November 20, 2024 – Today, we discuss the possibility of the US adding bitcoin to its reserves. This bill called the Bitcoin Act of 2024 was introduced in July of this year and calls for the US Treasury to purchase up to 200,000 bitcoins per year over a 5-year period for a total acquisition of 1 million bitcoins. This is a fascinating development and one that could have significant consequences, not the least of which could be a potential jump in the price of bitcoin should this bill get passed in the months ahead. We’re going to dive into this and much mo re today with Dr. Demelza Hays, Chief Economist at Coin Telegraph as well as a portfolio manager at Zeltner and Co, where they manage $60 million in Bitcoin in assets.
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Mentioned during today's interview:
- All Info - S.4912 - 118th Congress (2023-2024): BITCOIN Act of 2024 | Congress.gov | Library of Congress
- The U.S. Government Is One Step Closer To Holding 1 Million Bitcoins
- The BITCOIN Act Of 2024 'Is A Significant Proposal' — Will It Redefine US Crypto Regulation? - Benzinga
- Lummis Introduces Strategic Bitcoin Reserve Legislation » Senator Cynthia Lummis
Transcript
Cris Sheridan:
Joining us on the show today is the chief economist at Cointelegraph, Demelza Hays. She's also a portfolio manager at Zeltner & Co. Where they manage 60 million in Bitcoin. So, Demelza, I want to get an update from you on first, what we're seeing with bitcoin. Of course, we are going to discuss some really interesting aspects of what's going on in the crypto universe and with bitcoin in particular. On the day that you and I are speaking, bitcoin just hit a new all time high. I'm looking at it's around $94,300. So it's been around that $95,000 range to many people, I'm sure many of our listeners. It's just amazing that it's even gotten this high. And I remember you and I talking about, you know, bitcoin potentially hitting 100,000 at some point. And I mean, we're just a stone throw from that currently. Tell us from your vantage point, you know, what are some of the things that you believe are leading to this big surge that we've seen all the way up to around that 95,000 price level?
Demelza Hays:
So basically, since the election, bitcoin has surged 40%. It's up 140% since the past year. And we've seen a huge momentum behind bitcoin on the heels of Trump's reelection on November 6th. And there's a lot of narrative right now around the House and the Senate both going towards majority Republican. And a lot of those Republicans and people actually both sides, Democrats and Republicans, campaigned on pro crypto, pro bitcoin platforms. So we actually see a lot of members of Congress being very pro crypto. We also see the Trump family being very involved in crypto and doing various different activities. Like for example, Trump spoke at the bitcoin conference this past July in Nashville. And one of his top picks right now for Treasury Secretary Bill Haggerty, a senator from Tennessee, he also spoke at the bitcoin conference. So you have a lot of pro crypto people, including RFK and Elon Musk, who are surrounding Trump. And that's giving a narrative to the whole market that the next four years could, could see some clarity in terms of regulation for this industry and maybe even more than clarity, potentially even going towards support of this industry.
Cris Sheridan:
So it sounds like you have, between Trump, Elon Musk, RFK Jr. And potential treasury secretary pick, this is almost a dream team for the crypto space in terms of potentially crypto friendly regulations moving Forward.
Demelza Hays:
Exactly. We've seen just phenomenal interest in the BlackRock ETF. Last week we had the largest inflow per one day into all the Bitcoin ETFs in the US at over 1.3 billion in one day. It also came out last week that now BlackRock's Bitcoin ETF IBIT is now holding over 33 billion in assets under management, which is larger than BlackRock's Gold ETF, which was holding 32 billion last week. So we've seen phenomenal growth in the BlackRock ETF as well as the other ETFs. And what we can see is that from recent SEC filings, we've seen that Goldman Sachs is actually now the second largest holder of the BlackRock IBIT shares with over 700 million invested in IBIT. So we've seen this phenomenal growing interest. And there's a lot of Talk around Washington D.C. about making the SAB one to one accounting standard to actually get rid of that so that institutional custodians like State street can enter the market. This will be a huge game changer because a lot of traditional legacy funds, they feel more comfortable with the traditional legacy custodians versus Coinbase. And so we, we might see even more institutional adoption. We also know that the FASB accounting standard is changing. It's already changing in December, in a couple of weeks. So this will mean that companies like MicroStrategy that hold Bitcoin, they will be able to show earnings from their Bitcoin each quarter. And so, for example, this will allow MicroStrategy to potentially make the qualifications to be added to the S&P 500, for example. So we see a lot of policies that are improving around crypto already. And this is expected to continue as Trump takes office.
