Bitcoin’s Stumble and the Bond Market’s Moment of Truth

Published on
January 11th, 2021
29 minutes

Bitcoin’s Stumble and the Bond Market’s Moment of Truth

Daily Briefing ·
Featuring Haley Draznin, Jack Farley, and Ed Harrison

Published on: January 11th, 2021 • Duration: 29 minutes

Real Vision managing editor Ed Harrison is joined by editor Jack Farley to break down the interplay between interest rates and duration and why lower interest rates cause growth stocks to explode higher as well as what rising yields mean for risk assets and the dollar. Ed and Jack discuss Bitcoin, analyzing its volatility profile as well as its correlation to other cryptocurrencies and to traditional financial assets such as stocks and bonds. Since Bitcoin is in the hands of more institutional investors, who also own and trade traditional assets, Ed and Jack also explore whether the success of Raoul’s “wall of money” thesis means that Bitcoin will be more positively correlated to stocks and bonds going forward. Lastly, Ed shares several market dislocations that are on his horizon which are shaping his macro framework and trade ideas. In the intro, Real Vision’s Haley Draznin explains why market sentiment is dim on Monday, a modest reversal after last week’s strong start to 2021.



  • DB
    Danielle B.
    17 January 2021 @ 23:18
    Why does a generalised gender gap matter? If you want to show real gender gap rates of change by sector. Expect 10% sell off when corporate tax rate goes back to 39%....if not more.
  • AP
    Alan P.
    14 January 2021 @ 14:38
    I'm surprised that you're talking about Bitcoin price in terms of correlation with other assets and as affected by money printing, but leaving out the #1 factor currently affecting price, which is stock-to-flow. We have compounding supply scarcity driving the price rise right now, and the other factors are just extra.
  • CC
    Charlie C.
    13 January 2021 @ 01:05
    One of my rare thumbs down for my two favorites :(
    • JF
      Jack F. | Real Vision
      13 January 2021 @ 03:59
      Ah sorry to hear that Charlie! Why do you think this one didn't do it for you?
  • DS
    David S.
    12 January 2021 @ 00:26
    Insurrection of the capitol. Give me a friggin' break!!
    • DS
      David S.
      12 January 2021 @ 00:38
      Pandemic, pandemic, pandemic!!! Vaccine, vaccine, vaccine!! Anyone notice that the regular influenza or any of the 200+ regular corona viruses that kills 50-75K US people a year has vanished? #Covidiots and Maskholes unite!!
    • PB
      PHILLIP B.
      12 January 2021 @ 01:23
      Your comment, and subsequent reply to your own comment, would have been better shared on ZH.
    • DM
      Don M.
      12 January 2021 @ 01:28
      Yes the hospitals are suddenly full because Covid doesn't exist. Maybe think?
    • AF
      Andre F.
      12 January 2021 @ 04:10
      He did not say that Covid does not exist. His comment appears to point out that there is an overemphasis on Covid.
    • MT
      Mark T.
      12 January 2021 @ 20:28
      David S. has a worldview that when a mob of angry people, many of them armed with guns, upset about the results of an election, storm the nation's capital building and beat cops with fire extinguishers searching out prominent politicians so they can abduct them, that this is merely a demonstration of patriots.
    • DS
      David S.
      13 January 2021 @ 00:31
      These responses are all you need. RV seems to have moved deep TDS. Sad. The countrys' lost its collective minds.
    • DS
      David S.
      13 January 2021 @ 00:33
      You folks realize that throughout the year ICUs are normally 80-90% full right?
  • SS
    Soo S.
    12 January 2021 @ 20:38
    Why are you buying bitcoin if you don't think it will be the world's reserve currency in the long run (maybe very long run, but nonetheless).
    • JF
      Jack F. | Real Vision
      12 January 2021 @ 22:54
      Because it’s a good trade
    • JF
      Jack F. | Real Vision
      12 January 2021 @ 22:54
      Also I said “probably not”
  • RS
    Richard S.
    12 January 2021 @ 13:07
    The central banks of the world have destroyed the balance between cash, stocks, bonds and commodities. The consequences of this repression and manipulation are impossible to predict. The DCF model is simply a comparative analysis of bond yields (0%) to stock earnings. It is not an absolute measure of the value of stocks. Abandon traditional valuation models of stocks with due caution. Eventually, the increase in stock prices will result in a 0% yield on all assets- stocks and bonds. In the short run, stocks will move higher as the Fed Put has eliminated all fear and governments around the world are handing out money to maintain the illusion of prosperity. Trillions of dollars of money printing devalues the currency. Nothing has value for which there is an unlimited supply. Since 2000, gold has outperformed the S&P 500 and the Dow. Bitcoin is a new option to consider.
