Bitcoin price has been rising and some argue that it is tracking along with the S2F model! Others argue that this is statistically invalid. PlanB, pseudonymous analyst and creator of the S2F and S2FX models rejoins me on the show to talk:
- S2F and S2FX vs recent market action
- Critiques and spurious correlations
- Comparison with past cycles
- PlanB’s thoughts on whether this is the final cycle
- Macro factors – Tether
- Negative rates
- Cash and carry trade
- SLP67 Plan B (@100trillionUSD) – Modelling Bitcoin’s digital scarcity through stock-to-flow techniques
- SLP86 PlanB – Frontrunning the Bitcoin Halvening?
- SLP122 PlanB – Responses to the S2F model
- SLP171 PlanB & Saifedean Ammous – Bitcoin S2FX, S2F, and Evolution From Collectible to Financial Asset
Stephan Livera links:
- Show notes and website
- Follow me on twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera
t have that! You would have to have access to all the banks’ databases. With Bitcoin for the first time you have that! It’s like a heaven for quants, it’s like a heaven for people who like to make new economic theories about how this works — this supply and demand game in Bitcoin.
Stephan Livera [36:42]: Right and there are providers as well who do some of the things. I know Coinmetrics do some related analysis and also Glassnode. For listeners I have an interview with Rafael Schultze-Kraft, he’s from Glassnode he’s the CEO. And we spoke about these statistics as well. One interesting one is looking at, of all the unspent transaction outputs, you can look at how many of them are sitting in a profit and how many of them are sitting in a loss position, and try to ascertain where the market is at from looking at those numbers. Looking more broadly at the macro world of all of this, what are some other relevant factors to think about? It seems every six months we get some drama about Tether, and, Oh my god, Tether is not backed and so on! What’s your thoughts on all of that?
PlanB [37:30]: About Tether — I don’t think it’s a relevant factor! It’s a lot of FUD. It’s really a lot of FUD, and it’s been there since I’ve been in Bitcoin! For years and years I’ve heard that type of FUD, and it’s at specific times, when the price is sort of wobbly and there’s a lot of things going on such as with regulation at the moment, and all of a sudden — I get daily about 50 DMs in my Twitter of people, How about Tether? How about Tether? They put their comments under each one of my Tweets, and my impression is that it’s like an army of FUDsters that try to spin a story, and of course it gets picked up by people without a brain! So yeah it’s nothing! There was a podcast I don’t know where it was but it was with the two guys from Tether last week — it was very good! They explained how it works and why Tether is there, because you know the banking system is very slow. If I transfer money to the US or to Australia it could easily take three days, where if I want to park some Bitcoin money in cash and use dollars for a couple of hours, that then would not be possible. So yeah you need a coin, a synthetic dollar where you can park your money that goes way faster than the old, slow, traditional banking system. And I get it! Of course how much the Tethers are backed by real dollars and other assets — that’s an important thing and more transparency can be given there by Tether, but it’s a very traditional issue as well with having collateral against loans and future markets that are fully collateralized every day. I guess for people who are not aware or not familiar with those collateral processes, that it sounds very opaque and mystique, and it’s just stuff that you make a lot of FUD and conspiracies about, but for me it’s a non-issue.
Stephan Livera [41:20]: I think it’s really interesting that a lot of people just latch onto an explanation and sometimes they can’t find it in themselves to believe that Bitcoin is this genuinely new thing — it is a monetizing new asset! It’s not some new little tulip bubble thing! And tulip bubbles don’t last for twelve years and continually grow each time and have all this actual utility and networks growing around the people who really use it in the real world, right?
PlanB [41:51]: Yeah and maybe Stephan it is easy for us, both having a background in banking and institutional investing! But I mean, what I’ve been seeing since 2008–2009 basically since Bitcoin was developed — since the global financial crisis — the amount of quantitative easing and the amount of money being printed by central banks what they have done the last years is so overwhelming, it’s the only macroeconomic topic! It overarches everything! It’s staggering really how much money has been printed and what it has been used for! And I’ve been in a position where I have dealt with banks on a daily basis, from bank contacts, with Basel capital management requirements, from insurance contacts, solvency requirements — we’ve been selling stuff to the central banks for years and years and years, and they buy everything! You know that famous scene in The Big Short where the crew is at a conference in Las Vegas about mortgages and mortgage securities — there’s also conferences like that in Europe, actually the same organizers. And at those conferences — the central banks are there as well — everybody talks about the central banks because they’re the biggest buyer out there! They buy everything! They have an unlimited budget! I think if you’re in the trenches and you deal with the central banks and with quantitative easing no matter how you call it — it can and has become a semantics game lately— if you’re in the trenches and doing this work, you see the absolute staggering obscenity of it, if you will! It really reminds me of Zimbabwe and Weimar Germany! We’ll have to see, but knowing the quantitative easing and how it works, it’s very helpful in making me a big believer in Bitcoin, I truly believe that!