Cris Sheridan:
Yeah, and right after Trump took office, like you noted, we saw a big surge in Bitcoin and that has now led to Bitcoin becoming the 8th largest asset in the world, overtaking silver. So that's a pretty momentous turn of events that we've seen there. And like you noted, I mean, the very crypto friendly regulations that we might see over the next four years certainly provide a big tailwind for further investment by institutions and the retail space. But one big part of this that I'd love to get your thoughts on is this idea of a strategic Bitcoin reserve. What do you know of how this could play out and what it could look like?
Demelza Hays:
Yeah, so I did see Cynthia, Senator Cynthia Loomis from Wyoming. I saw her announce this, this bill at the 2024 Bitcoin conference in Nashville back in July. This is an incredible bill. It basically outlines that the United states would purchase 200,000 bitcoin over each year for five years, growing up to a 1 million bitcoin strategic reserve for the country. And when this was announced, it had. People considered it to be a long shot because at the time Biden had had just dropped out of the race. RFK Jr. Was still running as an independent. Trump was kind of discussing different policies, but he hadn't come out very clearly pro bitcoin yet. But since then, since that talk, we've seen Trump himself. He went to a famous bitcoin pub in New York City. He attempted to buy burgers with bitcoin. He has since mentioned in off comments that he could potentially write off the US's debt of 35 trillion, almost 36 trillion now with, you know, sending a crypto check or sending them some bitcoin. And since then, he's his, he's actually himself. He has launched an ICO. He did an initial coin offering. His son Eric Trump is very involved in crypto as well. And now his media company, Trump Media is in talks with Bakkt, which is a exchange in the United States that is owned by the ICE Group, which also owns the New York Stock Exchange. He's in talks to buy Bakkt from that group. So essentially we see that Trump and the Trump family is increasingly interested in bitcoin and crypto. And now if you look at Poly Market, for example, which is the largest prediction market online, largest prediction market in the world, that the likelihood of this bill getting passed went from 12% up to 38%. So it's around 38%. It's not quite to 50, 50. The hard part is we've got, it's got to pass the House and the Senate and we don't know. And then eventually it has to get approval by the President himself. So we're not sure if this will make it through. There's a lot of wording in the actual bill itself that I think will probably be removed prior, you know, for it to have a chance to actually go through. You know, one of those things was that Cynthia Loomis originally wrote the bill to discuss even potentially selling some of the gold reserves at Fort Knox in order to buy some of these new bitcoin reserves. So there might be, you know, instead of like a replacement of the reserve with gold, it might be more of an augmentation so that there's a coalition formed between the precious metal industries and the bitcoin and crypto lobbyists. So there might be a coalition formed in order to augment the strategic reserve with bitcoin. It's a long shot, but I would not put the probability at zero.
Cris Sheridan:
It's just radical. It's amazing that we're at this point. I remember we were speaking with Trace Mayer back on our show in last decade, talking about how he believed bitcoin was on its way to eventually becoming a reserve asset around the world. That at the time was just, it seemed so far fetched. And yet, I mean, that's what we're talking about now here.
Demelza Hays:
Yes, exactly. So, I mean, if the US did this, Cynthia Loomis originally said that this bill would allow the US to own 5% of the whole supply of bitcoin. But actually there's approximately 5 million bitcoin that are either lost or held within the original wallets by Satoshi Nakamoto. So if they really went through with this, it would be about 8% of Bitcoin's total supply. And we know that at current prices, that would cost about 19 billion per year. So it's not, you know, impossible to do this. We know that without the House and Senate approvals. We know that Trump himself can spend up to 10 billion per year on these purchases with an executive order. We also know that he had, he himself has committed to not selling any of the US Government's current supply of bitcoin that they own. They are one of the largest holders in the world currently.
Cris Sheridan:
The US government is.
