Fill The Gap Episode Thirty, with Jamie Coutts, CMT, CFTe


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Global Liquidity Cycle May Dovetail With Bitcoin Ahead of ETF report

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Technical Analysts know that “timing is everything.” This month’s interview could not come at a better moment as the global discussion around cryptocurrencies, decentralized finance and digital assets again takes center stage. Our longtime friend, past CMT Association Board Member, and exceptional market analyst Jamie Coutts, CMT, CFTe is the Crypto Market Analyst for Bloomberg Intelligence. His knowledge of market structure, on-chain analytics and macro context for this emerging asset class is unparalleled.

Whether you are a maximalist, a dabbler, or even for those vehemently opposed to cryptocurrencies, the context provided by Jamie in this interview is critical knowledge for all financial professionals. With the launch of BlackRock’s new Bitcoin ETF, Citadel’s new crypto exchange, a steady clip of regulatory announcements, and institutional adoption/adaptation on the rise crypto is again at the forefront of national and global conversations. Stay informed. Fill the Gap in your knowledge of the space.

Enjoy episode #30 of Fill the Gap with special guest Jamie Coutts, CMT, CFTe.

Fill the Gap, hosted by David Lundgren, CMT, CFA and Tyler Wood, CMT brings veteran market analysts and money managers onto a monthly podcast.

For complete show notes of every episode, visit:


Tyler Wood, CMT 00:13
Welcome to Fill the Gap, the official podcast series of the CMT Association hosted by David Lundgren and Tyler Wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewees’ investment philosophy, their processes, and their diverse decision making tools. By learning more about their key mentors’ early influences and their long careers in financial services fill the gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street, who discovered, engineered, and refined the design of technical markets. Fill the Gap is brought to you with support from Optima, a professional charting and data analytics platform. Whether you’re a professional analyst, Portfolio Manager or trader, Optima provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study. Learn more at Hello, and welcome to episode 30 of Fill the Gap, the official podcast of the CMT Association, this evening. I am joined by David Lundgren, a CMT and CFA charterholder. How are you my friend?

David Lundgren, CMT, CFA 01:57
I’m doing well. Tyler. I’m doing well. Good to see ya.

Tyler Wood, CMT 01:59
It’s good to see you. We just finished close to a two hour conversation with what could arguably be said is the world’s foremost Research Analyst in the cryptocurrency space. Your fellow board member and a dear friend of mine, Jamie Coutts, also a CMT charter holder. Dave, let’s talk a little bit about the highlights from this conversation and what our listeners can look forward to.

David Lundgren, CMT, CFA 02:22
Yeah, I mean, I, there’s just so much information that like these conversations are so content rich, and they can go down so many different rabbit holes. But, I will just say like taking a step back and just saying, one of the main reasons why I am a technician and a trend follower. And people have heard me say this many times is that the markets, the smartest, fundamental analyst on the planet, it’s the smartest macro strategist on the planet. And, it’s the smartest crypto analyst on the planet, right? The reason bitcoin’s working and everything else isn’t, for the most part, there’s reasons for that. So in what I’ve found over the years is just that, the more difficult it is to actually put a fundamental thesis together as to what it is you’re actually talking about, the more crazy things can get, right? Because if you can’t really truly say that, well, it’s worth this for sure that it can’t be worth 10x that because you know for sure what it’s worth. And, so, crypto is obviously one of those things that even to this point, we’re still struggling with, what’s the appropriate valuation metric? How do you even value what are the fundamental underpinning fundamentals of matter in this conversation and, and some of it’s a bit reminiscent to me of the .com bubble where we were, you know, price to eyeballs and now it’s priced to users, which by the way stands for PU, which is a good enough warning for anybody. So I don’t know. But, Jamie’s got an incredible grasp of everything that’s happening and I really hope that our, our listeners enjoy this conversation because it’s just jam packed with information.

Tyler Wood, CMT 03:51
Yeah, I think the characteristics of Jamie Coots, none of the cryptocurrency space, have really been very consistent. I first got to meet him in 2012 or 2013. He had just started the CMT program. He already had his CFTe but I think was searching for something more objective and quantitative. You can have deep interest in more algorithmic and systematic trading strategies and we became good friends, I mean, he had already really cut his teeth and served time on both the buy side and sell side. But, being in Singapore, he became the first shoulder that James Brody tapped, being a board member for many years, tapped Jamie to lead the efforts in growing a thriving young CMT candidate community and member community in Singapore and then quickly expanding across the Asia Pacific realm. And, I remember Jamie asking, you know, alright, so I finished my CMT. And I think he finished level three in the end of 2013 and, and became a charter holder in early 14. We got to travel quite a bit together in Hong Kong and Singapore. For in Kuala Lumpur and I even twisted his arm to come with me to India one trip. But I think that quest for knowledge and finding the next thing certainly make sense that Jamie has thrown himself into what is a very rich, deep, and constantly evolving knowledge base for the cryptocurrency space. It will be mentioned in our interview tonight just how quickly things are changing. And, that knowledge becomes stale almost as soon as you print it. So, the thing that really strikes me about our conversation is that the fundamental work that he’s doing on the chain analytics, trying to come to some valuation metrics around transaction usage, the staking and the number of user growth. That seems to me to be the driver of more institutional adoption. Right, the cryptocurrency markets are no different from the equity space in the sense that we talk to technical analysts all the time, who see something that’s important to get across to clients based on their work with technical data, but they come up with a fundamental explanation for it, so the clients can digest it. And it strikes me that a lot of the work for lower level protocols is is trying to understand if this is a Ponzi scheme, is this something that’s, you know, definitely destined for zero, where your trading rules wouldn’t get you out fast enough. But, for something as stable and dominant as Bitcoin? I think even Jamie said on the, you know, on the interview that he was looking for the breakout above 25,000, and he’s watching technical levels at 31,000 for his next move higher. So, at the end of the day, you’re still trading price action and that’s exactly a meaningful indicator of everything you’ve got in your toolkit.

David Lundgren, CMT, CFA 06:55
Yeah, and, you know, they’re trading the markets opinion, not yours. It’s like Bitcoin is probably the Amazon of the 2000s bubble 1999 bubble and all the rest are sock puppets that went to zero, you know, and I’m not saying that that is the case. But it should certainly looks to be the case. When you look at all the charts. I mean I follow up probably 500 crypto currencies and there are some that are starting to get a little better at the margin. But for the most part, man, it is—it’s a war zone.

Tyler Wood, CMT 07:25
Don’t you know about screening by market cap? I mean, you don’t have to look at 500 cryptos!

David Lundgren, CMT, CFA 07:32
Market breadth! It’s an important concept.

Tyler Wood, CMT 07:35
That’s—we didn’t even get into talking about crypto market breadth. Next time.

David Lundgren, CMT, CFA 07:38

Tyler Wood, CMT 07:38
Excellent. Yeah. But yeah, Jamie served as a board of directors advisor for over six years on our global board chapter chair for many years beyond that, and he just seems to be very very hungry for knowledge. You know, he went and attended Van Tharp’s trading psychology classes, which is actually the real deal in trying to understand your own psychology around risk and uncertainty. And, I’m really excited for what happens in chapters three, four, and five of Jamie’s career because he certainly doesn’t seem to be slowing down, that’s for sure.

David Lundgren, CMT, CFA 08:15
That is for sure.

Tyler Wood, CMT 08:17
And with that, let’s dive into our interview with Jimmy Coutts, CMT episode 30 of Fill the Gap.