Stephan Livera [43:53]: In terms of comparing this Bitcoin bull run versus other Bitcoin bull runs, and I know you’ve been charting them out and trying to show, Okay, if this were equivalized to the previous cycle, what would it look like? We’re sort of tracking in the middle of the two other halving cycles?
PlanB [44:14]: Yes we have the two earlier cycles, which is not much, but we can compare. That was the 2017 cycle and the 2013 cycle, and they are quite different actually! 2013 was of course very early, and it was in a stage where mining was a big topic as well, because that was the year also that ASIC chips — mining chips — application specific integrated circuits, very specific mining chips were produced and made the security of the network like a million times bigger, and everybody that had that chip had an advantage. So there was huge optimism and excitement about this next step in the Bitcoin history, and price shot up from a low of $2.5, average $5 to $100 to $1,000 within one year! So that was really unimaginably fast, without much corrections in between as well! But then 2017 the mining technology was already done, there was a lot of improvement but not that big huge jump like in 2013. So the new thing and the excitement was all about altcoins and ICOs and forks. Everyone was dreaming about tokenized world and new coins and FinTech wave hit the markets! And that craze shot the price up from $200-$400 at the low to $20,000 at the high, so that was also very nice rise, but it had several corrections in between, like six or seven! Very different from 2013. It had six or seven corrections of about 30% in between in that big rise. So right now the big question is: correction or no correction? I guess part of the answer we already have because we just had a big correction when price shot up from $10,000 to $40,000 and then crashed to $30,000, which is -25% correction. But if you ask me it’s very similar and maybe more similar to 2013 price-wise than 2017! So we might as well see not that much corrections on our way up! And that is also compatible with the macro environment that we see at the moment. We talked about that — the quantitative easing has gone full throttle of course since COVID, and more money has and will be made by central banks in the months to come than we have ever seen before. That money has to go somewhere! That goes to banks, that goes to companies that are saved that would have otherwise defaulted, and all the people, all the managers and employees of those companies, they can go on buying stuff which is a good thing of course, but it also keeps the economy going and in that way in a real sense that quantitative easing money — the printed money — enters the real economy! And it enters the real economy at the top first: managers, politicians, the people that are already rich. So what did they do with it? They buy assets: a second or third house, a street of houses, as an investment objective. They buy gold, they buy Bitcoin! And part of that you can quantify in the model, but part of that money will trickle down to assets and also to Bitcoin. But with the amount of money being printed, it’s almost unimaginable that we go down from here or have very big corrections. And quite honestly you can see that in the prices too! The last three months, if there was a significant dip in the price, it got scooped up immediately by buyers! And Michael Saylor was very eloquent and very open in how he did it, how he bought his first $200 million and the other $400 million and the other buys since then. He does this very professionally with a lot of help from people that have the equipment and the access to the market, and they move that money without moving the price too much, in very small tranches. [49:00] Yeah I have the feeling that every dip, every time the price goes down, there is somebody with stronger hands that will say, Thank you very much for the coins, they will now end up in my wallet and they will go in deep cold storage, never to be seen again! Or at least in the next ten years! So yeah I think we’re witnessing that right now! And it feels more like 2013 than 2017.
Stephan Livera [49:27]: As we are entering this whole Phase 5 thinking, are there any other broader macro themes that you think are worth commenting on in terms of things like, What other kinds of entities we might see entering the space? What kind of vigor will they be entering the space with? Will they be cautiously dipping their toe in, or will they start to really dive in in a more deep way to Bitcoin?
