Bitcoin Below $20K | Bloomberg Crypto 08/30/2022
We are live from Bloomberg's world headquarters in midtown Manhattan. ISE Matt Miller. And I'm pretty good at stepping in for Kaylee Lines. Welcome to Bloomberg Crypto. Look at the people transactions and technology shaping the world of decentralized finance. Coming up a hawkish Fed weighs on crypto
and have a slew of technical charts right. Bitcoin may be poised for another downward move. Michael Purvis of tailback and shares his bearish views and sanctions lawsuits and investigations are clouding the outlook for digital assets will weigh the regulatory risk with Ari Read board a former Treasury official.
Plus the true value of the crypto market isn't the trillions you may think. Bloomberg crunched the numbers with a team of skeptics economists and researchers. That's all ahead. But first let's take a quick look at the snapshot of the market because Bitcoin once again trading below that key 20000 thousand level for a second straight day. And of course you see that pressure down about two point seven percent. But put this in a volatility adjusted
contests historically you need a drop of 4 percent to regain I should say a 4 percent on an average day for that volatility to really make sense. You can see in that perspective in the historical context Bitcoin's volatility a little bit muted in today's session. That isn't of course stopping it from having broader ripple effects across the stock market. Take a look at some of these crypto exposed stocks coinbase of course the crypto exchange down to the tune of one point six percent.
Even some of the names that are exposed to crypto in that they simply accept crypto as payment. Think Overstock for example or even PayPal. Those kind of names are down as well. Overstock down about half a percent. But the real pain the real selling pressure is going to be in the minors. Think right block chain marathon digital when bitcoin is up. Those are the names that have the most gains in reverse. They are actually the ones suffering the
most down by four point three percent in right block chain shares man. All right. Speaking of historical perspective I pulled up a little seasonality here on Bitcoin. Of course it doesn't have the history that most risky assets do.
It's only been around since 2009 2010. But at least in the last five years September has been a bad month for Bitcoin. You can see especially 2009 was rough and the average drop for the month is about seven and a half eight percent. So it is historically inclined to fall in September and it has come down below the twenty thousand dollar level as Christie was saying. Market participants though anticipate more macro headwinds in the space. They can't price being under 20000. Obviously isn't good for anyone. Bitcoin has a little bit further to
fall. The crypto markets more broadly have certainly expanded into broader attack over this last cycle. We are pretty close to the bottom. I actually think the capitulation phase is over inflation as well as what risk assets do. In a hawkish fed tumultuous distressed environment I don't necessarily think move to prove a stake is a great thing for Syria.
And we think that in theory it very well could get back to a thousand or even lower. Long term investor is still paying attention to fundamentals in the long run. We're going to be doing just fine. Everything depends on macro at the moment. Yes there's some conflicting views but that's understandable because how do you value it is not your father's valuation method. There are no Excel spreadsheets or
discounted cash flows that you can look at. So how do you value crypto currencies in general. Bitcoin especially Bloomberg. Sonali Basak is here to explain one way. Well Matt. There are many ways to do it. One way to look at it is through technical analysis using historical price movements or trading transfer a sense of how valuation could pan out moving forward. Just yesterday Sven Henrik of North Trader said he believed that Bitcoin is at risk of breaking an upward trend.
And if we look at the momentum it is to the downside. More recently Bloomberg's data shows that a key level is nineteen thousand seven hundred eighty nine. And another way to look at it. It's by using one of Lin all the INS preferred methods as a store of value. Let's do this by comparison to gold. Assume 20 million bitcoin outstanding and a bitcoin market value gets to half of the global value of gold up to 2 percent of global net worth across assets. And gold is an estimated 10 trillion dollar market.
Then each bitcoin would be two hundred fifty thousand dollars. But if bitcoin only achieves 1 to 2 percent of the value of gold each bitcoin would be worth 5000 to 10000 dollars. By doing this we're also assuming that global net worth is 400 trillion and this is one percentage or one way to find out what it's worth as a percentage of that global net worth. There are many other valuation methods
but another one that Lenore then had pointed to is comparing bitcoin to national currencies and you'd have to think about how much economic activity actually occurs in bitcoin because there are many users and many of them might not so not be legitimate. The market cap has fluctuated tremendously. Remember it had shot up past 1 trillion dollars more than the GDP of some countries but it's disproportionate to the amount of transactions across the network in terms of how much it's fallen since then. Now the market value lies below for 100
billion dollars. That has been a harder way to value crypto guys at least for now. Certainly a skeptical way to look at it. Let's get another skeptics take. Michael Purvis joins us right now founder and CEO of Tailback and Capital Advisors. Although I'd say Michael right now even historically bullish crypto traders are worried about another down leg. What do you see. We'll look back since January. You know I've been pretty bearish of
Bitcoin I was you know when I was 42 I was targeting 30. When it got to 30 I targeted 20. And when it got to 20 I kind of took profits. But then just last week we entered a short trade with a target of 15. The one thing I do want to make clear is that I don't have really a fundamental view one way or the other on bitcoin I suppose looking at as a percentage of gold.