David Lundgren, CMT, CFA 08:28
Welcome to Fill the Gap, the official podcast of the CMT Association. My name is Dave Lundgren and I am joined as always by my good friend, Managing Director of the CMT Association, Tyler Wood, fellow CMT charterholder. Good to see you, Tyler.

Tyler Wood, CMT 08:41
Good to see you too, Dave. We have an amazing guest on this episode. This is something that’s been in the works for, since the the AsiaPac conference that we held in Mumbai some time ago just recently where Jamie Coutts, our esteemed guest today, fellow CMT charterholder as well, dazzled the crowd with his breadth of knowledge of this of the cryptocurrency space, not just charts, but fundamentals, the macro, the secular themes, how to value crypto, and all these things. So as soon as I heard Jamie speak, I turned to Tyler I said, Tyler, man, we got to get this guy on the podcast ASAP. And this is the first opening we had. So it turns out as we all are so good at timing because we are technicians. The timing could be perfect because it looks like it bottomed. So why don’t we get into it? Jamie Coutts, welcome to Fill the Gap.

Jamie Coots, CMT, CFA 09:32
Dave, thanks very much. Tyler, Nice to see you again.

David Lundgren, CMT, CFA 09:36
Yeah, you too. So we have so much to cover. And I think it would be great for our listeners to hear a little bit about yourself, what got you into finance, in particular, what got you into technicals? And then after that, we really want to talk about like this transition that one day you woke up and said, Man, I really need to dive into this digital asset thing because I think it’s going to be huge. So I want to hear about that thought process as well. So tell us about yourself.

Tyler Wood, CMT 09:55
It’s good to see you too, bro.

Jamie Coots, CMT, CFA 09:59
Oh, I guess, again, moved into finance, so really by accident, I fell into it by accident. I studied economics at University in Brisbane. And I think originally what I wanted to be was either an economist or a historian. But, I think, pretty much after university, I quickly figured out that there probably wasn’t a lot of money in being a historian—although, you know, 20 years later: podcasts and content creation, you can make a very good living. And so it’s a weave that into the way I look at markets from a historical perspective. So, the job that I first took out of university was really, essentially, as a sort of a coffee runner in a stock broking house run by a very well known finance guy in Brisbane who ended up being, you know, one of Australia’s most well known businessman running several sports teams. And, he basically took me on and said, Look, you know, why don’t you have a job here as a freelance introduction from a friend of mine, and I ended up doing that for a couple of months. And it’s also there, I got a sense of like, how stockbroking works and how the markets sort of functions and I thought about actually pursuing a career in this. And, there was a job opening for Credit Suisse at the time, not in Brisbane, where I was based, but all the way down the Gold Coast, which isn’t that far from Brisbane, but in terms of like psychology and the type of market that it is, it’s a huge distance, very much like the, I guess it’s like the Miami of Australia, or a coastal location attracts all types. But, Credit Suisse had an office down there and I joined them in 1999. And, of course, that was the time of bubble. I came in and, you know, the dealer license and started actually managing clients and building up my portfolio was a pretty, it was pretty much a baptism of fire because everything blew up, you know, only six to nine months after really starting that position. And Credit Suisse in Australia, just like Credit Suisse was in the United States and in Europe, they were really the number one breaking house for the TMT stocks at the time, which was obviously the, you know, the telcos and media companies, so, sorry, tech as well. And so that was a really rough initiation into managing people’s money because, of course, the fundamental analysts at that time all ranked number one in their respective sector were advising our clients and the brokers in the firm to keep buying on the way down. So, it was a really brutal one to two years in at the start of my career. And, it was only just by chance that I happened to sit next to a guy who was brought into the firm in those sort of bear markets, lamps, he was very much grounded, he was a grounded technician. So, I was really fortunate enough to sit next to this guy and he shared with me a lot of insight and what dawned on me at the time was that, you know, the way I was sort of approaching the market was very convoluted through the narratives that were being told and through the sort of subjectivity of fundamental analysis. And here was a discipline, which kind of distilled the really the core tenets of markets, which is supply and demand, into very discernible sort of signals. And that resonated with me much more than the fundamental approach that I’ve sort of been brought up on. So, that started the journey and I pursued it over the rest of my career until this day, and it’s gone through, It’s gone through a couple of iterations. So pursued the CFT e qualification in Australia, because at the time when I was picking up all my postgraduate certificates for financial markets, there was a technical analysis subject being offered and it was actually it was actually a credit for the CFT e accreditation. So, I completed the the two units for that and prophecy of Te and at that time, I had made the choice to move overseas and work in London. But also sort of abbreviating that or taking a break in between. So I could do a little bit of traveling and when I eventually got back into the markets, it was 2005 or 2005 and early 2006 and so I missed out on the bull market, essentially,. I’d been traveling around Europe, working part time roles within some of the hedge funds in London and the banks, which was a great experience and taught me a lot as well, but most of he time was downtime, traveling and partying through Europe. Next, rugby Jamie, we want to hear about all the stadiums, you’ve visited all the great beers you drank. We’d be here all day. So, the penalty for that was that I missed out on a great bull run that 2003 to 2005 2006 period. So, when it came back into the market, I was actually working on the sell side for a broker out of London, which was servicing, you know, pretty much Asian clients. So, it was a night trading role and I was covering Asian markets. And, it was, you know, it was very useful to have that technical analysis background, because we were just coming into obviously, what happened in the 2007 2008 period. And, by that time that I’d been posted out to Singapore to start the office there. And, you know, in a very similar for simple, it’s a simplified approach of using technical analysis where we sort of basic breakdowns and momentum in the early part of 2007, I started writing a lot of research that was going out to a clients who were mainly Japanese equity orientated. And that’s fine, because I was based in Singapore, which had a very strong hedge fund community. I was talking to most of the smaller mid sized hedge funds, and some of the guys from the desks were had relationships with the larger long own lease, but the hedge funds were obviously very much more attuned to the technicals and very much more interested in them. And, so for me that 2007 2008 period, as awful as it was for financial markets, as awful as it was for the economy and the loss of jobs, was actually a really successful trading period. A lot of clients that I was advising, were shorting stocks during that period. And the irony was that by the end of the GFC, a lot of these funds still closed, even though they were up over the over a period in 09. Yeah, and that was due to the liquidity withdrawal that we saw before the central banks on mass started their programs to really liquefy markets. Because these hedge funds had didn’t have gates, and were able to get receive redemptions on a monthly or quarterly basis, a lot of them didn’t survive. And that was sort of like my first, I guess, introduction to a lot of different things, but also the the importance of the role of liquidity in the markets. And, of course, the central banks became the market in many way after that fact, as the buyer of well, the lender of last resort and the buyer of of assets, distressed assets, or government assets and sovereign bonds. So it was a really interesting period. And then, you know, I ended up moving over to, to the buy side. Before I did that I was operating on a lot of alpha capture programs. So, for those of you who don’t know, what alpha capture is, there was a hedge fund out of London called Marshall Wace, which kind of pioneered the concept of tracking all of the sell side ideas, trade ideas and giving the sell side brokers some skin in the game by giving them a theoretical portfolio that they could trade. And, the brokers instead of receiving orders from Marshall Wace would receive checks, would receive payments for how successful they were picking stocks, which, you know, really resonated for me because it was a far more meritocrital sort of situation for brokers, who didn’t have long standing relationships with a lot of the big firms so they could get paid. So, I gravitated towards those systems and it became one of the one of the top trade idea or performance on the Marshall Wace program and then two sigma after that. So I, you know, that helped me get a role tutor, which had a Singapore operation, where I worked not as a pm or trader, but on the execution desk. Not that I got to really apply a lot of those skills, although I was writing commentary for the for the guys because the role was so demanding of being an execution trader and we were basically managing the books of quite a few different PMS, but we’re all you know, traditional long only, sorry, traditional long, short type strategies. So I was there for, you know, a couple of years before those funds shutdown and then after that, it was really okay, what’s my next move? And that’s when I decided to, you know, throw myself into technical analysis, full throttle. The experience that I had on, you know, tutor working with portfolio managers and seeing how they thought their investment process, their decision making, how they size their positions, what signals they used, what narratives really caught them, what was their trading psychology, that, upon reflection taught me a lot about my own sort of approach to markets and I know I needed to actually drill into those aspects if I was to become a much better trader. And it was also during that time that I came to the realization that less that to try and minimize the subjectivity in trading was really the ultimate goal. So, that led me to pursue some systematic trading strategies.