Demelza Hays:
Yes, the US government has over 200,000 bitcoins. So.
Cris Sheridan:
And that's, that's because of the confiscated bitcoin from illicit activities. Is that why?
Demelza Hays:
Exactly. So they confiscated bitcoin from Silk Road early on. They also confiscated bitcoin from various different individuals that had businesses where they were able to confiscate the bitcoin. So they have not bought any bitcoin themselves yet. And it is good. You know, it's. It's important to be clear. Trump has said he will not sell those reserves, however, he has. So. But, but he has not yet said he will do the bitcoin strategic reserve yet. I think a lot of this depends on the House and Senate Banking committees. So the House Banking Committee chair is Patrick McHenry, who strongly supports bitcoin and crypto. The Senate Banking Committee, where Cynthia Loomis has a seat, recently lost its chair, who was not re elected. And Cynthia Loomis sits on this banking committee in the Senate with her pro crypto colleague Tim Scott. And we're waiting to kind of see who becomes the next chair of the Senate Banking Committee. So I think that, you know, these two committees are kind of where we need to watch over the next couple weeks to determine the outcome of this bill. But I think in general there's kind of a medium term effect of this and then there's a long term effect of this. In the medium term, you could see other countries jumping in and saying, okay, look, the United States is stacking sats, you know, they're stockpiling bitcoin, so we, we should do the same. We, you know the game. Theoretical consequences of this move could lead to further price appreciation of bitcoin because it is such a scarce asset. That's kind of the medium term. In the long term though, I think that there are some original bitcoin holders that are concerned that the US Government could own such a large percentage of bitcoin supply. Mostly because right now in the next four years, we, we may have a pro bitcoin administration, but we don't know who's going to come after that and who's going to be in control of this asset after that. And so it could be that we do successfully stockpile this asset where we're not sure if that, if that would happen or not. But in the long run, will the next administration sell this asset and make the market crash substantially? It's definitely a possibility. Another possibility that I see is going back to history, just looking historically at how the United States started their own strategic gold reserve and then basically outlawed gold being held in the hands of individuals in the United States. So we could just be repeating the last hundred years, but with a new asset.
Cris Sheridan:
Hmm, that's very interesting. What would that look like in the context of bitcoin?
Demelza Hays:
I would say trying to outlaw self custodial wallets so that individuals cannot hold bitcoin. So for example, if they start, you know, if we go to a bitcoin standard where instead of dollars being backed by gold, which we're not, you know, since 1971, but you know, going back to the original kind of concept of the gold standard, if we switch that to a bitcoin standard and the United States, the new administrations want to print more money than they have bitcoin, they might go down the same path that they did with the gold standard, which was that, you know, eventually they, the, they debase the currency. They, they don't want to make it convertible to bitcoin anymore. They start to outlaw self custodial wallets and ask people to deposit their Bitcoin with the centralized government. And then over time, they lose their Bitcoin reserves as they continue to debase the currency. So I'm not. You know, the beauty of this asset is that it's very hard to confiscate, unlike gold, which, I mean, gold is also not easy to confiscate if you have it in your house and no one knows about it. But if you want to travel with gold, obviously has its, its difficulties there. But it's not out of the realm of possibilities that one day a government could ban Bitcoin. This is still possible. You know, this is still within the realm of possibilities, especially if their ability to spend money and debase the currency is tied to Bitcoin. So I'm wondering if, if this is a, if this is a good thing, you know, in the mean, in the medium term, you know, price could go up in the very long term. Are we repeating history?
Cris Sheridan:
Got it. Yeah. That's not a scenario I've heard before. So. Fascinating idea. And of course, we do need to look like you're saying at history and some of the things that we've seen governments do. Of course, Trump and the team that he's built, including this potential treasury secretary pick, would be very favorable for Bitcoin. But obviously a new administration could come in with a very different philosophy and change a lot of that. So good things to keep in mind. Now in that scenario, though, wouldn't it be very difficult to actually exert a meaningful amount of control over Bitcoin? Because Bitcoin itself is, it's decentralized. I mean, it's built into the Internet itself. You know, I mean, it's, it's peer to peer. It's almost seems like it's, it's censorship proof or it's, it's just resistant to a government takeover of that nature. How would you frame that?