So you know the amount above ground gold's value is what's only one way to look at it. But I think to my mind the more abstract the fundamentals the more important technical analysis is. We do now have you know 10 years a little bit more than 10 years of trading history. Right. So what really got me bearish was really getting nothing to do with you know a fundamentally different view or fundamentally bullish view.
It was simply the fact that longer term momentum was really starting to break in in late January. And this one particular signal I was focused on you know it had done this three times prior. And each time Bitcoin corrected 60 to 70 percent over the next anywhere from four to sort of 10 month period. And right now you know we went from 40 to just when that signal developed in January. You know that would bring it down to about 15000.
But I actually think there's a chance. Hi there. Do you buy there Mike. I remember when it went from a thousand to seventy five and people said this is the end.
Then we went to course at seventeen thousand when we dropped from there to three grand. Everyone said this is the end. Then we went to sixty five thousand. We dropped from there to 20. You're saying 15. Do you get in there. I'm not you know I think I'll cross that bridge when we come to it.
It depends how we get there and what sort of happening more broadly. But there is one important thing about this 20000 level a grand number of 20000 which is that if you remember a couple of years ago when we saw through twenty thousand and we took out that 2017 high that kind of set that set the path to the lifetime highs of 60 65 66. That that concurred with basically a lot of institutions. Coming around and saying hey you know we're taking Bitcoin seriously now we're making allocations or at least considering making know significant out locations to to Bitcoin or to its ilk. And I guess one of the problems I have right now just in terms of flows coming into Bitcoin is that what we've learned over the last years that bitcoin is not on it hasn't been uncorrelated. It shares a reasonably high correlation with the NASDAQ or the broad you know other risk assets.
And so I really question you know since it hasn't demonstrated its ability to to be uncorrelated I question whether institutions are going to come in and say hey you know if it gets to 15 or gets to 17 or 18 or or twelve whether they're going to go rush back to committee and say hey here's a dip we can buy because the thesis back three years ago I think was you know generally that hey this is an uncorrelated asset. It can be an inflation hedge. It's a speech on topic here. Speaking of uncorrelated assets let's put this in the context of the Federal Reserve here.
It's all about rates at the moment. How do rates and crypto correlate or don't. Well you know I was just just early this morning. You know you were if you look at the NASDAQ that that is a pretty clear correlation with rates and Bitcoin is a pretty clear correlation with with the NASDAQ here. Right. And so I think the weather look if you
looked at a lot of stuff that really got inflated you know post Covid shock in the spring of 2020. You know with this massive you know suppression of interest rates massive dovish Covid from the Fed you know you look at ask a lot of speculative tech stocks going through very very aggressive levels. Well Bitcoin was also part of that as well. And so I think it is going to be very
vulnerable to do you know that hawkishness. And you know one issue is is that because it's again I come back to this thing that it hasn't demonstrated its utility as an inflation hedge. So a question you know if you really just need a levered play on the NASDAQ. Well there's a whole lot of ways to do that. Right. And I think the the question about how you really value bitcoin at fifteen thousand or ten thousand it's going to be really really problematic. Amanda Lang if you talk if you are
saying that it's not doing its job as a leverage player even as inflation hedge then once you actually do with bitcoin do you just not buy it or do you actively shorten it. We've got about 30 seconds here. I ought to answer your question succinctly. I am. I'm short it but again I'm looking really at technicals here. I you know again I sort of sidestep the fundamental discussion because I don't think I'm honestly not sure really how to analyze the fundamentals of it. So I kind of just look at it. It's an important asset. But it's what's clear is is that bump
down room mentum from a longer term perspective is very bearish right now. And so I'm just kind of riding that trend. Michael thanks so much for joining us. Michael Purvis there of Taliban in
Capital Advisors. Now coming up Ari Read board head of legal and government affairs at T R M Labs a block chain intelligence company and the trillion dollar question skeptics economists and researchers weigh in on how to measure the true value of crypto. That could be just a multi billion dollar question to access all the latest data on crypto in the news as well. Type C R P go on the terminal. This is Bloomberg. What they've done might be unconstitutional.