David Lundgren, CMT, CFA 20:38
When did you get your CMT? What year was it?

Jamie Coots, CMT, CFA 20:43
So the CMT came in 2014. So, I started in might have been 2013. So, I started it, I think, in 2012. And it was only through the CMT that I was really exposed to intermarket analysis, which is incredibly important today for what I do in crypto. Yeah. And open attendance of portfolio management and quantitative strategies. And it was when I read David R Hansen’s book, that the light switch went on, like it’s like, okay, right, here is here is the right approach. Well, I mean, right is a very subjective word. But, this is the approach for me that I wanted to use in really trading markets. And, so from there, it was a, it was a pursuit of that.

David Lundgren, CMT, CFA 21:28
Yeah, that was a fantastic book. So. So, eventually, I know you’ve, up until recently, and obviously till now you’ve had a very successful career as a technician. But one day, you woke up and said, I’m going to I’m going to really dive in on this digital asset space and make a difference here. So, what was the what was the catalyst for that and can you give us a little bit of a flavor for that, how that journey is gone for you?

Jamie Coots, CMT, CFA 21:58
I think I started in 2013. So, at that time, there was the European debt crisis and I had seen an article written in Zero Hedge, which mentioned Bitcoin. And I had absolutely no idea what this was and I read the article, and I still didn’t understand what it was.

David Lundgren, CMT, CFA 22:23
Yeah, you’re not alone.

Jamie Coots, CMT, CFA 22:24
I think with everything in crypto there is no, there is no, like this, there’s no end state for knowledge. The space is evolving all the time and the applications and the technology is so fast, is such a fast moving space, that even I, now that I’m fortunate enough to sort of have a career dedicated to it 100%, often feel that it’s like trying to drink out of a firehose, there’s just too much going on. You have to kind of choose your corner, or choose your your niche. But, yeah, so it was in around 2013. And, looking at the price and what I noticed was that when Cyprus had its financial collapse of the banking system, that Bitcoin actually rallied during that time and that’s when I started to connect the dots a little bit from this sort of programmatic money, which, you know, was very ephemeral, to actually something that could be tangibly beneficial. And, or everything that leading up until 2013 was really an education on how dysfunctional markets were, how dysfunctional the economy was, how dysfunctional were the the power structures that sort of manage everything, you know, in the global economy today. And so I think, subconsciously, I was looking for something that could provide a solution, or a better way forward and I was struggling with that and thinking about that, in terms of markets. And, along came this, this this, technology, essentially, that for people in Cyprus who were lucky enough to perhaps know about it were able to actually store wealth in this technology at a time when the government’s decided that everyone’s deposits in these banks would be confiscated to recapitalize the banks that made, you know, incorrect bets. Yeah, that was a real, that was a real light switch moment. So I, yeah, so I decided to do the work, but, unfortunately, for the next three years of a massive Bull Run, I, I didn’t allocate. I didn’t position size accordingly. Because, at that time, I was I was so fearful that the thing could go to zero that it was, you know, I could see the potential in it, but I’d still hadn’t really done the work. So, what I was how I was sort of exposed to the space in that period from safe For 14 15 16 and even 17, was that I could see that that, actually, from a price structure perspective, their technical analysis worked extremely well. These were, you know, this was a volatile asset class that trended really well, there wasn’t really a lot of sideways ranges, you could position size and trade this asset really well and I sort of watched it break out of the bottoming phase of that 2015 bear market and thought, right, okay, this is going to run. And, so I sort of traded it in a very, very small size, and totally in the non life changing way through that period. And then, of course, we had the 2017 blow off top and the collapse that then followed afterwards. But, rather than sort of walk away and think that this is dead, I started to use that time, their downtime to try and dig a little bit deeper than just the surface level of what price action was telling me about this and try to understand the technology, the use cases, and also the growing. So, this Cambrian explosion of other types of blockchains, or other types of crypto assets. And that really set me up for the 2020 period, when things took off again. Then it also helped me within Bloomberg, who I was working for, at the time as an equity specialist. Because during that time, I’d started to really talk to internally to our sales managers, to our product teams, business development teams, about what we are building in the space. And so by the time 2020 came around, I wrote a wrote an internal report, I did, you know, two to three weeks of research and I wrote a report on what this asset class means, where it’s potentially going, what impact it’s going to have on Bloomberg’s Business, feedback from clients that I’ve been talking to over that time, and why we needed to actually start positioning for this. And that, I think that report, which went out to senior management allowed me to become like the person who was basically unofficially looking after digital assets across Asia for Bloomberg. So that meant that, you know, working with clients a little bit more closely and trying to bring that feedback to our product teams to start building. Yeah, so I mean, you you literally, I failed to mention this at the beginning, for our listeners that you’re the crypto market analyst on the Bloomberg Bloomberg Intelligence Team and I was going to ask you, I mean, you you essentially invented that role, right. I mean, you had the foresight to say, this is going to be huge. Bloomberg is not here. I’m going to take these reins in charge, you know, lead this charge? Well, yeah. I mean, I pitched the idea to, to the Bloomberg Intelligence Team and there was there was crypto coverage, we did have a commodity strategist covering Bitcoin. And he’d been covering it from ces 2018. So it wasn’t as if Bloomberg weren’t covering it. But where I saw the gap was that beyond price, you know, crypto data, the underlying fundamentals behind blockchain, were starting to come through, or should I say were becoming available and accessible to the public. So, data providers were actually extracting data from the blockchain that were telling people certain aspects of the activity that was happening on those blockchains. And I knew from looking at that data and analyzing it, that actually, there was signal in this data. So the emergence of a fundamental data set for blockchain had sort of arrived and there wasn’t really anyone writing about that. So, there was a gap there to try and bring the institutional clients who are naturally Bloomberg terminal clients along on a journey that they could sort of that they could understand and familiarize themselves with, because they knew that, from an equities background or a fixed income background, that you had to have more than something than they had to have more than price to explain the story of an asset or why it’s a a suitable investment. Even though perhaps Dave, Tyler, myself, at the end of the day, if we, we had our own if we had our own. Well, David and Tyler, you probably do have the ability in the liberty to do this. But, if I really wanted to just focus on one thing, it would be price, but there was also just this massive opportunity to start detecting new signals to try and supplement price and also explain the story to the institutional investment community about digital assets. Yeah, I mean,

David Lundgren, CMT, CFA 29:48
it’s kind of like if I if I understand it’s kind of like, prices price, it’ll always be price. That’s what you ultimately buy and sell to make money on. But there are still aspects to the trading process that can still provide signal like Volume. Several things like in technical analysis, which also pertain to crypto would be volume moving average crosses, V whap, things like that, that are, that are. But they’re new, they’re new data points that don’t exist in traditional equity investing. So maybe talk about some of those, so that you kind of like unearth that you as you were early in your journey.

