Why Bitcoin has lagged and what could change in Q4: Jamie Coutts

Transcript

Bitcoin has has been lagging. What is your prediction or what are you seeing as the path forward for Bitcoin in Q4? Are you expecting this to to catch up with some of the outperformance of the rest of the market? Do you think we see a blowoff top? What are you seeing as Bitcoin goes into Q4 here? >> Generally Q4 is uh seasonally a good period for Bitcoin and crypto. um like seasonality those seasonality uh charts are are pretty sort of dicey as well in terms of just like trying to look at them as sort of some sort of guide but generally Q1 and sorry Q4 and Q1 are strong for crypto in general. Um I look I mean it all really depends on the dollar. The dollar's the massive swing factor here because central banks although they're cutting in terms of

interest rates which is liquid liquidity positive but really only at the margin it doesn't make a massive difference to asset prices. It does to the business cycle which has a knock-on effect for you know capital expenditure and consumer spending. They're generally all very very positive. But without central banks actually uh expanding their balance sheets, then really the what happens with the dollar is the most important thing right now to track. So I just constantly look at what the DXY is doing. The DXY had one of the largest declines in Q1, Q2, and really into Q3 uh in decades. And that's the reason why

I think even on you know the last time I was on the show John was one of the main reasons I published like the bullish trinity report um you know at the start of April saying I think risk assets and crypto are going to go up a lot because of that the the speed of that decline was so significant um now we're seeing the DXY sort of hold around sort of 90 98 99 um it really m the next leg of that move whether it's a retest of 101 or a breakdown below will I think be incredibly important for risk assets. My view is that we'll probably test around a h 100red and so it might be a couple more weeks of chop but eventually with interest rate cuts and what Trump is is

trying to do with best enter bring the dollar down that that is another leg lower and so at some stage in Q4 maybe November um we'll start to see crypto start to really catch a bit again but you know there's probably some assets that are worth buying right now um with a view to the next sort of six months being particularly good. >> Gotcha. So, you're anticipating So, just to kind of recap this section, global liquidity is still rising and we've had the Treasury General account refill where they, like you mentioned, they extracted about a half a trillion dollars of liquidity from the market, which dragged liquidity and dragged crypto. Now, that's over or or about to

end. And so, the the bull run can continue, and you're saying maybe some more chop, but eventually as we get deeper into Q4, you're expecting this to go higher. Um, I think that's something that a lot of people have been wondering about, and I want to get your thoughts on this, too, is now that the Fed has started to cut interest rates, we've gotten one cut in September. We're expecting to get another one in October. Some people are saying even another one before the end of the year. How important is that for crypto markets in your mind? Does that have a big impact on digital assets? Is it going to impact Bitcoin, but not the rest of crypto? How big of a deal is this, or is this already priced in? I >> I think it's important for financial conditions in the business cycle. So

cuts will uh I guess supercharge the ISM and bring it back above 50 and sort of I think continue or accelerate the improvement on that end. But I don't think it's as important for like just just asset prices in general. I think asset prices respond to more of the quantitative policies from central banks. And at the moment even though it's marginal the Federal Reserve is still tightening its balance sheet. is still they're still conducting QT. So, I don't expect them to change. Like, we just we don't have a federal um a Fed chief that's I think going to while he's in charge, you know, retire that policy,

but it's coming to an end at some point. So, you know, whether it's with the the new Fed share next year, I if you just look at the way central bank balance sheets have always have always clipped major turning points in crypto. I think that's more important than interest rate cuts. But that doesn't sort of that's not to say that they're not important because the business cycle needs interest rate cuts. Interest rates are too high relative to the economic growth. They need to bring that down. They want to bring that down. interest rates down so that they can unlock equity in home in you know people's um primary asset and sort of spur economic growth through you know the um the uh the home the property market. Uh, so all

of these things are definitely positive for um for crypto, but it's not, you know, it's not the good old days of the 2010s where it was QE2 3 QE infinity and, you know, everything just responded on a dime to those um quantitative measures. But I think those I think those policies get retired. And also there's probably another trick up their sleeve with adjusting like the the government adjusting the SLR the supplemental leverage ratio for banks so they can increase liquidity into the market through more borrow sorry more lending. Um so that would be you know that would directly flow into M2.

