Bitcoin (/BTC) has been a relatively bright spot in a volatile market. Despite dropping 20% from all-time highs, BTC continues to outperform other crypto assets like Ethereum (/ETH). Nate Peterson joins Jenny Horne for a deep-dive look at the crypto space. The pair also discuss a growing trend in states looking to adopt a strategic Bitcoin reserve, as well as a Bernstein note on the long-term investing outlook for BTC.
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TechTranscript
00:00Welcome to Crypto Corner. I'm Jenny Horne, co-host of NextGen Investing and Markets Correspondent here on the Schwab Network.
00:19So we are diving into the latest in crypto markets and getting some insights into that key space.
00:25Joining us now is Nate Peterson, Director of Derivative Analysis at Schwab Center for Financial Research.
00:32So, Nate, I mean, it's been a volatile week. We had Bitcoin at five-month lows, but it also has weathered the storm, I mean, perhaps better than we had been anticipating.
00:42So walk us through the recent volatility and how that is naturally playing into the crypto markets.
00:47Yeah, certainly. I mean, yeah, volatility has been, you know, it's all over the place amongst many asset classes, even including bonds, credit spreads.
00:57Of course, we've seen that a lot of growth recession scares.
01:01And yeah, you know, talking about Bitcoin over the last month or so, it's basically flat to down one or two percent, which is interesting.
01:08And I know we'll hit on that. But if you look at a chart of like Ethereum, for example, Ethereum is down 50 percent over the past three months.
01:19And in my mind, knowing the historical relationship between crypto assets and market volatility or when markets go into this risk off mode,
01:29the Ethereum chart is something that many might expect to see what would be happening in Bitcoin.
01:37But that hasn't been the case. So, you know, if we go back several years, there used to be this story that there would be the flippening,
01:45meaning Ethereum, that its use case with its smart contracts and its network was going to be so much more valuable than Bitcoin,
01:52that at some point its market cap would overtake Bitcoin and become the leading cryptocurrency.
01:58Well, look, over the past month, I think this kind of dispels that notion to let you know there is Bitcoin and everything else within the cryptocurrency world.
02:07Lastly, I'll just say, you know, obviously gold is hitting all time highs and it really is shining.
02:13It's been it's been doing incredibly well.
02:16And the reason I bring that up is because we have right now with what's going on with the tariffs,
02:23with the global economy, with central banks, is some disruption within the traditional finance system with fiat money.
02:32And when that happens, this is where Bitcoin was born out of the great financial crisis in 2008.
02:37And Bitcoin could be one of those assets that eventually will be a go to if it looks like there is some uncertainty around central banks,
02:51countries' abilities to fund their debt.
02:55But right now, gold is the clear winner with the, you know, based on the price action that we've seen.
03:02And we also know central banks have been going out there and accumulating gold over the past six months in higher quantities,
03:10which is, you know, just kind of pointing to some of that diversification away from fiat money.
03:17So, yes, the crypto world has seen, you know, some of this volatility.
03:22Bitcoin is off roughly 20 percent from its all time highs back in February.
03:27But holding up relatively well, I'd say.
03:32So in these markets trying to find that key safe haven type investment,
03:37you say it's too soon to claim Bitcoin to be the safe haven that gold historically has been.
03:43Right. Yeah. And Bernstein put out a note just kind of highlighting some of this relative strength that we have seen in Bitcoin.
03:51So, you know, we talked about this last week on Crypto Corner.
03:55But, you know, if you just look at when the S&P did its 10 percent correction in February to March,
04:00as expected, Bitcoin dropped 10 percent, excuse me, 20 percent.
04:05If you go back to last August when we had the unwind of the yen carry trade,
04:09when the market was selling off, Bitcoin dropped 20 percent.
04:12If you go back to the bear market of 21, 22, Bitcoin dropped more than 70 percent.
04:17So what's been interesting over this past month is that relative strength that Bernstein is talking to and noting that Bitcoin does trade 24-7.
04:26So while gold has been shining, if you're looking for that liquidity,
04:31that at least Bitcoin does provide that 24-7 feature in terms of accessing or being able to trade off of these headlights,
04:39these headlines that have been coming out so frequently when you're in the stock market here.
04:44Of course, we're exposed to that overnight risk.
04:47So, again, it's just interesting to note right now with Bitcoin showing,
04:51at least over the past couple of weeks, some relative strength.
04:55It's holding up at that 200-day simple moving average.
04:59I kind of put support for Bitcoin, the key levels.
05:02If you look over the past five days, Bitcoin went down basically to 75,000 and it bounced there.
05:09Over the past five days, it hit it and then it came back up and it bounced again.