Jamie Coots, CMT, CFA 30:22
It’s so fascinating. So when you talk to an equity portfolio manager, or equity analyst, and you tell them, hey, this is asset, where you can get real time data on how well the business, if you want to call it a business and frame it in an equity, in an equity, sort of setting, there is a business that you can get real time data on their sales, their revenue, their costs, how well they’re tracking, they, you know, they’re blown away, because for an equity manager, you have to wait for the quarter lease, and then you have to make forecasts into quarterly, or semi annually in Australia. So, you know, there is so much visibility on these businesses or assets, if you want to call them that, that, that is really the envy of other asset classes. And once you start sort of showing that, hey, you can actually track the demand for the asset. And demand: So, that the way I kind of, I set up the models for these assets is I look at what are the key fundamental or adoption, adoption metrics, and they really fall into a couple of different categories. But the first thing I look at is, you know, the, the number of active addresses, right, people that are actually using these blockchains that for whatever purpose and Bitcoin. I’ll separate Bitcoin from everything else because it’s really the, you know, the, the asset is solid, or but it also has a, it also plays a very important role, which is distinct from the rest of the crypto ecosystem. So for Bitcoin, I’ll look at the number of active addresses, the number of transactions, what’s the transaction value, how much how much value is actually moving across these chains, the number of holders of the asset and look at that and so get very quickly get a real sense of how the chain is being utilized. And whether it’s growing or expanding, what’s the rate of change. And from there, really, I mean, those core principle those core fundamentals really are the building blocks for understanding whether the asset has value and it all it all sort of falls back to the concept of Metcalfe’s Law, like the value of a network is proportionate to the number of users on the network. So if the number of addresses, which is just a proxy for users, or people in the same way as we look at the number of daily active users on Facebook, or monthly active users, you know, in Netflix, those are the those are the metrics that all equity analysts look at. So I look at active entities or active addresses on the Bitcoin network on Ethereum network and other networks.

Tyler Wood, CMT 33:06
Wait, can I ask you, before you before you go on there? Can I ask when I, because I had seen it. By the way, thank you very much for sharing your research with us over the past couple of weeks to help us get a better understanding of where your mind was on all this. And I hope hopefully tie that we can share these rich research notes in the in the notes, but I noticed that you you, you were using this the act of users as a means to also potentially derive some sort of valuation and as soon as I saw that, and Jamie, you were there when it happened. So you know what I’m talking about, in 2000, 1999, when when the P E ratio was literally transformed into from price to earnings, because there were no earnings, they couldn’t use a P E. So instead, they called it the P E ratio, which was priced at eyeballs. And, it was basically you look every day, there’s more people coming to the site and looking at the site and kind of traffic, you’re maybe doing some transacting whatever, but the the active users are growing every single day and, and so people use that to value the companies. And we, of course, in hindsight, know that that was just the farce and it was everything went to not everything, but most things went to zero. And when I saw that this was an accepted way of valuing crypto I, my my antenna went up right away that it was like wait a minute, you know. So when you say active users, can you distinguish what you mean between active user and somebody back in the day when they just looked at a website? Because that’s literally what it was was just traffic on the site, whether they did anything with it or not. So when you say user of crypto, what do you what do you mean by that? Is it fly by night? Or is it like hardcore institutional usage or

Jamie Coots, CMT, CFA 34:43
Really good point because as you mentioned, someone visiting a website doesn’t mean they’re actually engaging in an act with the economic in any economic activity with the website or the website or they might not be generating any revenue from that engagement. So, when an active when we classify active users, that means that someone has sent or received value on that chain. So, the concepts behind these blockchains are very simple if you just distill it down to what are they there for? Bitcoin is there to provide a transfer of value and basically a payment mechanism or payment technology in the same way as visa is there to transmit transmit value between consumers and merchants. So when you’re an active user on the Bitcoin network, you are actually using it. And so, yeah, you have to triangulate that with other fundamentals to get a better picture of whether the network is essentially growing or contracting. So you look at also the people that are holding Bitcoin in their wallet. Now, there’s a lot of people who are holding Bitcoin and not transacting on the chain. So they’re not, they’re not adding to the active user metric, they’re just storing it because they perceive that it has properties which will provide them with a superior level of return or a hedge against the ongoing debasement that we’re seeing across financial markets. So you have to kind of triangulate all those things. And then an active user who’s transmitting micropayments is not as valuable to the network as an active user that’s moving a million dollars or a million dollars in Fiat terms across the network. So then you have to look at what is the size of the transactions that are moving across. Now, some of these are very hard to disentangle with price. So value transferred on the network is a function of the Bitcoin price. So, naturally, that moves up when bitcoin price moves up. So you’re not necessarily getting a clear signal about the network just from that one metric alone, because they are, they are sort of codeterminate. So you have to look at other things as well and my underlying thesis for crypto assets, and there’s been a lot of really great work done by other analysts out there, which I’ve sort of which I’ve used in my process. And so liquidity analysis from people like Raoul Pal have been really influential in the way that I’ve thought about things. But, essentially, you’ve got the fundamental piece, but then what is driving the fundamentals like first principles? Like, why are people using Bitcoin, or Ethereum? And that really goes back to what’s that what I believe are these massive secular trends and what’s happening with central banking or the the monetary system and the ongoing debasement? The purpose of Bitcoin specifically was to address a couple of flaws or gaps that the current system has. The first thing is the ability to transact or transmit value, peer to peer without any intermediary. That that premise alone is sometimes lost on people in the West. Because they can, they can basically operate within a banking system in the domestic economy, like here in Australia, where we can transfer value instantaneously between banks. In the United States, I don’t think you have that kind of speed in the banking system, it’s a little bit slower. But when you get outside these developed countries, you have to either go through a bank, where you’re unbanked completely, because they don’t want your business. So the ability to have that mechanism for transfer of value is extremely valuable for at least a third of the of the global population up to a half. So and then there is the the other characteristic, which is that it has a limited supply, it’s programmatically fixed, the network has come to a consensus that they will not expand supply. And because it’s not in anyone, anyone’s interest to do so. And, therefore, you now got the hardest money ever created. The inflation rate and when you know, in hard money terms, or in people who are gold bugs understand this, the inflation rate of gold is around 1.5 to 2%. Currently, bitcoins about 1.8%, so it’s on par, but every four years that gets cut in half, and so the next halving in 2024, that inflation rate will drop. And therefore, you can you can say, you know, clearly that it is the hardest money. So it’s providing these, these characteristics to people. So that’s what’s driving the adoption. That’s what’s driving active users. That’s what’s driving people to hold it as a store of value in a wallet and perhaps not touch it for even years.

Tyler Wood, CMT 39:50
So Jamie, over a decade ago, our good friend Philip Roth invited me to a luncheon from the UK Trade and Investment Authority in New York and they had some FinTech panel, I think it was February of 2012. They said, there’s this new technology, blockchain technology, this distributed ledger system and if you believe that this technology has value, the only way to invest in it is to buy a Bitcoin. So, take 100 bucks and go buy some bitcoin. And I think young Tyler only had 50 bucks, so I didn’t buy as much Bitcoin as I probably should have. My my question to you is, do the coins, right, now we’re talking about them as a store of value, not an investment in a technology or a processing, right? So for the half of the global population that really needs instantaneous banking and security protocols that makes sense to me, but the coins themselves is, is there something beyond just what the maximalists are saying, you know, that Fiat is going to end? Is there something else that drives that as a store of value?