PlanB [50:02]: Two things I’d like to say about that: one is the institutional investors are really lining up now to buy Bitcoin! I’ve been invited almost weekly to join meetings with hedge funds, family offices, banks, insurance companies, to talk about Bitcoin, not only the stock to flow model, but just the whole Bitcoin thing and how you can buy it and how you can hedge it and how you have to look at it as an investor. So there’s really a lot of demand from investors, and one of the things that I find very interesting—also for myself — is the derivatives markets. So if you look at the futures market for example, you can now buy Bitcoin for, say, $35,000, and you can sell it at the same time for a year later — you can future sell it for more, I don’t know what the price is, but $36,000. So you get a certain $1,000 profit, you only have to wait for a year! And of course you give up your upside and you also have no downside so there’s really less risk, but you really have to know what you’re doing. But anyway, if you do it like that—it’s a cash and carry strategy — you can make a 20% return annualized, and that is the kind of returns that Warren Buffett and famous hedge funds get! But not banks or insurance companies — they’d be happy with maybe 5%. So 20% in an easy trade like that is something that cannot be ignored and is seen by more and more people, and some people pop their toes in the water and of course it works. It is too good to be true! And after that in a negative interest rate environment that I’m living in in Europe, -0.6%, you can actually borrow money for negative interest rates if you’re an institutional investor. But even as a private individual you can lend against your house for 1% or lend without collateral for 3%! Well if you use that money — and I’m advising not to do that, but for professional investors this is candy that is too good to be true! And then if we look at option markets, we see implied volatilities of over 100%, which means there’s call premiums from 40–50%. So you can do volatility harvesting strategies which are very very profitable and cannot be done on other asset markets! So the whole derivatives markets and the relation between the spot markets, derivatives markets, futures, options, etc., I’ll be watching them like a hawk—actually participating in them! I see a lot of people entering those trades and looking at it. I think the future and option market prices will give us a lot of information about the future, so it’s really interesting if the base rates of the futures stay that high, if the implied volatilities in the options markets stay that high, and yeah so that’s one thing that cannot be denied anymore by the more traditional investors and that will be seen by more and more. The other thing — it’s not so much investing but more society thing — it’s a very positive thing: good money, sound money is very important for humanity! It’s good for trade, it’s good for specialization, it’s good for capital allocation and allocation of scarce resources, where the investors were not. And to have sound money, a measure, a unit of account that can be counted upon, it can be depended upon, is very interesting! And very important! And we don’t have that at the moment, because central banks are printing the money at will, they’re using it for political purposes, they’re weaponizing it, and it’s like an architect that uses a measure like the meter or an inch that changes every day! Imagine how a building like that looks after the architects are finished! And that’s our economy at the moment! So we’re building with a measure that is changed every day, and Bitcoin will — for the first time — introduce a constant. And that is the 21 million coins. So that will for the first time ever, be a constant in finance like there is a constant in physics — the speed of light, for example. In mathematics. So that is from an Austrian perspective and I talked about this with Saifedean lately. It could be very interesting, this constant! And maybe with that comes a sort of predictability, but at least a totally different kind of economy, separation of money and state, and in my opinion it will even unleash the next Renaissance with science at the very heart of it, but also with art and freedom and a totally different society than we have at the moment that is dominated by governments and states. And this one will be more sovereign individual and math and art-based! So yeah I find that a very hopeful perspective, and that’s maybe, apart from the investing, the main reason why I find Bitcoin so very very interesting!
Stephan Livera [56:05]: Yeah there’s certainly a lot of factors in there that really point to being bullish at this point in time. And some of the earlier points you were just making there like the cash and carry strategy — now obviously for those of us who are more hardcore Bitcoiner, we wouldn’t want to give up the upside of holding Bitcoin, but for somebody who’s a little bit more trying to dip their toe in here, this is an easy way for that kind of person to — so long as they have the right institutional set-up to be able to achieve that kind of strategy. And I think the other point that you raised that’s really interesting in terms of where the next big amount of demand or the next potential big markets of people who are gonna come into Bitcoin, is this whole cost of carry which we’re seeing in Europe! People who have large amounts of fiat money in their bank accounts are now starting to get charged for that! And well, if we think from a cost of carry perspective, you can quite cheaply hold Bitcoin for a tiny tiny fraction of the cost that these people are paying to hold fiat money in a bank account, so I think that is just gonna really start driving home this cost of holding fiat. Whereas historically it was free — or you made money on it!
PlanB: Oh absolutely! And for example in Holland it’s not even small amounts, it’s everything above 25,000 Euros you get negative interest! You don’t get interest — you have to pay! I can tell you, the moment that that happens, that negative interest rate is unleashed upon your savings, then the demand for Bitcoin will skyrocket! I saw it happening around me with friends and family, I saw it at work, I saw it in the whole country! Everybody is scrambling to get their money out of this negative interest rate bullshit! It’s really unimaginable what that does psychologically and of course it just eats your money away!
Stephan Livera [58:10]: Yeah it’s a very big injustice. And hopefully more people start to see that and I think they will see that over these next couple of years. But I guess with all that said it’s a good to wrap things up at this point. Follow @100trillionUSD on Twitter and find his website planbtc.com. Anywhere else to find you?
PlanB: Twitter is the main place. My website is planbtc.com and it has all the podcasts and articles, but Twitter is the main thing, and reach out if you will, the DMs are open!
Stephan Livera: Fantastic, thank you for joining me again PlanB and I hope to chat again soon!
PlanB: Thank you very much!