05:14So I would put support for Bitcoin at 75,000 to that 80,000 level.
05:20And that roughly coincides with the 200-day simple moving average where it has found support over the past couple of years.
05:26Okay, and you make a great point that I just hadn't thought about yet with all of the coverage we're ongoing right now.
05:33And that's the fact that it trades 24 hours.
05:34And right now, I feel like that's actually an advantage because so many of the headlines we're getting are over the weekend.
05:40And you can be glued to these markets if you're glued to Bitcoin, which has that ability.
05:44I think it's such a great point.
05:45But another interesting development on the state levels that some states are considering now,
05:50a strategic Bitcoin reserve of their own.
05:53So tell us more about that.
05:54Yeah, this is fascinating.
05:57And look, this is why when Trump won the election last November and the presumption was,
06:06hey, we're going to get this crypto-friendly administration.
06:09We've seen a lot of nominations and moves.
06:12We've seen that have come out that have been beneficial to the crypto space.
06:17We've seen the United States announce that they're going to have their strategic Bitcoin reserve.
06:22Bit of a disappointment, of course, because they just claimed that they're going to use existing Bitcoin that they own.
06:28They're not right now, at least, purchasing new Bitcoin.
06:32But it's also going on on the state level, which is interesting to note.
06:3728 states have some legislation that's out there.
06:41Yes, there's been some rejections, like from the likes of Utah.
06:44Utah was one of the first states that was really pushing forward this legislation to have Bitcoin as a strategic reserve.
06:51It didn't make it through, so it got rejected.
06:54Why I think that happened, it has to do with the drawdown in the price back in March.
07:00So that's when they were voting on it.
07:01Bitcoin dropped roughly 20%.
07:03It's a lot easier to get this approved if Bitcoin was still making new highs.
07:08When it's pulling back 20%, that probably created some tentativeness.
07:13But the motion is moving through a number of states.
07:17Many have passed either in the House or in the Senate.
07:20And let's just think about this from a supply-demand dynamic.
07:25If states approve, you know, Jenny, I really look at this.
07:29There's three avenues which could reduce supply of Bitcoin in existence.
07:36And that's basically on the government level, either the U.S. government or other countries.
07:41On the state level within the U.S., there's also on the corporate level, corporations.
07:47We know Strategy is a big company that is basically a proxy for Bitcoin.
07:52But if other corporations were to, say, allocate 1% or 2% or 5% instead of holding cash or bonds on their balance sheet, they were to take Bitcoin.
08:01Just think of this from a supply-demand dynamic.
08:05Any of these incremental moves that will reduce the supply of Bitcoin, meaning if states are buying Bitcoin, it's going to take Bitcoin out of supply.
08:16And this also, if you get these approvals, this would also be somewhat of a validation, again, for the industry.
08:25So it's like an incremental validation for that.
08:28Oh, yeah.
08:28And the third factor, of course, is the investor.
08:31If the investor begins to look at their model portfolio and decide that, hey, maybe I'll diversify by getting some cryptocurrency, either Bitcoin or other.
08:40And that would also potentially or at least theoretically reduce the supply.
08:45Going back to Bitcoin, its whole code and thesis is that it is deflationary.
08:52There's only 21 million Bitcoins that will ever be out there.
08:56Maybe 3 or 4 million of them are lost, which is even less supply.
09:00You've got companies like MicroStrategy that are buying Bitcoin.
09:04It doesn't look like they intend to sell any.
09:07So that's taking supply off of the market.
09:10We know that in the Bitcoin code, they have the halving that occurs roughly every four years, meaning the rewards that are paid to the miners are cut in half, meaning they're trying to restrict that supply even more.
09:25So it's all with that intention of being a store of value, limited supply, and the halving gets less every year.
09:33And then if any of these three channels, from corporations to the individual investor to now the government, either be at the state or at the nation level, that has the potential to take supply off there.
09:47So the crypto bulls would say, hey, any incremental move or advancement within this legislation is seen as bullish.
09:55Yeah, and I think such a great point you made about the state level.
09:58I wasn't even thinking about that because, as we know, the Trump administration expected to be a friend to the entire crypto space.
10:04I mean, and it has been so far.
10:06I know that it's been somewhat disappointing, but there's still lots of time left, of course, in his tenure.
10:11So I think that we could expect more favorability there.
10:14And definitely a chart that, from a yearly perspective, looks actually like it's holding up a lot better than tech.
10:19So really great insight, and we so appreciate you breaking down all of Bitcoin and crypto's latest.
10:26So that wraps up this week's edition of Crypto Corner.
10:28Be sure to like and subscribe to Schwab Network's YouTube channel.
10:32I'm Jenny Horn.
10:32Thanks for watching.