Jamie Coots, CMT, CFA 40:56
Well, those people that also need a banking system because they are essentially unbanked they also need a store of value as well, because they live in economies where if you’re, if you felt inflation last year, as being extreme, imagine what it’s like in some of those some of those

Tyler Wood, CMT 41:11
El Salvador or Yeah,

Jamie Coots, CMT, CFA 41:14
Yeah, so I mean, they need big line for all the aspects and that provides, but for us in the West, and maybe elements of one or two or three or four of the the specific use cases. I think you have to separate Bitcoin from everything else because Bitcoins, Bitcoin has the most decentralized, robust securitized blockchain. Okay, so the amount of hash power that’s devoted to it is, you know, it cannot be crashed by companies and it would provide a mammoth investment from a state actor to try and gain access to the to the network. And even then there are certain abilities for the network’s basically to stave off that attack. The other the other networks or the other blockchains and the assets that sit on top of those networks have different visuals, and there are different trade offs. And, you know, most in most cases, they’re highly inflationary, right, so they have inflation rates that may sort of start from 3 – 4% in sort of the best cases all the way up to 20%. And so, really, what you’re looking at there is, is an asset or currency on those blockchains that doesn’t really provide any kind of debasement protection, which is what Bitcoin essentially does.

Tyler Wood, CMT 42:39
We’re talking about lower level protocols like Cardano and Litecoin, or things that the average investor hasn’t even heard of. How far

Jamie Coots, CMT, CFA 42:47
Yeah, like those types of coins, but really more so in the not know not like coin, because it has a fairly low inflation rate. Similar to Bitcoin, I mean, it’s basically a copy. But the other proof of stake chain, so we’re talking and I’ll exclude Aetherium from this, because this also deserves a special carve out because it has some very unique features within the proof of stake blockchain world. But a lot of those other blockchains, the Solanas, the Cardanos, the Cosmos’ has all of these blockchains, they are quite inflationary. So even if you’re staking those assets to earn the staking rewards, which is basically a cut of the transaction fees, it’s been offset by the number of new coins coming into the protocol every day by the by the by the protocol. So, you have to take that into consideration. That doesn’t mean necessarily that they are assets that you wouldn’t want to invest in. There are there are cycles and there is the adoption element of this as well. If these networks ground gain adoption because they provide faster, cheaper transaction speeds or features that are superior to other blockchains, then people who want to issue NFTs or want to do more peer to peer type business they will move to those networks and that will drive up the metrics that we already mentioned: the number of transactions, the transaction value, the number of active users, and that actually could offset easily the inflation rates that you’re dealing with from the protocol level. So Ethereum has this very unique way of actually burning a lot of the transaction fees that are spent on the network that keeps its inflation rate almost zero so you can say big, sorry Ethereum is harder money if you’re just looking at inflation terms because at the moment Ethereum’s inflation rate is more or less zero, but it doesn’t have the same properties as Bitcoin from a security standpoint. And this will always anger the Ethereum Maxis and I always upset the Bitcoin Maxis because I like to talk about Ethereum as well as Bitcoin, but I’m trying to be broken. I’m trying to be as pragmatic as possible. So, the Ethereum blockchain is not, you can’t say that it is immutable, like it cannot be changed because there was an instance in Ethereum’s History early on, very early on when there was a hack or when there was stolen funds and they decided to rewrite the chain. And that’s how Ethereum classic came to be because it is the original train. So that’s the, the original chain and the theory today is actually a chain that’s been that’s been modified so that they could clawback the stolen funds. And so that property of immutability, the property that you can not change any aspects of the transactions is the is the underlying sort of the defining feature of the Bitcoin Blockchain that gives people confidence that they can operate on this network, you’re not going to be censored, they’re not going to do it. You can’t double spend, they can’t set censor or confiscate your funds, and they can’t, you know, do a visa does and basically cancel the transaction and then find the money someone else.

David Lundgren, CMT, CFA 45:58
So I want I want to use that statement to to dive in on something that I I’ve been wondering about myself, but I can only imagine you’re like, you’ve got eyes on a lot of these these trends taking place now. But I have to imagine given given the whole premise of blockchain, which is to eliminate intermediaries and more peer to peer transacting and, and things like that. That’s right, that puts JP Morgan and BlackRock, right in the crosshairs and Visa and, and MasterCard, in terms of being payment systems. I mean, they’re right in the crosshairs of this technology. And, you know, these these guys, they don’t have, you know, unlimited spending budgets, but they have a lot of capital to to, you know, to be involved in this process as it’s unfolding. Is it is there what what what things are you seeing that they’re doing to prevent them from losing control of the legacy of their business, which is to control transactions and charge fees for that? What What are they doing to, to get in the way of this thing actually unfolding naturally the way that most crypto and blockchain users intended from the very beginning?

Jamie Coots, CMT, CFA 47:07
Yeah, so I think we’re sort of at different stages of that, quote, that’s been attributed to Gandhi about, you know, we’ll fight them, then we’ll join them. Yeah. So in the US authorities, clearly trying to fight and that is a losing battle. That is a battle that eventually they will lose, in my honest opinion, because they are so diametrically opposite ends of how to think about industry innovation that there will be intervention, I think, most likely from Congress around a proper framework that will allow the digital assets industry to operate within the US without, with clear rules and guidelines, which is what the SEC has blatantly tried not to provide. So in terms of the industry, though, you know, first aid sort of scoffed at it, they ignored it. Maybe they tried to find it, and maybe some of the opposition that’s coming from the US authorities speculating here is coming from industry, it’s coming from banks. But, at the same time, we’re starting to see every single day more and more corporations jump over the fence, and think about how they can integrate because the demand is there because their customers want to, and there’s a realization that you can’t really stop technological innovation. So obviously, the big news recently was Blackrock in the ETF but BlackRock, and also pershaps what’s not well known as the order management system that Blackrock operate, which is called Aladdin used by most of the sovereign wealth funds, most of the tier line asset managers has had the capability to own custody and manage risk in Bitcoin for, I think, at least the last year, maybe last year and a half. So they’ve been quietly building up this expertise, because then they must have had demand. And if it’s coming from the clientele of Blackrock, that’s very instructive, because as I mentioned, you know, Bloomberg has an order management system. It is the second largest order management system, but in terms of the, the clientele, the larger asset managers have traditionally gone with BlackRock. So that’s one very clear sort of signal. But then you’ve got Visa and MasterCard in the payment companies and what are they actually doing? So Visa, MasterCard, have all started to integrate using Blockchain rails to settle dollar transactions because it’s faster, cheaper. So they’ve been using Ethereum and the stable coin USDC. It’s like the details on some of these things that they’re doing and like they mentioned it, but they don’t give away a lot, so I’m not really sure how much it’s been integrated or whether they’re trying to grab headlines, but they’re certainly they’ve got teams internally. I know for a fact that are trying to think about what is the best way to integrate because at the end of the day, they can offer a service to a client, which is faster and cheaper, they’re going to end up doing it. So you’ve got PayPal now, which allows you to also pay and hold crypto in your PayPal wallet. And that’s how I kind of see the evolution of banking, you’re gonna have, you know, bank banks, eventually not in the next one to two year but eventually I perceive that the banks will start using blockchains, for, for faster settlement amongst themselves in the wholesale market. And as a customer, as a retail customer, you’ll look at your bank account like you do today and you’ll be holding instead of a Fiat balance, which is still a is the digital representation of cash, you’ll be holding a stable coin and you will have the ability to potentially hold other digital assets in that environment as well. So maybe you own some bitcoin and whatnot. And if you think about PayPal today, if you think about it, like a bank, that’s what they’re doing. So, more and more every day, I think the industry is starting to move over to this. And then you’ve got the whole other aspects of blockchain, which is like the consumer, the consumer application side, so NFTs. There are some large corporates that have started to mint NFTs and I think the best use case I can I can use because I’m not really into digital art, probably a little bit of the vintage that’s passed, not not too interested in that. The drum kit behind you and I know you’re into music, you can’t see my Eric Clapton guitar, here. But in music, if you think about how ticket tech will probably integrate with the technology, the moment you will receive a ticket from incident from ticket tech, if you buy a ticket for a concert, you get an email form, and maybe you store that in like an apple wallet, or whatever that is essentially, T and once they start thinking about this in a more innovative way, maybe you buy your ticket and you pay $5 or $10 Extra, or whatever the case may be, and you get certain features within that ticket, within that NFT that will sit within your wallet and you won’t even know you’re on a blockchain. And that those privileges might be backstage pass, or it might be you know, cheaper drinks, or it might be some other experience, experiential sort of aspects to it, that you can’t get with like within an email,

