Bitcoin Trading With Stocks Is The Informational Arbitrage Of The Century

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by Joe Consorti
Tuesday, Apr 16, 2024 - 11:00

Originally published to Theya Research — subscribe for free.

Theya is an app for simplified Bitcoin self-custody. With our Modular Multisig solution for self-custody, you decide how to hold your keys.

Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.

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As bitcoin monetizes past its $1.25-trillion size, towards the market cap of gold and eventually surpassing the $25-trillion US Treasury market, its market price will trade in line with its monetary properties rather than the tech-stock adjacent profile assigned to it by traders in its 15-year history.

That's a bold assertion, but it's true. Let me explain.

Escalating hot war tensions between Iran and Israel left traders scrambling for cash in a transient flight to safety bid on Saturday, and bitcoin served as the release valve since it's the largest liquid asset market that trades 24/7. Headlines abounded about the death of bitcoin, a declaration made thousands of times in its short life as an asset, and you'd be forgiven for thinking they were true if you didn't have internet access at the time. Alas, bitcoin only fell 9%, a paltry dip:

Zooming out to a chart of the daily percentage changes in BTC's price, this 9% dip is par for the course during bitcoin's market cycles, even during bull runs. Still, it was the largest 1-day % drop in bitcoin, and opportunistic BTC naysayers took the opportunity to flamboyantly point out that bitcoin will never act like gold if it sells off during risk-off impulses like geopolitical strife and recessionary events:

The BTC naysayers are correct, bitcoin trades like a high-beta risk-on asset, with high sensitivity to risk sentiment and market directionality, akin to Facebook, Apple, Nvidia, and so on. Bitcoin trades like a tech stock. In fact, it is trading more like a tech stock as it grows. Compare the two regressions below. From 2014 to 2019, bitcoin had a raw beta of 0.161 to the S&P 500, and from 2019 to 2024, that raw beta rose to 0.943. Bitcoin is more correlated with the stock market over the last five years than it was during the preceding five:

Bitcoin trades with high sensitivity to the stock market, but its monetary properties should drive it to trade as a risk-off hedge against economic turmoil and the monetary debasement that follows.

Bitcoin's Monetary Properties

  • Limited Supply: Capped at 21 million BTC.
  • Divisible: Each of those 21 million BTC is divisible into 100 million units.
  • Immutable: Transactions on the blockchain cannot be altered.
  • Pseudonymous: User identities are protected.
  • Permissionless: Anyone can participate in the network without approval.
  • Borderless: Can be sent and received anywhere in the world.
  • Decentralized: No central authority controls Bitcoin—all of the above properties are ensured by bitcoin's globally distributed governance.

Bitcoin inarguably offers a better experience as a bearer asset than gold, given its absolute supply inelasticity, near-infinite divisibility, and its digital nature making it salable and portable without any counterparty risk.

Why then does bitcoin trade like a corporate stock certificate, when all of its properties offer a superior bearer instrument and safe-haven asset than even gold? Markets are operating extremely inefficiently.

Bitcoin has no corporation behind it, yet the market is treating it like it has governance, a CEO, a balance sheet with liabilities on it, quarterly earnings, and dividends to pay to investors. It has none of these things. Bitcoin is an asset that isn't someone else's liability, and the only internet-native one with that attribute.

Bitcoin's monetary properties are an absolute certainty, spin up a node and you can verify them for yourself, so its avowedly risk-on correlations are simply a sign that markets are not operating efficiently. Do you know how money is made and preserved in markets? By exploiting gaps between available information and the pricing of assets.

Bitcoin's monetary properties make it the apex asset for risk-off events, yet it trades like an infinitely issuable certificate of ownership of a company. This is the single greatest informational asymmetry in financial markets in the last century.

While gold pushed the $2,400 mark again today, the first trading day after the weekend's geopolitical strife, bitcoin is struggling to regain its footing—a perfect example of how severely mispriced BTC is. For those who watch 5-minute candles and opine about tulips, this tastes like validation. For those who've done the work, this is the opportunity of a lifetime. The apex hedge for monetary debasement goes DOWN in value on the cusp of potential massive monetary debasement; you'd be hard-pressed to find a bigger pricing discrepancy in markets today. With a 20x multiple to global M2 expansion and contraction, BTC is the apex asset for insulating yourself from the unsustainable monetary and fiscal path that not just the US government, but all world governments and central banks face:

For the skeptics, I'd encourage you to zoom out from the 5-minute candles, they may be giving you a headache. Gold is down 14.3% over the last decade adjusted for US M2 money supply. In the words of Sam Callahan, if you close your eyes and throw a dart at a calendar of the last 10 years, there's a ~90% chance bitcoin has outperformed gold since that date. Instant, verifiable, global final settlement is beating out slow, semi-verifiable, territory-restricted final settlement:

As for bitcoin's tight sensitivity to risk, I expect this to wane as the depth of its liquidity approaches and surpasses the two most popular risk-off markets, gold at $16 trillion and US Treasuries at $25 trillion. Bitcoin has grown more correlated with risk as it has grown from a microcap tech stock to a top-10 global asset, and it will shake it entirely as it monetizes towards and beyond the largest risk-off assets in the world. Only time will tell here, but I've got the conviction to attach my name to these bold assertions and live by them. The deteriorating reality of the global fractional credit-based monetary order has become too dire to keep to myself.

Bitcoin's price behavior is already beginning to mature beyond tech-stock adjacent, maturing and differentiating itself from "crypto" in real time. This is the first bull market where ETH hasn't outperformed BTC. ETH/BTC, or what I like to call the "crypto" EKG, is the pairing between bitcoin and Ethereum, the largest of the "crypto" securities, and a helpful barometer for BTC dominance. In every bull market, the comparatively smaller ETH has outperformed bitcoin, except for this one. This is the first cycle where ETH is not rising relative to BTC, and ETH/BTC is now below the key 0.05 level. Life support. Markets are getting more efficient:

Final thought: don't be the last one to figure it out.

Take it easy,

Joe Consorti

Theya is an app for simplified Bitcoin self-custody. With our Modular Multisig solution for self-custody, you decide how to hold your keys.

Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.

Download Theya on the App Store and secure your bitcoin with ease.

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