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Bitcoin will be ‘something massive’: Analyst

Yahoo Finance’s Brian Sozzi and Julie Hyman discuss Bitcoin's price action and general market outlook with Craig Erlam, OANDA Market Analyst.

Video Transcript

JULIE HYMAN: Let's bring in Craig Erlam. He's OANDA Market Analyst here. Joining us to talk more about not just crypto but what's going on broadly in the markets. But let's start with crypto, shall we, Craig? The action that you have seen recently, in Bitcoin in particular, what is that telling you? I know-- it feels to me like when it comes to Bitcoin, people pay more attention to technicals. Is that what you're watching as well?

CRAIG ERLAM: Especially when it's in the absence of much news flow. Sometimes it seems that every day there's a new Bitcoin-related headline. Something to talk about, something to get people excited, something to make people more pessimistic. That's not always the case. Sometimes we're kind of clutching at straws, trying to look for reasons to move these markets. But as we've seen so often, the markets move quite happily on their own.

They don't necessarily need headlines. We look at the price action from the last few weeks alone. It looked like we were pushing new lows. It looked like we were just looking at support levels being broken. And there was incredible amount of resilience in the markets, despite the fact that it looked like technical levels had been broken. And once it started to generate some upside, that momentum really kicked into high gear, and all of a sudden, we were breaking $4,000 to $5,000, $48,000, $50,000. And it's just kept going since.

And let's face it, the last few weeks, I don't think there's been any major headlines. Yes, the US has said we're not looking to ban crypto, but they weren't for quite a long period of time. This was just a headline which generated it. Funnily enough, China wanting to ban crypto didn't have the same effect to the downside, partly, again, because it's been quite clear for some time that China's been very anti-crypto.

But these markets do just sometimes have an inkling and do sometimes just have momentum. And when we saw so much resilience at $40,000, it started to become increasingly clear that, if we could break $45,000, then there could be incredible upside momentum, and that's what we've seen.

BRIAN SOZZI: Well, Craig, if cryptos rise or-- well, let's just lock in on Bitcoin. If that move higher has been pushed by not a lot of headlines, does that raise the case or just raise the likelihood that we're due for a correction here in the near term?

CRAIG ERLAM: Eventually. But I mean, you look at the charts, for example, and that's all we really have to go off right now. And there just still seems to be plenty of momentum in the move. You look at some of the shorter-term charts, and potentially we're going to see a little bit of profit taking around $60,000. But that all-time high, it's just-- the temptation around these levels, the idea that we could be seeing Bitcoin breaking into new territory, and the excitement of that generates on its own, I think it's going to be [INAUDIBLE] potentially to see this rally continue.

And as we've seen, when we see new levels being broken, when we see new highs being made, it can have a life of its own and we can start to see some extraordinary movements. But ultimately, as we've seen, this does work two ways. We see-- there, you see Bitcoin smashing record highs, and then you can see it falling 50% over not too long a period of time. So this is part of the excitement of Bitcoin. This is part of the reason why, I think, so many people want to be involved in it.

It's not just a belief system. It's not just they-- I know what Bitcoin is, I know what it can become, I think it's going to be something massive. For some people, I think the excitement is part of what is driving it.

JULIE HYMAN: Definitely, Craig. I'm also curious, you know, we sort of discuss frequently that there's not a regular, consistent correlation between Bitcoin and other assets. However, I do wonder, when you see other assets decline-- for example, if we see a sell-off in equities-- do people then turn to Bitcoin and say, well, I've got to make it up and take some profits in Bitcoin if I'm losing money over here because Bitcoin has been, at least over the past month or so, has been a more successful asset?

CRAIG ERLAM: So, I mean, I think-- I'm a bit of a cynic when it comes to people trying to compare Bitcoin with anything else. I've seen Bitcoin called a risk asset. I've seen it called gold 2.0, a safe haven. I've seen it called an inflation hedge, a deflation hedge, and the list goes on. It seems to be that the environment tends to dictate why people are buying Bitcoin, rather than looking at the reality of the situation.

I think we've got to wait a long time to decide what Bitcoin is and what it's going to be, if anything. I think Bitcoin quite often-- it can move in line with some assets, but you do see those correlations break down quite quickly. And I think people are too busy trying to pigeonhole it to try and-- because they want to compare it to something that almost legitimizes it. If you say it's like gold, it gives it some legitimacy.