Tyler Wood, CMT 52:21
access to a clean bathroom at a music festival. I mean, that’s where it’s

Jamie Coots, CMT, CFA 52:25
gold. Where you’re the nominee, anything of that nature. Yeah,

Tyler Wood, CMT 52:32
yeah. The application for musicians or any content creator was was the the first logical explanation of NF T’s that made sense to me, in the sense that content creators were basically giving away their, their work, and it was being distributed and capitalized on other networks like YouTube or streaming services. And so if you can capture your art, whether it’s a you know, digital NFT, visual image, or a song by Taylor Swift, or whatever it is, and lock that up so that you are tracking the the listening or the watching or the or the consumption of your content that makes perfect sense, right. It’s tracking IP ownership.

Jamie Coots, CMT, CFA 53:17
Yeah, very, very powerful. Yes, disintermediation.

Tyler Wood, CMT 53:20
Right. But for our listeners, I think what we want to transition to is, when’s Bitcoin going back to 70,000? Jamie? A more serious question,

Jamie Coots, CMT, CFA 53:34
right? Because we’ve been talking about podcasts, right? They

Tyler Wood, CMT 53:38
Never forecast. But as I listened to, you know, how deep you can go with understanding the value, the usage, and really the fundamentals of what is captured and on chain analytics. Looking at a weekly chart of Bitcoin, you know, it broke out above 26, five, right, classic polarity that was resistance, it then turned into support, found support in in June and here we are consolidating above those prior highs with positive momentum series of higher highs, higher lows. Is there more value in some of that on chain analytics that adds to your technical perspective?

Unknown Speaker 54:17
the fundamentals basically painted a picture for the last year, year and a half, which was you can define as the benchmark and although I wrote about this in q4 of last year that I thought I had a bottom and that was really based on what was happening with macro, what’s happened what’s happened with global liquidity. But the last the last year and a half of you know, tracking the unchanged fundamentals just told me that this this network behaved very differently to the previous bear markets. Active users actually didn’t drop by that much and the number of token holders people holding Bitcoin continue to rise. It never went down during the bear market. People were accumulating, which tells you a lot about the influence of the derivatives market has on the price. But, when you see fundamentals deviating so much from price itself and the network and behaving differently than it did in prior bear markets, I was, I knew that the next cycle would be a very strong one. And, of course, that there would be a new cycle. Because if you don’t have people joining the network, if you don’t have people, if you see people continuing to use it, even though price is created by 50 60%, then there’s utility. And at the end of the day, when everyone was the biggest critics that Bitcoin has no utility, because but if you if it was basically, if it was just based as speculative asset, people would not have been using it during a 70% drawdown. So there’s a signal. And then I had to wait for the liquidity in the macro picture to turn. So I was throughout 2022, the first node and 2022, so the next six to nine months are going to be horrible, I put sort of 22,000 as the as the price that it would potentially drop to based on looking at the long term Charlotte, the 200, week moving average, which is sort of my sort of my anchor for the asset and the long term sort of the long term or wonder rhythmic trend of the asset. And all we needed really was to track the fundamentals to make sure that things weren’t deteriorating on network and then wait for the liquidity cycle to turn. And the chart that’s really been my my go to, has been the 12 month rate of change of global liquidity as measured by the central bank balance sheets, the US financial liquidity, which includes the Federal Reserve, the TGA, the general general account and reverse repos, and also global money supply. And what you look at what you can see if you track the 12 month change of those metrics and then overlay Bitcoin on that as well is that Bitcoin seems to detect a slowdown in the contraction of money supply better than any other asset. And it starts its momentum starts to turn between two to six months prior to a bottom in the momentum of money spoil global liquidity. And so even though money supply has been contracting, the momentum of global liquidity contraction has slowed and started to actually tick up. We had in the fourth quarter last year, the BOE basically bailout the pension funds and do a mini re-liquification of the pension funds and Bank of Japan has been yield curve control. China has been, you know, re-liquefying, its market as well and so you’ve really had the Fed, that’s really the standout. So the momentum of those liquidity measures bottomed in q4 and back testing the signals and looking at it from a technical quantitative perspective, that’s when I sort of put out my notes around it being a potentially a bone, and then a break about off 24,000 was my technical signal. So I looked at the fundamentals waiting for macro to tell me and then we had a technical confirmation when a broke above 24 25,000. The next level now is 31,000. It’s toying with that level. That is where a lot of supply traded during the bear market and that is really a trigger level. If it breaks 31,000, I think this even goes to 40 within days or weeks, potentially. And then longer term, I think going back to the original question was like, when will it be above 70,000. If you if you look at the adoption cycle and liquidity, we are probably on the cusp of a re-liquification of financial markets again, despite the fact that the Fed is maintaining this mantra of higher for longer. Yeah, they’ve already, you know, they’ve already been conducting QE through the bank term funding program, which bailed out the regional banks, which is essentially a yield curve control, let’s face it, so they can keep funding the government, which by the way, has now increased interest payments up to a trillion dollars. Like once you start to understand that the demand for US Treasuries is starting to wane and the number of treasuries that they have to issue the Fed will have to do something to try and keep yields under control. And so as soon as that happens, assets like Bitcoin, tech stocks, some of crypto I think will react and I think that’s what we’re seeing at the moment, even though the chances of recession are incredibly, incredibly high. So I think, you know, some of the modeling that I’ve done is that just based on sort of the previous cycles, there is a smaller, there is a smaller return on each of the cycles because you’ve got a logarithmic growth curve, which moderates over time. But, even even still, even if we look at the last cycle, and just say that this cycle that we’re currently in which I believe we’re in, only increases by 50%, of the last cycle that puts a target of well over 170%, or sorry, 170,000 dollars. If you think that maybe I have to apply a much more moderate take on the growth this cycle around and say, look, it’s only going to grow 25% of the last cycle and that still gets you above the previous all time highs closer towards something like 90 to 100,000

David Lundgren, CMT, CFA 1:00:48
One of the charts that I cannot get out of my mind that’s in your report is the S curve and, for our listeners, unfortunately, not viewers, but for our listeners, what Jamie has done is he’s taken all the major technological innovations back to the early 1900s and just mapped the rate of adoption of these various technologies into households across the country. So going back to the early 1900s, we’re looking at electricity, of course, the cell phone, automobile, color, TV, radio, internet, things like that. And they’re, they’re, you know, probably anywhere from a decade to multi decade long runs, going from very low usage to very high penetration across households. And we can see this, we can see these charts, because this is what happened, we have the data to demonstrate this is what has happened, so we can confidently say that this has been the growth trajectory of these technological innovations into households. And then when you include crypto on this chart, it’s like it’s it’s it’s a miniscule little dot on the chart as if to imply, perhaps reasonably so that we’re like in the unbelievably early stages of adoption, which, which I could see that being the case, but I’m curious, what, what what is it that got you to make that dot so small on this chart? And what is the actual data you’re citing here? What are we saying when we’re saying, share of US households using this. How are you defining it as to make this this such a tiny segment of this chart? Because it looks like you could explode over the next 10 years if it’s if it follows the path of the other technologies.