Demelza Hays:
Yeah, so it is decentralized in terms of its governance. And if, you know, all the nodes on the network that, that run the network, I mean, the United States would still have to have hash power in order to do a double spend or anything like that. So I don't think that those types of attacks are likely, especially if the United States has wealth in the asset, because that would hurt the United States very own wealth. I think the concern is they hold 5% and they decide to sell it all kind, you know, kind of like what we saw with Germany back in July when they sold 50,000 bitcoin and the price went down a little bit. You know, as they own more bitcoin, they may be able to make the market temporarily go down if they decide to sell it all under a new administration. But yeah, in general, I mean, it would be up to each, you know, that's why the Satoshi action fund and Dennis Porter, who runs that is now getting protective rights in each state to have the right to self custody wallet, to have the right to mine bitcoin. So he is making sure that the states themselves already have these laws in place. And I think that that would also be the direction that we would want to go in at the federal level to make sure that people have the right to self custodial wallets and that there's no. Because eventually, like, you know, let's say that BlackRock does get, you know, a lot of bitcoiners are happy that the price of bitcoin is going up. But on the other hand, if BlackRock continues to buy up the supply of bitcoin, they could also one day say, okay, we don't like people holding bitcoin in their own wallets. We would rather them buy the bitcoin IBIT ETF because then we can charge management fees. Of course. So there are different interests that have incentives to get rid of self custody. And there's been a lot of rhetoric over the last decade around self custody. You know, a lot of people will say, well, why do you need to have self custody? You know, they'll say like, oh, are you doing something illegal? You know, like it's kind of a dirty thing, self custody for regulators, some regulators. And I think that we need to make sure that that right stays in place. And then I think confiscation will be very difficult. And if it does ever come to that, it would be up to each individual's own decision to be honest and give up any bitcoin. So I don't think it has a high probability of occurring in the same case as gold. But we did see in 1931, we did see people give up their gold for dollars. And then the dollar was substantially debased after the gold was confiscated. So, you know, it has happened.
Cris Sheridan:
Yeah, yeah. Now I want to hearken back to a prior interview that we did with you back in 2017. Now, Bitcoin was trading just under 20,000 at that time and it had seen a massive, massive spike. And there were a lot of comparisons that were being made at the time to bitcoin being similar to the tulip mania. And I know that you wrote about that and were speaking about that and we discussed, you know, some of the comparisons and contrasts again, historically speaking, with the tulip mania and with the price of bitcoin. And at the time, you know, you had drawn some of the parallels that we see, at least in terms of just the massive exponential surge in price, but also made sure to point out the contrast. And one of the key takeaways from that discussion back in 2017 after that big surge was that investors do need to be careful here because that was a massive spike. And spikes of that nature are typically not sustainable. You were still bullish on bitcoin long term, but also telling our audience to be cautious at that point. Where would you say bitcoin is now, since we're looking, you know, right around that 95,000 level. Would you say that it's just gotten overextended, technically speaking, or do you see this as a sustainable advance?
Demelza Hays:
I do see this as a sustainable advance right now. And I think we have another six months to a year of this run. And there's a couple reasons for that. One is that we have to see the outcome of this bitcoin reserve asset discussion, because if it does come to pass and then other governments start to also stockpile Bitcoin, this could sustain another push upwards. Mike Novogratz, the CEO of Galaxy Digital, he g, he gave an estimate of $500,000 per bitcoin if the Strategic Reserve act gets passed.
Cris Sheridan:
I'm sorry, what was his price target that you said?
Demelza Hays:
500,000.
Cris Sheridan:
Wow.