  • JL
    Jason L.
    12 January 2021 @ 00:34
    Good RVDB. Haley makes an interesting observation about how crypto trades on weekends, when banks are closed and fresh institutional capital can’t flow in, compared to weekdays. I’d expect BTC trades weak on weekends and strong during the week. If crypto bottomed out today and finds support, that would validate her opinion.
    • DF
      David F.
      12 January 2021 @ 01:20
      considering that BTC is a worldwide "currency" are all the banks around the world closed on weekends?
    • JL
      Jason L.
      12 January 2021 @ 12:41
      Look at FX markets for example. I believe from Friday night until sometime Sunday when Asia opens up, all markets and banks are closed from the perspective of trading and moving money around the world. So no one can really invest new capital into Bitcoin until banks are open. Until then it seems that crypto markets trade solely against themselves (e.g alt coins vs btc, etc.). After a huge run up in btc I wouldn’t be surprised if there’s a lot of profit taking from btc into stable coins or other alts on the weekend when you cannot formally cash out to a bank account. No need to wait til market open on Sunday/Monday when crypto trades 24x7.
  • AH
    Andreas H.
    12 January 2021 @ 10:33
    GDP and Inflation are up for Q1 2021 (around the Globe!), so Interest Rates go up as well. In such an environment Gold is weak (!!!), Cycnicals, Tech, Small Cap and Value are strong, VIX is still high, so enough worry in the market to climb further. Bitcoin is expecially strong in such and environment, look at 2017 when Inflation and GDP where up at the same time, it went balistic. Bitcoin is highly correlated, it trades like a comodity on fire! Q2, GDP and Inflation could be up as well, but in Q3 2021 things look totally different, so for 2021, sell in may and go away seems to be a good idea!
  • NT
    Nicholas T.
    12 January 2021 @ 01:58
    I can't believe you guys are still talking about gold as an investment option only in the way of holding actual physical gold and the connected expenses. Some royalty streamers and producing miners are currently producing fantastic profits in this otherwise bubble equity market you aptly describe. This is money in the bank compared to wondering where bitcoin will go next. Gold miners suffered for a decade and those still standing are now killing it because they're built on a lower price of gold than today. There are also gold ETFs and other gold-backed digital vehicles you don't talk about.
    • JF
      Jack F. | Real Vision
      12 January 2021 @ 02:16
      HI Nicholas, thanks for your comment. Every commodity has a cost of carry no matter how de minimis. It does cost money to store gold. If you own it physically, you pay that cost yourself. If you own it through an ETF such as GLD (as I do), then you pay that through the expense ratios in the like. Part of the 0.40% of NAV fee that GLD charges does go towards storage and custody. I am less familiar with digital versions of gold but if they are not charging you anything, then they are eating the storage cost themselves. I never found the economics saying "there's no such thing as a free lunch" terrifically useful but in this case I must say it is apt.
    • JF
      Jack F. | Real Vision
      12 January 2021 @ 02:17
      By the way, Nicholas, I largely agree with you that "some royalty streamers and producing miners are currently fantastic profits" and that "gold miners suffered for a decade and those still standing are now killing it because they're built on a lower price of gold than today."
    • JF
      Jess F.
      12 January 2021 @ 08:37
      Hi Jack, you really believe GLD pays storage fees, how sure are you that it holds any physical Gold?
    • JF
      Jess F.
      12 January 2021 @ 08:55
      Leese fees maybe
    • NT
      Nicholas T.
      12 January 2021 @ 10:32