Jamie Coots, CMT, CFA 1:02:30
So I think that one was percentage of US households. And I the original data came from a couple of different sources. So Wells Fargo and there’s a there’s a company called Weldon data, which is a free website. So at the moment, correct me if I’m wrong, David, you’ve got that chart in front of you, but I think it’s it’s less than 10% currently. So yeah. Yeah. I mean, if it’s only going to get to the levels of previous technologies, if there is obviously adoption and adoption is going to have to come from really corporates in America, because the immediate use case for Bitcoin or crypto is less obvious to those in the West than it is for the rest of the world. So even if the US lags in terms of adoption, relative to other technologies that have occurred in the past, such as the radio and the internet and whatnot, although I don’t think that will be the case. It will only take, you know, a small percentage of global adoption, to have a huge impact on on the asset as well. So that chart doesn’t incorporate global adoptions just looks at U.S.. But yeah, I mean, if we start to see, you know, the Visas and the MasterCards make stronger forays into the technology, then, then you’ve got you know, the ability for these assets perform very well. If if for instance, and I’m not saying that this will be the case, but let’s just hypothesize that theory, sorry that MasterCard and Visa use the tearooms, rails to move stable coins. Well, every time they move a stable coin on the Ethereum network, even though it’s cheap, they’re paying a transaction fee and that transaction fee goes to the Ethereum holders in a couple of different forms, either get it in terms of a staking reward or a yield, if you want to stake Eth, or you get it in terms of just holding Eth and a part of that transaction fee that perhaps Visa card is paid for that stable coin transaction is burnt, which is like a buyback. And so both of those things support the valuation case for the asset. So at the end of the day for it to get up to those those those numbers of penetration of 90% or 100% of these of US households. There has to be adoption from us corporates. I think we’re just starting to see that now.

David Lundgren, CMT, CFA 1:04:46
Yeah, why that makes a lot of sense. Hopefully, we’d be able to share this report in our notes. Yeah, yeah. Fantastic, because I think it’s just a jaw dropping chart and it really does make plain the potential opportunity that lies ahead if indeed these crypto Bitcoin and other blockchains just, you know, penetrate households over the next decade, it just could be if you think it’s been a lot till now, it’s, it’s potentially, you know, the best is yet to come, right?

Jamie Coots, CMT, CFA 1:05:19
Yeah. And hopefully what that means is that US consumers, or anyone using the blockchain won’t even know that they’re using it. Right. So it’ll be, it’ll be obfuscated and way. So you will just have a digital wallet and your store and transact within that digital wallet in the same way as you do within perhaps a broking account or a bank account today. You might be using Solana as a backbone to move to move value or to move items around or Ethereum, or whatever the case might be. But the only way that this is going to gain widespread adoption is if it’s a lot easier to use and that’s still one of the major challenges for the space.

David Lundgren, CMT, CFA 1:06:00
Are there companies outside of finance, like traditional industrial companies or consumer companies that you’re seeing that you’re seeing, that are making really smart use of this technology and in ways that that are really rather creative? There’s

Jamie Coots, CMT, CFA 1:06:17
There’s a couple of use cases that I’ve seen, and it’s not. And I think there’s still a long way to go for we start to see real traction. I would say from the outset that the the best use case for this is really trends as financial markets, right? Anything else but there’s always been talk about blockchain is being used for supply chains. And you do have carbon credit, which is sort of a, you know, a financial market products. So carbon credits being set up on blockchains. Private blockchains, which is essentially a private blockchain is essentially a database, which doesn’t have the features of a public blockchain, which has complete transparency for anyone transacting on it, unless they open up the nodes to everyone within that marketplace. But it is starting to be trialed in a couple of those use cases. But I haven’t really seen a lot of non financial market use cases for blockchain. So, don’t I mean, I don’t think there is a lot of application outside of really what we’re talking about finance, NFTS, things like that.

Tyler Wood, CMT 1:07:29
You know, Jimmy, you brought up a really interesting point about obfuscated usage of blockchain networks, right. Most of finance works, because there’s some trust built into the psychology of everybody who uses that system. Right? The the fact that paper bill or cloth Bill has any value is because we’re all under this mass delusion that it represents something that you can trust in or that it will be backed up, right. So for me, it seems like a lot of the critics to cryptocurrencies just point to the extreme volatility, and look at a long enough chart on a logarithmic scale, like all these pullbacks are shallower and shallower. Demand has come in earlier and at higher levels in each one of the, at least, on a chart of Bitcoin. Do you think that as a trading vehicle, or or would traders increase the adoption of Bitcoin just because they’re they become more comfortable trading it as a store of value as a security that they can profit off of?

Jamie Coots, CMT, CFA 1:08:37
Yeah, I mean, that’s sorry, the question is around like, will the volatility, do you think the volatility will, is the implied question do you think the volatility will decline over time or

Tyler Wood, CMT 1:08:45
Yeah, the implied question would be a decline in volatility might bring about some of that trust that people have in cryptocurrencies or in the coins, at least.

Jamie Coots, CMT, CFA 1:08:55
Yeah, I think, over time, volatility will most likely come down, it has been coming down, gradually. And there have even been been periods where other asset classes have been more volatile than the groups over the last sort of two to three years. The analysis that I’ve done looking at sort of Sharpe ratios and Sortino ratios, so risk adjusted returns, the fascinating thing about what happened last year in this past cycle for Bitcoin and for all global assets, is that Bitcoin for the first time was not the worst performing asset on a risk adjusted basis. Global equities was, emerging markets was. Commodities, yeah, you could probably you probably assume that to be the case, well, it’s pretty volatile. Global income, global fixed income was far more volatile on risk adjusted returns or the risk adjusted numbers for those assets were inferior to Bitcoin. So it’s, it is I do see Bitcoin becoming less volatile. That I think that is a mirror image of the volatility where Going to see everything else in a system, which is fractured, and I think is increasing increasingly fragile, that is requiring more intervention, more centralization, more control, because it’s becoming so fractured, will become inherently more volatile. So Bitcoin, even if the volatility stays where it is, it’s a 90 Vol asset today, that may look more attractive over time because bonds predominantly, which I think is the asset class that will struggle the most going forward, become a lot more volatile. And because of that, we’re going to see far more central bank intervention, because US Treasuries is the collateral for the global financial system and volatility. They, they strictly cannot have it. They will do everything to keep the volatility of the US Treasury market as low as possible so that it continues to sustain global collateral, because otherwise, we have a headline. So I think Bitcoin relative to everything else is going to become less volatile. But in absolute terms, it may only decline slightly over time.