Demelza Hays:
Per Bitcoin if the Strategic Reserve act gets a bill gets passed. And another thing too is that looking at the four year cycle, it's amazing how the pattern in bitcoin's price trajectory really matches the last four times that bitcoin has halved. Because you would think that investors would try to front run this pattern. And so the pattern would always start earlier. The rise would start earlier and then the, the decline would start earlier as investors try to get ahead of other investors. But I think because this asset is still, it has so much uncertainty around it still that investors are still not willing to front run other investors. And so what we see is that bitcoin follows a four year cycle. It has historically and these months, October, November, December, January, these are mostly the best months, historically speaking for bitcoin. And we're in year two of the cycle. So the housing was last year, we have now the second year beginning. And what we're seeing is that we would basically the price would increase through 2025 and then year four would be 2026, when we would, historically, we would see a pullback. So in the fund that I manage at Zeltner and company, our research shows that this price could continue to increase until the middle of next year, in 2025, before we start to see a, a large pullback. And you know, there is a little bit of psychological impact of the big 100k number. So we might see a little bit of a sideways movement now around 100k, but once we get close to that and blast through it, I, I, you know, it's, I think we're going to continue to rise for a couple months. But this is not financial advice, of course.
Cris Sheridan:
Yeah, yeah, absolutely. But again, you know, the, the price target on bitcoin potentially, like you said, this was from Mike Novogratz. If the strategic bitcoin reserve is passed, he believes that bitcoin could reach a high of 500,000. Of course, that would line up with what you're saying with this. The, as the bill is currently written, if I understand things correctly, then the US would be purchasing how many Bitcoin per year?
Demelza Hays:
200,000.
Cris Sheridan:
Wow. Okay, so 200,000 per year. If the bill were to get passed in its current form, obviously it could be a number of alterations to that as the sausage is being made, working its way through Congress. But then again, like you're saying, that could also have a pile on effect where then other countries say, okay, hey, the US Is doing this, we should probably also be doing that as well. So there's a number of things that could come together for much higher prices. Again, we still have to look and see how these things play out. But I think it is fascinating, like you said, Polymarket pricing these things in, in real time based on each development. So that would be a good thing to watch, I would say, moving forward, just in terms of the probability of getting to that point.
Demelza Hays:
Definitely, yeah. And Poly market accurately predicted Trump's election and the bitcoin price towards the last month leading up to the election. All through October, bitcoin's price was almost perfectly correlated with the poly market odds of Trump getting elected. So we might be able to see how the bitcoin price responds to the poly market prediction for the bill getting passed.
Cris Sheridan:
And Demelza, as we've discussed with you in the past, thinking about bitcoin and investments in crypto as part of a diversified portfolio, you've been speaking with us about this for years. Just like you would think with precious metals or any other type of asset, diversifying your assets. Obviously bitcoin has been a stellar performer. So there's no doubt that it's done well for people that do hold it in their portfolios. But do you mind telling us a little bit from your perspective, touching upon some of the benefits in holding bitcoin as part of a diversified asset mix?
Demelza Hays:
Definitely. And going Back to our 2017 talk on tulips, that's kind of one of the, the outcomes that we've seen over the last eight years since we did that talk. And essentially, you know, the tulip mania was kind of a boom and bust cycle. Bitcoin has gone through multiple boom and bust cycles and it, it recovers and it comes back. And that's a big difference with other manias that don't have a long term trajectory is that when they die, they really do go to zero. And in bitcoin's case, it has had some large maximum drawdowns, 40%, 50%, and in the early years, even higher than that. But it always recovers. And there's a lot of talk around is bitcoin a risk on asset or a risk off asset? And a lot of people will say, well, let's say gold is a stable store of value, it's a long term hold, it's a risk off asset. And they'll say bitcoin on the other hand, is a risk on asset. And I think that we're also now seeing that story kind of play out in the statistical evidence from the data. And what we can see is that if a crisis does occur, a global crisis or a macroeconomic crisis, you know, bitcoin is the canary in the mind. It will react very quickly. For example, if a war gets announced or an escalation of a war, Bitcoin will respond immediately. It is traded 24,7 and it will, it will decline in response to that. However, it also recovers quicker. That's the, that's the aspect that I think investors don't remember as much is that bitcoin also recovers and then continues to rise after the, you know, even, even while the crisis is going on. So we've seen Covid, we've seen, you know, the Ukraine war, we've seen