Bitcoin Headwinds Are Sign of Monetary Tightening: Acheson

Jay Jacobs, US head of equity ETFs BlackRock, joins Scarlet Fu and Dushyant Shahrawat on "Bloomberg Crypto." They discuss the attractiveness of the iShares Bitcoin Trust ETF (ticker: IBIT) to investor portfolios.

Over the past month, we've seen the S&P 500, treasury long yields and oil all trending higher.

Joining us now is Noelle Acheson, former managing director of research at CoinDesk.

Noelle, um, that's the price action. When you look at the reasoning, uh, stocks are at or near record highs because of stellar earnings growth. Treasuries had a brutal September with yields now at multi-decade highs because of inflation risks and the worsening fiscal picture. Oil is entirely driven by the Iran war.

So, how does Bitcoin fit into this macro picture?

Hi, Scarlett, great to be with you. Thanks for having me.

Bitcoin fits into this picture for two reasons. One,

it is a debasement hedge, and it is one of the few truly hard assets out there, arguably even more so than gold. And this is going to start shining even more when the debasement play starts to gain more momentum than it already has. In other words, when there needs to be more rescues for the market tension that we're seeing.

Bitcoin is also fits into portfolios for those who believe in the spread of global adoption at a time of rising geopolitical tension, at a time of greater need for financial resilience. We are seeing already the greater adoption of Bitcoin and other crypto assets as resistance to the political changes that we're seeing.

So you've got two things. You've got the technology, you've also got the role of Bitcoin in portfolios as a hard asset.

Uh, Noelle, from Right, just follow up on since you mentioned debasement and you're a great thinker about, you know, Bitcoin as a macro issue.

To what extent is that debasement issue still driving Bitcoin prices? Like we've seen a lot of institutional action and activity as well. So is the debasement argu- argument as a driver or a factor driving Bitcoin somewhat less important than it was, let's say three years ago?

I would say it's more important now Andrushyand for the main, for one main reason, and that is there are headwinds for Bitcoin, which is why we're not seeing it go up faster than we already are. The headwinds are signs of monetary tightening.

You've got higher yields, you've got increased rate height expectations, you've got higher oil prices, you got a higher dollar index. All of that in theory should be pushing Bitcoin down. Bitcoin is one of the most sensitive assets to liquidity expectations.

We're not seeing that. Why? Because most investors are looking through that. They're looking through, as I mentioned earlier, they're looking through the market stress to what will the fix be? And given recent history, we really much know that the fix will be injecting liquidity where needed, which will accelerate not just inflation, but also the currency debasement relative to goods.

So, there's Bitcoin and then there's the larger crypto industry behind it and, you know, the movement towards defi overall.

Does growing institutional participation in things like stable coins translate into improved sentiment in the crypto industry and therefore higher prices for Bitcoin and digital coins because that isn't necessarily what we've seen. We've seen Bitcoin make a recovery, but I'm not sure it's tied to the, um, increased adoption of stable coins.

That is an excellent question and I remember spending a lot of time thinking about this when the genius Act was going through the halls of power.

And the answer is yes, it does make a big difference because of the on-ramps. It is just simply easier to pay for Bitcoin on chain with stable coins than to link up your fiat account.

Now, that said, there is a caveat. You don't need to on-chain, to purchase Bitcoin on chain these days to get exposure to the underlying asset. The ETFs have fixed that for us. There are many derivative products and this is now a global phenomenon as well.

I'm talking to you from Europe where we are seeing increased adoption, increased offerings of Bitcoin related products.

But stable coins do offer a smoother on-ramp to professional investors who are eager, who are happy to handle this kind of liquid settlement asset.

So, you know, in a in a in a nutshell, yes, stable coins are going to help liquidity in the crypto markets of assets such as Bitcoin, ether and others, even though the direct connection may not seem quite as obvious.

Great. Noelle, just a question, you know, you're a terrific, uh, investor and thinker about this space.

So, question around Bitcoin cycles, right? To what extent, I mean, we've seen Bitcoin cycles before, massive run-up,

you know, retail very active, blow-out top, drop, drawdown. To what extent has that Bitcoin cycle changed and can we expect more of the same or is it fundamentally, structurally, is there a step function difference?

That is the question that we're all asking ourselves, Andrushyand. The difference now is the institutional involvement. Institutions in theory are going to be dampening some of Bitcoin's volatility, therefore the cycles won't be quite as violent. But we do know that any bull run is driven always by new money coming into an asset.

And the new money that has yet to come into Bitcoin is still vast, arguably much vaster than for many of the other assets that could also be acting as a debasement hedge or even as a speculative play. So it's the new money that we have to watch.

We also know that there's a certain vibe in markets generally these days that is less concerned with fundamentals, and this is going to appeal. Certainly Bitcoin is likely to appeal to a certain type of investor.

Bottom line, I don't know. That is a very important question though. There are arguments for each side. My instinct says that this will be more muted than previous cycles, but still a long way to go.

I appreciate the candor there. It's it's it's hard to make these big broad predictions when you're looking at macro events. Before we let you go, Noelle,

what's the next big catalyst for Bitcoin, um, that whether it's macro or whether it's specific to the crypto industry?

Signs of a rescue. We saw the the current jump, the current levels we're at now are the result of the announcement back in August by Treasury Secretary Scott Pissente of the buybacks, the the doubling of the buybacks of long-term dated Treasuries.

That pushed Bitcoin up $10,000 in the space of 10 in the space of two days. That's actually an astonishing speed for Bitcoin, especially given its trajectory over the past year.

So another sign that the Treasury is worried would give another leg up and then momentum will kick in, momentum chasers will do their thing.