Sounds like Quinn Center may be gearing up for a challenge on those grounds. You know I think that people have a right to financial privacy and there are a lot of legitimate people using the service for legitimate financial privacy reasons. And I think that we'll see if this survives a challenge as crackin. CEO Jesse Powell speaking with us earlier this month after the Treasury Department sanctioned tornado cash. The cryptocurrency mixer was sanctioned after North Korean hackers relied on it to launder illicit gains. According to the officials the sanctions bar American companies and individuals from doing business with tornado. Joining us now is Ari Read Board head of
legal and government affairs at T.R. and Labs a block chain intelligence company. And Ari you know we were talking with Jesse about this because one of the fundamental reasons for the invention of Bitcoin is to skirt this kind of monetary censorship. And yet here we see all of the companies that have been involved in it for you know the first decade of its life following Treasury orders. Does that make sense to you. It does.
It does for a number of reasons. Look I think the way the U.S. Treasury was thinking about these sanctions is they were going after a what they saw as the cheap money laundering tool for North Korea's cyber criminals. And you know we've seen these huge hacks in the crypto space over the last year or so which in many respects when they involve North Korea move this issue from sort of a fraud and financial crime issue which is still very serious to really a national security issue. And I think that the challenge now that we're seeing in the space is and this was to Jesse's point look we have to figure out ways to go after illicit actors like North Korea who are taking advantage of decentralized tools. But at the same time not affect what he calls sort of you know legitimate users because there is you know more and more need to have transactional privacy as we move into sort of this new open financial system.
So it's really figuring out sort of how to walk that line between stopping bad actors from using sort of you know these tools and allowing legitimate users to continue to use that. I just want to point out it doesn't get any more private than duffel bags full of Benjamins. I mean laundering dollars is surely much easier because you don't have a block chain to trace at all. I get that tornado kind of helps people
make the block chain less effective. But what do you think about a company like Tether which has been which has been resistant to Treasury's demands to freeze any assets that have touched tornado. Does that make sense or do they have to do it.
You know it does make sense. And I'll tell you why. Look you know I think there's a couple of ways. If you are a you know a crypto company and that means a stable coin issuer like Tarik tether a defy protocol like some of the ones I've been involved in some of the conversations around this. Look you have to if you if you are a U.S. person or U.S.
entity you have to abide by fact sanctions. It's very black and white and even tether what Tether is saying in their statements is hey look we're going to block the addresses that are on the what they call the SD enlist especially designated nationalists. The fact sanctions list we're going to block those addresses but we're not going to do is go ahead and take a step further and block addresses that have transacted with sanctioned addresses. And I think sort of tether is saying
look and a lot of the crypto industry is in line with this and that is look what we need before we take that next step is more guidance from OFAC more guidance from Treasury and regulators. So what to be clear Tether is not saying hey we're not going to abide by sanctions but they are saying we're not going to take that extra step to block addresses that have transacted with sanctioned addresses. And I think this goes to sort of crypto businesses right now. We're all trying to navigate. And at CRM this is what we do. We've been working with them to do this to come up with what is their risk appetite and how can they use data to make informed decisions about which addresses to block. Are you underscored the need for privacy in this sphere as well for someone as perhaps not as familiar with tornado cash the uses for it.
Compare and contrast if you will. The U.S. banking system for example and the privacy associated there or I should say lack there of when it comes to things like tracking money laundering for example how does tornado cash or the concept rank in that. No. Look I love the question.
I was a prosecutor at the U.S. Department of Justice for about 11 years. And I can tell you that you know there's there's no CRM to trace. Both cash smuggling and networks of her swallows and shell companies and high value art. And I think you know look what the block chain allows for is unprecedented visibility on financial transactions. It allows you to follow the funds. And on the one hand that's a great thing.
It allows financial crime investigators to follow the money in ways that were impossible before. But on the flip side you know look as more and more transactions are done in an open way. People are going to have more and more reason to have to want privacy in. Transactions look you know if you know eventually hopefully we'll all be paid in crypto right. You don't necessarily want Bloomberg to know every transaction you do with that paycheck right.