>> Gotcha. Yeah, it's really helpful insights on that and I do think that this is something that is really important what you mentioned the the Fed is continuing their quantitative tightening even though they are still now starting to cut rates. Um so there's there's a lot that you've brought up here that like I said before gives a much bigger picture here. Really helpful stuff. I want to move now um to a recent report you wrote for Real Vision on smart contract platforms because I think that there was a lot of great alpha in this um and just like like I said a really institutional grade framework to take to the crypto industry. You highlighted at the start, smart contract platforms have processed 57.8 trillion dollar uh since 2020 and they're compounding at a 7 approximately a 78% uh annually.

What is driving this explosive growth in this and what do investors need to understand about this huge trend because this is enormous amounts of liquidity we're talking about here? >> Yeah. So, I I hadn't done this analysis really since 2022. uh and the data providers are getting a lot better with capturing settlement volumes and settlement volumes uh in this in the in the crypto context means they are tracking you know settlement flows which are related to peer-to-peer transfers of the native token on an L1 transfers of any uh other tokens related to that L1.

So in Ethereum it's ERC20 and on Binance it's their token um protocol. So it basically assets moving onchain, but also peer-to-peer transfers of stable coins and DEX volumes. There's also NFTs, but NFT volumes are really sort of negligible at this point. So you put them all together and you come up with like total settlement volume. The problem at the moment with this data is that even though the data providers are sort of um are scaling it up when you look across chains outside of Ethereum and Salana you don't have all the data for those different um activity cohorts but you get a pretty good proxy. So it probably underounts well it definitely

underounts total settlement val volumes but most of the volume is actually quite concentrated in Ethereum and Salana and also Tron and there the data is a lot more comprehensive so you've got a pretty good proxy. Now the you know the biggest drivers are DEX volumes uh actually which are you know on Ethereum and and also on Salana um account for a large portion of fees. So you could argue, hey, it's just speculative activity. It's DGN's doing DGEN stuff.

The the reason why I did this analysis is that I think it's so important for everyone who's investing in crypto or thinking about investing in crypto is like where will we be in the future? So the you know the subjectivity that I experienced when I started working as a crypto research analyst at Bloomberg Intelligence you know and you get the you know you get the sort of sniggly remarks that you know this kind of settlement volume is not the same as sellment volume on payment platforms like Visa and Mastercard and PayPal and whatnot. Well really was it what was it showing initially? who is showing that the technology can scale is far more efficient. The velocity of money that

moves inside the crypto economy is magnitudes more than the fiat economy. What is the problem with the fiat economy? Velocity has been declining for decades upon decades. Despite the Keynesian economics, economics models and theories saying that they could tweak it through government policy and monetary policy. That has not happened. Although we've seen a spike since um co but generally that trend has been down low or declining money monetary velocity in any economy is not good. Um it shows that capital is not moving it's not moving into productive use use cases. Um it's not spurring uh activity and entrepreneurship. In fact, you know, I would argue that the main reason or one

of the reasons that velocity is going down is because that all new money or most money is flowing into investments, not into productive uses, not into the real economy. In Australia, the banks won't give you a small, you know, a small business loan. They'd rather lend against your house in a property market that's like, you know, trading on 16 times median earnings. So, this is a huge problem. Meanwhile, this parallel system full of dgens and you know libertarians is showing that they can move money, move immense amount of value and that value that the crypto economy has moved in the last 5 years is almost as much as Visa, Mastercard and PayPal, but it's growing at seven to

eight times that in terms of annual growth rates. So within two years it's going to overtake. What happens when Visa, Mastercard, PayPal, which they're already doing, start moving all of their value flows or the settlement volumes onto blockchains? So, you get this exponential explosion again. And then the critics can't really argue that it's just dens anymore because it's actually them paying for their coffee or, you know, paying for their Amazon um gift card.

So it was just really um a a way to sort of go back to basics. The analysis I doing 2022 I was looking at Bitcoin and Ethereum specifically. Now look at the entire layer ones and go hey like these guys are growing at a clip and now all the payment companies are going to actually integrate with them. And that drives the asset price that drives the value of the L1 token. The L1 token is the settlement token of the of the chain. And even with new chains coming on that are stable coin specific, everything is growing the pie. There's going to be winners and losers, but the pie is growing substantially. And we go from, you know, 80 trillion, you know, in 5 years. We do that in like one year

in two or three years time is is my expectation. >> Want insights on what's moving crypto markets and how we're trading each event? Subscribe to our channel and join the Milkro Daily and Pro newsletters and start investing like the top 1%. This show is for educational purposes only. Nothing we say is financial advice. Investing is risky. Never invest more than you can afford to lose.