take more capital to move, it's harder to do parabolic moves, but they could happen if the circumstances arise that support it, which would be, you know, we have a COVID moment or there's liquidity, not liquidity specifically, but some sort of need for excess liquidity to be added.
00:16:27.420Bitcoin will be the asset of choice, gold will be as well, but for the same reasons as like you can't see parabolic moves in every Bitcoin cycle to the match the previous one, in my belief, gold struggles to get, you know, you know, every time it moves up 10%, you're talking about $2 trillion, which is the entire market cap of Bitcoin.
00:16:49.360So, you know, there's some gravity to the, to, to this.
00:16:52.660Well, there is, there is enough capital out there to move it.
00:16:55.620So, you know, perhaps it, perhaps it can, but I mean, I take your point, but the world, the world fundamentally needs a settlement layer and a transaction layer that's outside the state system, because the state system is going to be heavily manipulated and it already has gold, but gold is slow.
00:17:13.880So, so there seems to be a fundamental need for it.
00:17:15.640And I'm just wondering if, you know, we, we, we could be underselling it in that there, there could be a sort of, you know, a suddenly all at once moment with this.
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