There's going to be reasons why you're gonna want to have privacy more and more. And there are tools like tornado cash that allow for that. The problem is again these same tools are being are being used by illicit actors like North Korea who also want more privacy in their transactions. And that's the fine line that we're
seeing regulators and crypto businesses try to walk today. And I. Yes please. Well first of all I think that's fascinating. And we could go on about that for a long time. But it also makes me think about CVD. What why does the U.S.
drag its feet on issuing a central bank digital currency. You know I think it's I think this is happening globally. I think certainly the U.S. is is is obviously taking its time. We've seen this this this conversation from the executive order and from the Fed about studying spending time studying the CDC. But I think the reality is the U.S. is not ready today to say hey look CVD
even the right move here you know compared to you know stable coins and crypto currencies and other types of assets you know in the private space. So I think I don't know that it's as much dragging its feet as really kind of trying to study and understand the issue. I think there is a narrative that sort of the U.S. is behind China in particular in sort of the CBD space race if you will. And I think the reality is still it's still based on the hedge money of the U.S. dollar and that could change.
I think the U.S. is sort of very much still in the game but really has to decide whether or not it's a country that's going to move forward with the CDC. And I think that's a very much we'll see situation at the moment. All right. All right. Very cool to get somebody with your insight and experience on the program. Really appreciate it.
Hope we get you back. All right. Board there head of legal and government affairs at T and Labs. And be sure to check out our Bloomberg crypto podcast which dives deeper than the daily market buzz to explore how this asset class is changing the way we live. Look for that every week for the Bloomberg Professional App. I Heart Radio or wherever you get your podcast. This is Bloomberg.
This is Bloomberg Quicktake Matt Miller pretty good. Kailey Leinz is off this week. Let's get down now to some crypto stories that caught our eyes this week. And other ex regulator is flocking to
the crypto space. Former FCC chair Jay Clayton is joining venture firm Electric Capital as an adviser. It comes as a at a time of increasing regulatory scrutiny for the industry.
Clayton is already an adviser to crypto custody firm fire blocks and crypto fund manager. One River Asset Management and a fugitive crypto CEO has been arrested in Albania. According to Turkish authorities faith owner and the other founders of cryptocurrency trading platform thought X are accused of establishing a criminal organization fraud and laundering. Turkey says it has started the process of extradition and that two trillion dollar wipe out in the crypto market may not be an accurate number. Cryptos market cap plunged from three trillion at its peak to about one trillion. The true or realized value has held steady in a narrow band.
That's because market cap reflects all the things that can amplify fraud such as leverage wash trades and manipulation. And to talk more about that with us here on set as Bill Don Bill Don. Hi Rick. Bloomberg Cross Asset reporter.
He's done so many awesome stories in. Thank you very much because we read these all the time. Let's talk first about the valuation because this is sure to be controversial.
And sure you've probably gotten a lot of e-mails on it already. How do you Twitter. Hey. Exactly. And the Twitter hate which you can ignore. How do you go about valuing the whole
entire crypto space. So if you think about what market cap actually is it's just you're taking all of the coins that are out there in circulation and you're just multiplying that by the latest price. But there's so many issues with that number because you might have some projects where you have a founder come out and say OK here's my project it's got 20 million coins. But in reality the founder actually owns the majority of the coins or they're just not moving their so-called dormant coins. They just haven't been used they haven't
been moved out of a wallet in five or more years. And soda is Satoshi. Right. Right. Even. Yeah. Exactly. A billion dollars worth of bitcoin. So you get this sort of inflated number where if you think back to last year when crypto prices were still rallying you had a lot of headlines saying OK the market has reached this three almost three trillion dollar valuation. And in reality maybe it was much much
smaller because you need to be accounting for for froth and all these other things. So that feels intuitive when you talk about it from me how you talk and a stock market cap for for instance. I'm curious what would be the right way to calculate the market value. Well where I started first was I called a crypto skeptic and I asked is market cap actually a good number of measuring the truth the so-called true value of crypto currencies. And he said no absolutely not. It's a totally B.S. No although he used much more colorful language. But but I get it.
Yeah. And we won't say it here. But one way to measure just like I wanted to look at participation one way to measure it is just how many people are actually part of the crypto ecosystem. So we had a survey from the Federal Reserve for instance. They said something like 12 percent of the U.S. adults either handled or traded or invested in crypto currencies. A Pew Pew survey showed 16 percent.
So that's something like 53 million people actually participating. So it's definitely not nothing. And then the more I talk to researchers and I actually spoke with some crypto economists and a lot of them were showing were telling me to to look at realized value. And that's just a technical way of saying OK crypto is maybe worth eight hundred seventy five billion dollars. Eight seventy five is the number in
billions by the way. So totally I think we'd have about 20 billion. But thank you so much Bill Donohue Rick for that reporting. That's crypto.
This is Bloomberg.