I don't think it's like any of those things, personally, and I think we need to kind of-- I personally would prefer if we kind of move away and just start to look at its uniqueness and stop trying to put it into a bracket.

BRIAN SOZZI: Craig, big week for stuff this week. Lots of data. I mean, we have the CPI report coming up. We have bank earnings kicking off tomorrow. What's the trade here?

CRAIG ERLAM: Well, I think these markets are really quite nervy at this point in time. But a word I've already used during this interview when talking about Bitcoin-- we're seeing incredible resilience, the kind of FOMO chasing, the buy the dip mentality that we've seen for such a long period of time, which quite often has been attributed to being central bank backed. But we're still seeing that incredible resistance in the market. We're seeing the word TINA being thrown around, like no alternative. And because we're in such a low-rate environment and because we're seeing-- almost it feels like in a bubbles all over the place, but we are seeing incredible resilience in the markets right now, despite the fact that we're seeing banks pulling back.

We're seeing the Fed talking of tapering in November. The Bank of England raising interest rates before the end of this year, and twice more by next summer. And the list very much goes on. So we're seeing investor nerves tested here. So even though we're seeing this growing list of increasingly important downside risks forming in the markets, we are still seeing the markets hold up very well indeed. And I think this week is going to be really interesting once again. And like you said, we've got those data points. But for me, the key now is those earnings, because if these companies can knock it out the park again this quarter-- and it's not going to be as strong as the last.

But if they can provide reassurance that central banks aren't the only ones who are not overly-concerned about the downside risks at this point-- if companies go out and tell us the same thing-- they tell us that they think these risks are transitory, if they tell us that they are still optimistic about the outlook, that can be the type of thing that gets investors back on board once more. But as I say-- I can't stress this enough-- there are a large number of downside risks for the next couple of months, so I don't think we're necessarily going to be seeing these markets surging high per say.

I do think it is going to be volatile. I do think those jitters are going to remain. And we have to see out the next few months. Because if we see out the next few months with these risks not necessarily materializing as they could, then the bullish case could very much return for these markets. But some of these could materialize, and that could be a downside risk for economic growth.

JULIE HYMAN: Hey, Craig, just real quick. Discuss for us a little bit the downside risk of energy. Because you're there in the UK, where I know the crisis, the energy crisis have been particularly acute there because you can't find enough people to drive the petrol around the country and get it to where it needs to be and the other types of fuel. So how heavily do you think that that is weighing on investor sentiment right now?

CRAIG ERLAM: Yeah. We love a panic buy here in the UK. 12 months ago, it was toilet rolls. This year, it's petrol. I mean, the energy crisis in the UK is very unique. It's more severe than most because we're so reliant on energy coming from Norway, for example. We've seen disruptions to the flows from France, where wind turbines have-- we've seen energy produced from there cut by around 50% because of low winds.

We have low storage limits compared to-- much lower storage limits-- around 2%-- compared to the rest of Europe and others. And this is just a few factors which have really fed into the issues that we have here in the UK and are going to continue to have. And the impact that it's had has been-- I think 12 or 13 energy companies at this point already going bust of the 70 or 80 that there were only six months ago. And I think these issues are going to continue to worsen over the coming months.

We've already seen the government, for example, supporting things like the fertilizer industry in the near term because of the knock-on effects that that can have into the food industry. And I think that's-- I think, all in all, when you look at the impact that this is having now-- there's a lot of talk about the steel industry, for example, because of these energy intensive firms who are now leaning on the government and saying we need additional support, otherwise our operations are going to close and we're going to continue to pass these issues further down the line. The UK and others have a big issue to deal with, with regards to this energy crisis.

And at this moment in time, it's hard to see how it's going to resolve itself. There are a few things that could happen. We need a warmer winter. I think that's one important thing. Nord Stream 2 Pipeline, which is awaiting approval from Russia to Germany-- if that's approved, then that could alleviate some of the medium-term pressures. It won't be fully functional straight away, but that could alleviate some medium-term pressures. So there are a couple of things.

I think OPEC could step things up as well. But I think, ultimately, it's going to be a very testing winter, and we need to hope, on this occasion, for some warm weather, just to ease that pain a little bit.

JULIE HYMAN: Well, I hope that you have plenty of petrol and toilet paper stored up, Craig. Craig Erlam of OANDA. Good to catch up with you. Thanks for the time this morning.