the Gaza situation. We've seen multiple situations where bitcoin dropped and then it recovered very quickly and continued to rise. And so I think that that's why it's not exactly a risk on asset because it is also recovering quickly throughout these events that add uncertainty to the market. But in terms of the overall portfolio, you know, some, there's multiple studies and I actually do this study myself every year where I look at a global portfolio with 60% stocks and 40% bonds. And I see what happens if you add 2% Bitcoin, up to 5% of Bitcoin to your portfolio and you can look at the history and I run the data since 2014. So basically that's when Bitcoin was more liquid, it was traded on multiple exchanges. And since 2014 it improves the risk adjusted return of the portfolio to a global 6040 portfolio. And that's mostly because it is uncorrelated with stocks and bonds and other assets that people hold in their portfolios. And what that study also shows, the famous one, was done by Bitwise and it's available to paper online where they do that study. You can also find my study on Cointelegraph on the same topic. And what that study shows is that you want to have a three year horizon. So if you do buy, let's say an Investor buys at 100,000, it's their first time buying Bitcoin and at 100,000 it can't. Bitcoin stops running, it doesn't go up anymore and it starts to go down and it does a 40% pullback down to 60K. The idea is that you want to hold for three years because that'll get you past the peak to trough and it will get you back onto where the cycle has gone back up again. So the idea is that if you look at any historical three year holding period, you could pick any day. So you could say February 1, 2016 up until February 1, 2019, any three year period you had a 100% chance of return over the last decade. If you held Bitcoin, if you only held it for one year, two years, et cetera, it was lower. It was like you only had a 76% chance of a positive return. So it is a very cyclical asset. And I think that it's important for investors to have at least a three to five year outlook and potentially even longer when investing in this asset.
Cris Sheridan:
Yeah, yeah, absolutely. Due to the volatility, you want to have a longer time horizon. Of course, like you said. And again, as I mentioned during this interview, you know, Bitcoin having become now the 8th largest asset given the price performance that it's seeing, even on the day that you and I are speaking, November 20, some headlines saying that it's now actually the seventh largest asset in the world, just trailing behind Amazon at number six. Gold being number one with the largest asset held worldwide at $17 trillion in market cap followed by Nvidia, Apple, Microsoft, Alphabet, Amazon and now Bitcoin in number seven. So boy, if, if Mike Novogratz ends up being correct and we do see Bitcoin being added to a strategic Bitcoin reserve here in the U.S., other countries following suit, if that, you know, upper target that he's given came true. Gosh, I imagine Bitcoin could potentially be rivaling gold at that point in terms of being one of the largest assets held around the world. So fascinating scenario to even think about again. I think we need to be thinking long term. Just as Trace Mayer had said on our show last decade, considering bitcoin on its way to eventually becoming a strategic reserve asset. It seems we're moving in that direction.
Demelza Hays:
Yeah, we'll see how it goes. We know El Salvador has it, we know Bhutan has it. We know that the Swiss national bank is still discussing adding it to their reserves. So we could see in a couple of years, you know, if we talk again, it could be multiple countries have it by then.
Cris Sheridan:
Yeah, yeah, absolutely. That's a more and more realistic scenario. So fascinating things to think about. Very much appreciate you coming on and sharing your analysis and obviously thoughts around this when we think about holding Bitcoin, a diversified portfolio. So a lot of your work in that area. If any of our listeners would like to learn more about what you do, some of the reports, of course you write some really in depth research on bitcoin in the crypto space. What would be some of the best ways that they could get their hands on that?
Demelza Hays:
You can go to Cointelegraph.com and t click on the Research tab and there's a lot of reports there available on different crypto assets. You can also follow me on X @cryptophd and yeah, I'd be happy to continue to come on Financial Sense. Cris, it's always a pleasure to discuss bitcoin with you and I'm really excited that all of the listeners have been able to hear about Bitcoin since very early on through Financial Sense. And I think that that's, you know, we're still early in this industry but I think that it's getting close to a point where we're going to hit that the exponential part of the S curve. And this could grow from just 3% of the population up to 20% of the population within a five year time period. So I think it's an important topic to learn about and make sure you're educated on. And I'm always happy to come and have these conversations with you.
Cris Sheridan:
Well, once again, we've been speaking with Dr. Demelza Hays, the chief economist at Cointelegraph, also portfolio manager at Zeltner and Company. I'm going to have a number of different links that she just mentioned where you can follow more of Demelza's work. And, Demelza, always a pleasure to speak with you. We look forward to having you on the show in the future.