      Thank you for commenting back Jack. We often minimize the costs of carrying investments as a non-factor as we go about our business. So true. The mental bias focuses on reward :) Maybe because gold is a physical thing so familiar to our brains since childhood even, people keep coming back to the carrying cost when talking about it, more so than say the fees for an ETF of any kind, fees for trading, the fees related to BTC, etc.
  • VA
    Victor A.
    12 January 2021 @ 05:11
    Really interesting point about BTC functioning as a "correlated asset", as it followed the gold selloff it both cements itself as a store of value asset but also does show that correlation given the DXY /yield reaction that gold also had. Makes me wonder if there is a way to measure the price sensitivity to liquidity selloffs in BTC as compared to other assets, maybe with greater market cap it will reduce...Great talk !
  • DG
    David G.
    12 January 2021 @ 04:34
    I don't have so much that I have to figure out the back half next year. Fed, Fiscal, and Dollar pull backs. Dip buy equities that make money and are growing earnings, revenue, and margin. Play the dollar decline plays after dollar snap backs and commodities and EM retracements. Adjust with more info later.
  • JN
    Jerrick N.
    12 January 2021 @ 00:50
    get a better mic or high pass filter for hailey. theres some echoey-ness, especially on the low end. cutting out the lowest frequencies would probably fix it.
    • AF
      Andre F.
      12 January 2021 @ 04:04
  • IN
    I N.
    12 January 2021 @ 02:39
    Hollywood risin' guys.
  • SW
    Suzanne W.
    12 January 2021 @ 00:32
    Jack and Ed are "bubblicious" together!
    • JF
      Jack F. | Real Vision
      12 January 2021 @ 02:18
  • MC
    Mark C.
    12 January 2021 @ 02:00
    Way to wrap it up on that comment on the Fed....lets see how good they are suppressing volatility. I feel like we may see an event this year that will set it off. Maybe around the Chauvin trial???
  • TC
    Tim C.
    12 January 2021 @ 01:40
    I was a bit disappointed with the analysis of the FAANG vs. 10y. Looking at the FAANG using a DCF in a vacuum is a poor measure, especially when there is such poor visibility into real yields going forward. If we get large negative real yields, holding bonds will be toxic. Add to that FAANG companies are doing continuous buybacks (which is better than holding negative yielding cash). Any DCF is going to have to account for this in their stochastic modeling.
  • FG
    Felix G.
    12 January 2021 @ 01:39
    Questioning whether or not BTC is non-correlated on one day of volatility is short-sighted imo
  • mw
    michael w.
    12 January 2021 @ 00:08
    "BTC an uncorrelated asset" Hahaha, thanks for the laugh.
    • SL
      Shawn L.
      12 January 2021 @ 00:59
      Great talk referencing how bond markets can be expected to affect the stock market and bitcoin. I am still wrapping my head around the complexity of increasing 10 year bonds playing into the stock market's discounted cash flows for companies already breaking typical PE ratios. Its clear that if these already "over valued" cash flows are not worth waiting for if real rates rise and BTC sees higher real rates as head wind, why then do stocks and BTC currently correlate? I think I am simply moving into the subtle nuances of these issues as it is anything but concrete. BTC obviously is affected by more than simply real rates, but attempting to assess what primary factors influence each asset class is hard. I constantly come back to macro forces like demographics, passive-vs-active flows and secular business cycles. I have only been studying the financial markets for a year, but it is fascinating. Please share if there are mistakes or large holes in my process. On a side note, I think this leg up BTC will simply be due to institutional adoption and re-balancing. All weekend long I wondered if this price drop was simply due to lack of institutional reaction and believe it was a factor as it has rebounded after market opening. Could someone develop a simple banking hours BTC arbitrage strategy? Lastly, I have heard a few different places of the TIPS vs normal treasuries comparison as a gauge for the possibility of future inflation. I must be honest, it is not very easy to find a clear method of measuring, let alone predict future inflation. Inflation seems to exist like covid through out the environment. One moment is surges here, backs off, breaks out over there, the eases. Simple metrics like CPI and PPI aren't universally trusted either. So, how can one understand macro if they can not even predict inflation? That is my biggest question.
  • SL
    Shawn L.
    12 January 2021 @ 00:18
    Its the DCF stupid...