Yesterday (October 22), Thomas Lee, Co-Founder, Managing Partner, and the Head of Research at independent research boutique Fundstrat Global Advisors, expressed his thoughts on actual Bitcoin usage, institutional interest in Bitcoin, Bakkt vs CME Bitcoin futures, what a Bitcoin ETF means and why it is years away, and why a further drop in the price of Bitcoin might not be a bad thing.
Actual Bitcoin Usage
Lavie started the interview by asking Lee about a tweet he posted on October 19 in response to someone (@YORK780) who had tweeted that “Crypto has had its glory days and the market is slowly bleeding to death & drying up while exchanges, early adopters and devs made all the money”:
It’s possible. Crypto has peaked if there is no room for future adoption (it’s mature).
– we estimate that fewer than 500,000 people worldwide use bitcoin
– is this is good as it gets for decentralized trust and native digital stores of value and payments?
— Thomas Lee (@fundstrat) October 19, 2019
More specifically, she asked Lee if he really believed that were only around 500,000 actively using Bitcoin.
“I think people are overestimating how many people are using and transacting with Bitcoin today. You know, I think there’s estimates as high as 50 million but I think those estimates reflect those who might have been buying Bitcoin in 2017, but have since really abandoned it because the price has fallen. So, I think $500,000 is probably a more realistic number.”
Institutional Interest in Bitcoin
Lavie asked Lee if he saw a future where pension funds will in Bitcoin and why it had not happened already.
“Yeah, I think that cryptocurrencies are ultimately going to be an asset class, but it’s really constrained today and it comes back to the first question you asked me. You know, if there’s only 500,000 users of Bitcoin, the market is just simply too small to matter to institutional investors. It’s gonna matter more when there’s 50 million people using bitcoin every day and from a sort of size of the asset class, the equity markets today are $66 trillion. The bond market is like $86 trillion. Those are the size of markets pension funds are kind of interested in it and private equity is, you know, over $20 trillion. So, when you look at something like Bitcoin, which is $200 billion, it’s simply too small. It’s less than 0.1% of the investable universe and it’s too small today.”
Bakkt vs. CME Bitcoin Futures
Lavie also wanted to know why Bakkt has been such a disappointment (especially since everyone was so excited about what the launch of its physically-settled Bitcoin futures would mean for institutional adoption of Bitcoin).
“I think that Bakkt is a pretty unique product because it involves one day physical delivery of Bitcoin, and for an institution, that’s really only gonna be attractive if you want to actually acquire Bitcoin outright or in the case of using custody, you can you can work with Bakkt, but it’s been easier for institutions to trade Bitcoin through the CME because you still have the option of taking physical delivery of Bitcoin. So, I think Bakkt is really reflecting that the true institutional volume of funds that want to accumulate Bitcoin.
“Now, miners would like to use the Bakkt exchange to actually sell some of their block rewards, but they are primarily doing it through the CME…
“I think Bakkt over time is going to actually gain critical mass and really be one where you start to see stat arb and other strategies employed, but today I wouldn’t call it a disappointment. I think it’s just too early to judge the success of Bakkt.”
During the discussion of crypto regulations, Lee mentioned that he believes that we are “years away” from getting a Bitcoin ETF approved by the U.S. Securities and Exchange Commission (SEC):
“I think… another unpopular opinion is really going to be the creation of an ETF, and I think that’s years away, but to me that is going to probably be the most primary way we’ll see institutions get involved…
“There’s really two reasons we think it’s years away. One is Bitcoin’s size today is too small as an under $200 billion dollar network value, and with block rewards of only five or ten million dollars a day, an ETF is likely to generate close to $13 billion dollars of demand the first year. And that’s a massive demand imbalance to available supply, and so if you were to sort of try to do a equilibrium price required, Bitcoin’s price needs to be about $150,000 to be liquid enough to handle what would it be expected to be an ETF. And the second is, of course, really has to do with the SEC. I don’t think that they want their legacy to be deciding on a Bitcoin ETF. So, I think that the current SEC chairman is really going to keep kicking the can down the road and until either we have a new SEC chairman or the White House itself sort of changes its sort of overarching views around cryptocurrencies.”
Finally, Lavie asked Lee if he could see the Bitcoin price dropping below $8,000 in the coming weeks.
Lee told her:
“What happens the next few months won’t have any bearing on what happens in the next few years, but I think it’s quite possible [for] Bitcoin to weaken further because, you know, investors or holders of Bitcoin are getting quite nervous. So, I think there’s downside that’s possible, but it probably ultimately becomes the buying opportunity that people need in front of the halvening. So, I don’t think it’d be bad if Bitcoin drops… I think people will buy. I think there’s a lot of dry powder on the sidelines, and a lot of people sitting on Tether or dollars are gonna use it to buy some Bitcoin.”
The full video of Yael Lavie’s excellent interview with Tom Lee is available on the BLOCKTV website (and on the BLOCKTV NEWS YouTube channel), and it is definitely worth watching if you have the time (around 25 minutes).