David Lundgren, CMT, CFA 1:11:09
That’s a scary forecast right there. It’s the volatility stays at 90 and it becomes relatively less volatile. Yikes. I mean, that’s a great trading environment. But my goodness,

Tyler Wood, CMT 1:11:19
I think Jim Bianco on a panel, we were running at the end of March said the two year looked like it was dancing, the Harlem Shake, you know, the short end of the yield curve was pretty volatile. Yeah,

Jamie Coots, CMT, CFA 1:11:30
yeah. volatility that we haven’t seen for, you know? 70 80 years. Yes.

Tyler Wood, CMT 1:11:35
Yeah. Well,

David Lundgren, CMT, CFA 1:11:36
we’ve, we have kept you on the on the phone here for an hour in, our listeners should know that. Jamie’s under the weather, so he’s been kind enough to soldier through for us and kind of make this happen. So, we very much appreciate it. So we’re gonna let you go here. But I wonder if there’s one last thing that you’d like to say about the future of crypto and blockchain and things like that, that might not be on other people’s radar that they should be watching for in the future in terms of developments that you think are worth noting, as we sign off today?

Jamie Coots, CMT, CFA 1:12:05
Well, I think that people just have to keep in mind sort of a bigger, a bigger perspective on what’s happening in financial markets and, you know, I think, with governments as well. There is increasing centralization that’s taking place. And that will mean we will see CBDCs in the future – central bank digital currencies, which I know we haven’t touched on, it just sort of briefly. They’re going to promise us all the fruits of crypto with added benefits. And really what they’re talking about is adopting everything from crypto that will give them far more powers than they have today without any of the benefits of crypto. So, really, what they’re interested in is the program programmability of crypto. And they want the ability to control how money is distributed, how it’s used, and who has it. And we have to be very vigilant of what a CBDC means because Bitcoin and cryptocurrencies, I think, spooked them, because it provided far more democratization of money, far more stability of money. Knowing knowing the inflation rate of a money allows you to plan your life accordingly. When you don’t have the assurance of what your money is going to be worth in several years time you start to make decisions about your life that could be very disadvantageous in the long term. You might speculate more, you might decide whatever the case may be. And central bankers don’t seem to understand that this is like this is one of the most important things as humans that we strive for. We strive to earn money, work hard, and to be able to store that money so that we can use it in the future for gratification or pass it on to the next generation. And they are pursuing a very clear determined path to adult crypto, not because it offers the ability to actually store wealth in the future. And, in this case, I’m really just talking about Bitcoin because those other assets may not have the same characteristics for store of value. But, they want the programmability, which is what the smart contract platforms have created such as Ethereum and there are some pretty frightening scenarios. And we’ve already seen them exercise those capabilities without a CBDC. If you look at what happened in Canada with the truckers, and over the last sort of three or four years. So, you know, one of the things that interests me about the space is that you know, there is a there’s a real world alternative here and we’ve got to you know, we’ve got to have a situation, I believe, where even if a CBDC is inevitable, that we have options so that we have alternatives. That there isn’t censorship of other forms of currency or other forms of savings in the economy. Because what we’re seeing is that once they get control the money principle, once they get control of the money, then they will use it against the people. So that’s the big, overarching sort of consideration for people to think about.

David Lundgren, CMT, CFA 1:15:20
Doesn’t that ultimately lead though, to the to a scenario where where the where crypto and blockchain in its purest, most intended form will never exist? Because governments have a an incredibly strong incentive to not allow it to exist and they have deep pockets, at least until they don’t? And who knows when that is. They own that, you know, it’s the government so they legislate what they want. I mean, how, how does the true essence of what was intended by blockchain ever really, truly exist in a world where you have government who’s who whose very existence relies on it not existing?

Jamie Coots, CMT, CFA 1:15:55
Well, we’d like to think that, you know, we live in Western liberal democracies, where the concepts of freedom and liberty and store of value, hard money are still being upheld by our governments. Of course, there’s the threat that our governments move more towards countries like China. And we have a authoritarian CBDC control structure like they do with the social credit score. And this isn’t speculation here, like I’m not stepping out on a limb, these people are saying in public forums, that’s what they want. You’ve got to look at the Bank of International Settlements, I forget his name. He’s a larger than life character and he has said outright, he wants the ability to control the mind and social credit scores that we’ve talked about at Davos. So all of these things are there. So it’s incumbent upon us that believe and steal the tenants of Western liberal democracies, to further the cause of decentralization and of these assets, that doesn’t necessarily mean that you go invest all of your wealth in them. But the tenants should be upheld, even if you don’t hold those assets, that this is an alternative that actually gels or seeks with the tenants of our Western liberal democracies. And you’ve started to see that just the network effects of Bitcoin alone has caused several US congressmen and senators to come out very openly, you’ve got now you’ve got presidential candidates on both sides of the aisle talking about maintaining personal sovereignty and the use of bitcoin and cryptocurrency within the economy in the United States. They may not be the front runners before years ago, this was never part of the conversation. So grassroots, something has happened organically, which hopefully is strong enough and grows large enough that we can sort of at least stand or push back against the sort of the authoritarian aspects that are coming through, you know, from other side of politics, no matter where you are, it’s here in Australia, it’s here. It’s in Europe, it’s in the United States. So you don’t have to answer the question more succinctly. It’s actually very complimentary to the ways our countries we think our country should be run. It’s not complimentary to the way is being run rightly. But there is an opportunity, and there’s an opening for it to basically spread like a virus and get strong enough that it’s very hard for them to basically ban it. And Case in point, China banned Bitcoin several times for the last time into in 2021. And China still represents 15 to 20% of the hash rate on Bitcoin. So there are people defying the central government and Mining cryptocurrency and people are still using it within China, even though they have banned it. And that speaks volumes about technology being censorship resistant.

David Lundgren, CMT, CFA 1:19:04
Fantastic. Tyler, Tyler, anything you want to take us away with?

Tyler Wood, CMT 1:19:08
I’m gonna have to go rewatch the Matrix trilogy here and try to figure out which, you know which character is going to lead us to, to our salvation. Jamie, as always, talking markets with you has been one of my big joys of working with the CMT Association and watching, watching you go through this, you know, next phase in your career these last four years, it’s just been incredible. I don’t know anybody who is out there publishing as frequently or as salient a research piece as you are and keep up the great work,

David Lundgren, CMT, CFA 1:19:40
Jamie, where can where can our listeners stay in touch with you? I mean, I think of anybody you know, you’re the one that our folks are going to really want to pay attention to and see what you’re saying. So use social media, Twitter, LinkedIn, all these things that you posted quite a bit or

Jamie Coots, CMT, CFA 1:19:55
Yeah, probably not posting as much as I should, and I tend to post on Twitter more than I do on LinkedIn. But you can definitely reach me both places. And if you’ve got a Bloomberg subscription, you can reach out to me and force me on that you can also just, you know, send me an email and I can add you to my external distribution if you’re not a Bloomberg subscriber so you can receive the notes when when I pass them as well.

David Lundgren, CMT, CFA 1:20:18
Fantastic, fantastic.

Tyler Wood, CMT 1:20:20
With that, we’ll let you go take a little more Nyquil. And

Jamie Coots, CMT, CFA 1:20:27
Jamie, thank you so much.

Tyler Wood, CMT 1:20:28
Looking forward to seeing you again real soon.

Jamie Coots, CMT, CFA 1:20:30
Likewise. Thanks, guys. Thanks, Jamie.

Tyler Wood, CMT 1:20:37
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